Estate of Leon Israel, Jr., Deceased, Barry W. Gray, Executor, and Audrey H. Israel - Page 19

           investor "closes out" or "locks in" the gain or loss by way of                             
           offset, by way of cancellation and replacement contracts, or by                            
           way of cancellation and termination, the transaction is exactly                            
           the same -- in purpose, in effect, and in substance -- and                                 
           produces exactly the same type of taxable gain or loss -- in the                           
           instant cases capital gain or capital loss.                                                
                 As the U.S. Court of Appeals for the Fifth Circuit stated,                           
           implicit in the realization or "lock in" of the gain or loss                               
           associated with straddle transactions or with legs thereof                                 
           (whether the lock in is effected by way of offset, cancellation                            
           and replacement, or cancellation and termination) is the                                   
           agreement and understanding that actual purchases and sales have                           
           occurred with respect to the price-differential and interest-                              
           sensitive risk for T-Bonds and GNMA’s that each party accepted                             
           when the commodity straddle transaction was first entered into.                            
           In each case, the investor assumed the risk of swings in the                               
           price of such Government securities for whatever time each leg of                          
           the contract was outstanding.                                                              
                 Regardless of when and how a loss position in a commodity                            
           forward contract is extinguished, closed, settled, terminated, or                          
           canceled, at any one point in time during the length or duration                           
           of the contract, the investor in fact has participated in exactly                          
           the transaction for which the investor contracted from the time                            
           the transaction was first entered into until the day the investor                          
           chooses to close or terminate that leg.  The investor got exactly                          

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Last modified: May 25, 2011