36
that the transactions in question were bona fide, had economic
substance, and were entered into for profit--all of which only go
to the economics of the amount of gain or loss--to recognize the
also inescapable facts that Holly and AGS were related parties
with no adverse interests insofar as the treatment of the closing
transactions as offsets or cancellations was concerned. The
custom or usage of the trade among dealers and traders in forward
contracts and the underlying commodities, which Holly and AGS
arbitrarily ignored, is that true cancellations are only employed
to correct mistakes, not to close out forward contracts entered
into and disposed of in the ordinary course of business.1 See
Brown v. Commissioner, 85 T.C. 968, 994 (1985), affd. sub nom.
Sochin v. Commissioner, 843 F.2d 351 (9th Cir. 1998); Stoller v.
Commissioner, T.C. Memo. 1990-659, 60 T.C.M. (CCH) 1554, 1566,
1990 T.C.M. (P-H) par. 90,659, at 3220-90; majority op. p. 10.
1Another fact, shown in the stipulated record, that points up the
arbitrary treatment of the transactions between Holly and AGS,
insofar as the choice of tax consequences was concerned, is that,
in the case of offsetting transactions, Holly and AGS agreed to
recognize both gains and losses as of the trade date of the
offset. This would seem to be contradicted by the fact that both
contracts remain in existence, and a net profit or loss is locked
in, but remains unrealized until the settlement date when the
securities are deemed delivered and received pursuant to both
contracts, and the net profit or loss debited or credited to the
trader's account. I don't understand how agreement of the
parties could change the tax consequences. If such an agreement
were efficacious, the validity of short sales against the box in
not only locking in gain but also postponing realization would
seem to be thrown into doubt.
Page: Previous 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 NextLast modified: May 25, 2011