Herman N. and Veronica Welter - Page 6

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                    property * * * that is held or to be held by the                  
                    taxpayer; or                                                      
                         (2) To reduce risk of interest rate or price                 
                    changes or currency fluctuations with respect to                  
                    borrowings made or to be made, or ordinary                        
                    obligations incurred or to be incurred, by the                    
               C.  Discussion                                                         
               At trial, Mr. Welter testified that he engaged in                      
          commodities trading primarily “to reduce the risk from the grain            
          that we have to buy.”  However, petitioners stipulated that they            
          did not produce any commodities during the years at issue and the           
          corporations conducted all of the farming operations in question.           
          Essentially, petitioners contend that they and the corporations             
          should be treated as a single economic unit for purposes of                 
          applying former section 1.1221-2(b).                                        
               Unfortunately for petitioners, their position is undercut              
          both by the language of former section 1.1221-2(b) and by long-             
          standing principles of Federal income taxation.  Former section             
          1.1221-2(b) clearly contemplates that, in order for a transaction           
          to qualify as a hedging transaction, the taxpayer entering into             
          the transaction and the taxpayer whose risk is thereby hedged               
          must be one and the same.  Furthermore, it is axiomatic that:               
          (1) Absent extraordinary circumstances, a corporation’s business            
          is not attributable to its shareholders for tax purposes, see               
          Burnet v. Clark, 287 U.S. 410 (1932), and (2) a person who                  
          chooses the corporate form to conduct his business activities may           

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