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in which the other party is the seller and the clearing
organization is the buyer.
Trading in RFCs for a specific commodity and delivery month
continues until the day of the month set by the exchange on which
trading in contracts for that delivery month stops. Thereafter,
delivery of the commodity is made by holders of open short RFCs
to holders of open long RFCs on the matched-up basis established
by the clearing organization.
Up until the date trading stops, the holders of both long and
short RFCs can close out their contracts without making or taking
delivery of the commodity by entering into inverse purchase or
sale contracts on the exchange. Thus, the holder of a long RFC
can eliminate the risk of, or “offset”, his obligation to
purchase and pay for the commodity by acquiring from another the
promise to purchase and pay for the same commodity on the same
exchange for the same delivery month, that is, by entering into
an inverse, short RFC. Such a transaction has been held to meet
the Code requirement of a “sale or exchange”, which can give rise
to capital gain or loss, on the ground that a “fictional”
delivery is made on the offsetting inverse, short RFC with the
commodity “acquired” under the long RFC. Commissioner v.
Covington, 120 F.2d 768, 770, 772 (5th Cir. 1941), affg. in part
and revg. in part 42 B.T.A. 601 (1940). The holder of a short
RFC can, likewise, offset his obligation to sell the commodity at
the agreed price by acquiring from another a commitment to sell
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