42
unrealized gain or loss in a forward contract by entering into an
inverse contract to buy or sell the same commodity for delivery
on the same date (the settlement date), but at the then current
market price for delivery on such date. In Hoover Co. v.
Commissioner, 72 T.C. 206, 249-250 (1979), we described the
consequence of entering into offsetting forward contracts.
Finally, we note that the most common method of settling
a forward sale contract has traditionally been to enter into a
purchase contract and to offset the contractual obligations to
sell and purchase. Meade v. Commissioner, T.C. Memo. 1973-46;
Muldrow v. Commissioner, 38 T.C. 907, 910 (1962); Sicanoff
Vegetable Oil Corp. v. Commissioner, 27 T.C. 1056, 1059, 1063
(1957), revd. 251 F.2d 764 (7th Cir. 1958). Offset of the
contractual obligations by the seller has been held to be
delivery under the sale contract (Chicago Bd. of Trade v.
Christie Grain & Stock Co., 198 U.S. 236, 248 (1905); Lyons
Milling Co. v. Goffe & Carkener, Inc., 46 F.2d 241, 247 (10th
Cir. 1931)), satisfying the sale or exchange requirement on
the date the contract is settled. See Covington v.
Commissioner, 42 B.T.A. 601 (1940), affd. in part 120 F.2d
768 (5th Cir. 1941), cert. denied 315 U.S. 822 (1942).
There is, thus, an important distinction between the operation
of offset in the contexts of RFCs and forward contracts. By
exchange rules, offsetting RFCs cancel and are terminated on the
offset date, with a money settlement then for any difference in
values. Offsetting forward contracts, being privately
negotiated, do not automatically cancel and terminate on the
offset date but, unless the parties agree to the contrary,
coexist until the settlement date, when both contracts are deemed
to have been executed, with delivery taken (on the long contract)
and delivery made (on the short contract). Although not
perfectly clear on that point, Hoover suggests that, unless the
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