41
and deliver the same commodity on the same exchange for the same
delivery month, that is, by entering into an inverse, long RFC.
The commodity to be delivered under the long RFC is deemed
received and used to satisfy the delivery obligation under the
short RFC, thus satisfying the sale or exchange requirement
necessary for capital gain or loss treatment. Id. The special
short sale rules of section 1233 are applicable to RFCs. Unless
certain exceptions apply, the gain or loss is capital. Sec.
1233(a).
It appears that, under the usual exchange rules applicable to
RFCs, the offsetting contracts, which are both with the exchange,
immediately cancel and are terminated, with a money settlement
for the difference in value. Commissioner v. Covington, supra at
769. Gain or loss is, thus, realized on that (the offset) date.
B. Forward Contracts
A forward contract is also an executory agreement calling for
future delivery of a commodity. Forward contracts, however, are
privately negotiated; they are not traded on commodity exchanges
or subject to the rules of any board of trade. If the parties to
any particular forward contract agree, the contract can be
canceled before the delivery date. Normally, any unrealized gain
or loss in the contract would then be accounted for because the
party on the profitable end of the contract would demand payment
for giving up a valuable right. The character of that gain or
loss is the question in this case. A party may fix the amount of
Page: Previous 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 NextLast modified: May 25, 2011