- 5 - within the meaning of 26 C.F.R. section 1.1221-2 (1996) (former section 1.1221-2). Respondent contends, among other things, that Mr. Welter’s commodities trading activity is not described in former section 1.1221-2. B. Law The term “capital asset” includes all classes of property not specifically excluded by section 1221. Sec. 1.1221-1(a), Income Tax Regs. Section 1221, as in effect during the years at issue, did not contain a specific exclusion relating to hedging transactions. However, former section 1.1221-2(a)(1) provided that, notwithstanding section 1.1221-1(a), Income Tax Regs., the term “capital asset” does not include property that is part of a hedging transaction.2 Former section 1.1221-2(b) defined the term “hedging transaction” as follows:3 (b) Hedging transaction defined. A hedging transaction is a transaction that a taxpayer enters into in the normal course of the taxpayer’s trade or business primarily – (1) To reduce risk of price changes or currency fluctuations with respect to ordinary 2 That regulatory exclusion was codified in 1999. See sec. 1221(a)(7) and (b)(2), added by the Ticket to Work and Work Incentives Improvement Act of 1999, Pub. L. 106-170, sec. 532(a)(3), 113 Stat. 1928. 3 Former sec. 1.1221-2(g)(2)(i) provided that, in the case of transactions entered into prior to Oct. 1, 1994, taxpayers could rely on the rules of sec. 1.1221-2T, Temporary Income Tax Regs., 58 Fed. Reg. 54037 (Oct. 20, 1993) (former sec. 1.1221- 2T). The definitions of “hedging transaction” in former sec. 1.1221-2(b) and former sec. 1.1221-2T(b)(1), respectively, are substantially identical.Page: Previous 1 2 3 4 5 6 7 8 9 Next
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