46
contract of the offsetting pair on the settlement date or on any
earlier date that the parties consummate a cash settlement. That
suggestion as to timing, however, is thrown into doubt by the
majority. There seems to be no disagreement, however, that the
gain or loss is realized from a sale or exchange. The second
step in the switch would be exactly the same as if the switch
were initiated by canceling the to-be-switched-leg, i.e.,
entering into a replacement contract.
E. Canceling Both Legs
The majority has not made clear that what it has called the
Third Contract, see majority op. p. 5 (the November 25th group),
involved straddles consisting of contracts that were all closed
by cancellation on the same date. There was no switch of any leg
and, consequently, no continuing straddle investment after the
cancellations, all of which took place on November 25, 1980.
III. Majority’s Theory of Equivalence
I believe that the key to understanding the majority’s error is
contained in the following sentence:
Whenever the investor (during the length or duration of the
forward contracts that have been purchased) elects to settle,
close out, extinguish, or cancel the contracts or positions,
or one of the legs thereof, and to realize the gain or loss
associated with the contracts, or with one of the legs
thereof, and regardless of whether the 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. [Majority op.
pp. 18-19; emphasis added.]
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