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gain or loss should be treated as patronage income.
Petitioner asks the Court to reject the per se rule
espoused by respondent under which capital gains and losses
are always classified as nonpatronage. In the event that
the Court adopts a per se rule for capital gains and
losses, petitioner argues that the gains and losses from
its disposition of the stock of Terra, Seaway, and Mex-Am
are not subject to such rule because they are ordinary
gains and losses “under the long-standing case law
principles relating to ‘source of supply’, noncapital asset
‘surrogacy’ and ‘hedging’.” Similarly, petitioner argues
that the gains from the disposition of the section 1231
assets, are “‘noncapital’ assets by statutory definition
(under section 1221(2))” and are not subject to
respondent's per se rule. Finally, petitioner argues that
even if the gains from the sale of Terra stock and the
section 1231 assets are classified as nonpatronage income,
such income can nevertheless be offset by petitioner's
patronage losses which were true operating losses.
Respondent argues that all of the gains and losses
at issue in this case are capital in nature and must be
automatically classified as nonpatronage under the per se
rule prescribed by section 1.1382-3(c)(2), Income Tax Regs.
Alternatively, respondent argues that even if the Court
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