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through those accounts after the incorporation, without
transferring the accounts to the corporations. Petitioners
represented to respondent that they continued to maintain the
brokerage accounts in Mr. Welter’s name after the incorporation
as a matter of convenience and to avoid additional filing and
account maintenance fees and expenses. During the years at
issue, Mr. Welter’s commodities trading activity consisted
primarily of futures transactions in soybeans, oats, and corn.
On their Federal income tax returns for the years at issue,
petitioners reported the following amounts as gain or loss from
Mr. Welter’s commodities trading activity:
Year Gain (Loss)
1994 ($189,164.00)
1995 33,248.07
1996 (142,345.30)
In each instance, petitioners treated the gain or loss as
ordinary income or loss. In the notice of deficiency, respondent
recharacterized such amounts as capital gain or loss, as
applicable.
OPINION
I. Commodities Trading Activity
A. Arguments of the Parties
Petitioners claim ordinary income and loss treatment with
respect to Mr. Welter’s commodities trading activity on the
ground that such activity consisted of hedging transactions
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