Estate of Leon Israel, Jr., Deceased, Barry W. Gray, Executor, and Audrey H. Israel - Page 17

                  them as capital transactions thus presupposing a "sale or                           
                  exchange," and have never questioned our [Commissioner v.]                          
                  Covington, [supra] or Battelle [v. Commissioner, 47 B.T.A.                          
                  117 (1942)] cases in which we found a "sale or exchange" in                         
                  the "netting" or "offsetting" mechanism of the commodity                            
                  exchanges. * * *                                                                    

            We went on in Vickers v. Commissioner, supra at 409, to explain                           

                  In the landmark Corn Products [Refining Co. v. Commissioner,                        
                  350 U.S. 46 (1955)] case in 1955, the Supreme Court even                            
                  then was facing a consistent 20-year practice by respondent                         
                  and the lower courts, whereby speculative transactions in                           
                  commodity futures received capital treatment * * *.  The                            
                  Supreme Court cited our Battelle [v. Commissioner, supra,]                          
                  case as part of that consistent practice.  350 U.S. at 53                           
                  n.8.  Moreover, the Congress, too, has assumed that gains                           
                  and losses from speculative commodity futures transactions                          
                  are capital in nature as shown by the 1950 legislative                              
                  history of the predecessor of section 1233 dealing with                             
                  short sales of property and by the legislative history of                           
                  the recent legislation dealing with commodity futures and                           
                  eliminating certain abusive practices involving commodity                           
                  tax straddles.  [Fn. refs. omitted.]                                                

                  In Commissioner v. Covington, supra at 769-770, an early                            
            opinion of the Court of Appeals for the Fifth Circuit, involving                          
            a taxpayer's losses from commodity futures contracts, the                                 
            fundamentals of such transactions, from a tax standpoint, were                            
            explained, and it was concluded that such transactions in essence                         
            constitute sales or exchanges, as follows:                                                

                  [The taxpayer argues that the investor] doesn't, by its                             
                  dealing, become the owner of any property, it merely enters                         
                  into executory contracts which are executed, not by transfer                        
                  of property, but by closing them out at a profit or loss,                           
                  under the rules of the exchange, without a sale or exchange                         
                  of property being involved.  * * * [T]he clearing house of                          

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