Estate of Leon Israel, Jr., Deceased, Barry W. Gray, Executor, and Audrey H. Israel - Page 18

                  the exchange to which all contracts are transferred,                                
                  extinguish[es] offsetting contracts and makes a money                               
                  settlement of the price difference.  There is then neither                          
                  the sale nor exchange of the commodity or of the contract.                          
                  There is only the extinguishment of a contract to buy and a                         
                  contract to sell, and a money settlement for the price                              
                  difference.  This, says the * * * [taxpayer], is not a                              
                  selling or buying of property.  Speaking plainly [the                               
                  taxpayer argues], it is simply an arrangement or device by                          
                  which gains or losses are chalked up and settled for,                               
                  between speculators who have taken opposite positions in a                          
                  rising and falling market.                                                          

                     It is difficult to see how, if * * * [the taxpayer] is                           
                  right in this naive reduction to fundamentals, of the                               
                  transactions in which it has been engaged, its activities                           
                  can be distinguished from mere wagering or to be equally                            
                  naive, betting or gambling.  But they are so distinguished                          
                  in law and in business contemplation, and they are so                               
                  distinguished, because implicit in the transactions is the                          
                  agreement and understanding that actual purchases and sales,                        
                  and not mere wagering transactions, are being carried on.                           
                  [Commissioner v. Covington, 120 F.2d at 769-770; emphasis                           

                  We believe the above statement from this early opinion is                           
            apropos to the facts of the transactions before us in this case                           
            and succinctly distills the essence of what is going on --                                
            namely, the "purchase and sale" of forward contracts or                                   
            "positions" in a particular market (in this case the market for                           
            interest-sensitive Government securities).  Whenever the investor                         
            (during the length or duration of the forward contracts that have                         
            been purchased) elects to settle, close out, extinguish, or                               
            cancel the contracts or positions, or one of the legs thereof,                            
            and to realize the gain or loss associated with the contracts, or                         
            with one of the legs thereof, and regardless of whether the                               

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