51
straddle transactions: “The last thing the investors would have
wanted -- upon the `cancellations' in question -- is to vanish or
disappear from the rest of these straddle transactions, the
consequence of which is that the investors might actually have
had a real loss to pay.” Id.
By juxtaposing cases involving “unexpected and true
cancellations” of “regular commercial contracts for the provision
of goods or services” (true cancellations) with the forward
contract cancellations in issue, the majority purports to discern
a fundamental difference that distinguishes true cancellations
and explains the capital loss treatment appropriate for the
contracts in issue. Id. at 23-24. The majority rejects true
cancellation treatment for the contracts in issue by invoking
what it considers Judge Friendly's “substance and reality”
analysis in Commissioner v. Ferrer, 304 F.2d 125 (2d Cir. 1962),
revg. and remanding 35 T.C. 617 (1961). Believing that the
“situation” here is the same as in the Ferrer case, the majority
slaps together the whole of the partnership's straddle activities
into a unitary endeavor that justifies disregarding (partially)
each individual step.
I believe that the majority has failed to appreciate the
significance of Judge Friendly's analysis in the Ferrer case and,
therefore, may not seek its blessing. In that case, involving
the purported termination of certain dramatic production contract
rights, Judge Friendly stated:
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