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
added.]
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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