Legal Document

350 U.S. 46 76 Supreme Court Reporter 20 100 L.Ed. 29 CORN PRODUCTS REFINING COMPANY, Petitioner,v.COMMISSIONER OF INTERNAL REVENUE. Number 20. Argued Oct. 18, 1955. Decided Nov. 7, Rehearing Denied Jan. 9, 1956. See 943, 297. Messrs. Jay O. Kramer, and Samuel Atlantic McCain, New York City, for petitioner. Mr. Charles K. Rice, Washington, D.C., respondent. Justice CLARK delivered the opinion of Court. 1 This case concerns tax treatment to be accorded certain transactions in commodity futures.1 In Tax Court, petitioner Corn Products Refining Company contended that its purchases sales corn futures 1940 1942 were capital-asset under § 117(a) Internal Revenue Code 1939, 26 United States Annotated KF65 U5 117(a). It further came within 'wash sales' provisions 118. The claim was disposed on ground 118 did not apply, but year both Appeals Second Circuit, 215 Federal Reporter, 2nd Series 513, held capital assets 117. We granted certiorari, 348 911, 75 298,2 because an asserted conflict with holdings Courts Third, Fifth, Sixth Circuits.3 Since we hold these do constitute petitioner's hands, reach issue whether sales.' Petitioner is a nationally known manufacturer products made from grain corn. manufactures starch, syrup, sugar, their byproducts, feeds oil. Its average yearly grind raw during period 1937 through varied thirty-five sixty million bushels. Most sold contracts requiring shipment thirty days at set price or market date delivery, whichever lower. permitted cancellation such contracts, experience it could calculate some accuracy future orders would remain firm. While also few customers long-term involving substantial orders, had little effect transactons here involved.4 2 1934 again 1936 droughts belt caused sharp increase spot With storage capacity only 2,300,000 bushels corn, bare three weeks' supply, found itself unable buy which permit refined cerealose, compete successfully cane beet sugar. To avoid recurrence this situation, petitioner, 1937, began establish long position 'as part buying program' most economical method obtaining adequate supply corn' without entailing expenditure large sums additional facilities. At harvest time each when appeared favorable. take delivery as necessary manufacturing operations sell remainder early summer if no shortage imminent. If shortages appeared, however, bought grinding.5 manner reached balanced reference any prices. effort protect against decline 3 netted profit $680,587.39 futures, suffered loss $109,969.38. computing liability reported figures ordinary respective years. now contends 'capital assets' 117 gains losses therefrom should have been treated arising sale asset.6 support claims trading separate apart acting 'legitimate capitalist'. versus Coffee & Sugar Exchange, 263 611, 619, 44 225, 227, 68 475. denies 'hedges' 'speculative' dealings covered by ruling General Counsel's Memorandum 17322, XV—2 Cum.Bull. 151, truth 'the forgotten man' administrative interpretation. 4 Both integral business designed principal material assure ready requirements. does level direct attack two-court findings insists 'property' entitled distinct business. cannot agree. 5 find nothing record contention Products' activity operation. On contrary, apears vitally important company's form insurance increases Not initiated just reason, policy, selling fixed less, continued leave exceedingly vulnerable rises Further, purchase assured company source admittedly cheaper than constructing facilities Under facts difficult imagine program more closely geared enterprise successful 6 Likewise dealing capitalist' lacks record. There can quarrel manufacturer's desire increasing costs materials. Transactions provide protection are considered legitimate insurance. page 227; Browne Thorn, 260 137, 139—140, 43 36, 37, 67 171. However, labeling exercising 'good judgment' market, ignores testimony own officers entering 'trying (its) costs'; entry purpose 'speculating futures' fill actual 'need quantity (bought) * order cover what (products) expected over fifteen eighteen months.' matters label 'speculator'; talk investor far-sighted manufacturer. For purposes 'constitute business' Appeals, essentially factual questions two courts ordinarily disturbed. Comstock Group Institutional Investors, 335 211, 214, S.T. 1454, 1456, 92 1911. 7 makes much conclusion 'true hedging.' true secure complete operations. policy guard fall clear, feared possibility rise decline. therefore purchased partial risk, hoped retain sufficient flexibility serious declining market. 8 Nor hedging exclusions Admittedly, come literal language out section. They stock trade, inventory, property depreciable used trade But provision must so broadly applied defeat rather Congress. Burnet Harmel, 287 103, 108, 53 74, 76, 77 199. Congress intended profits everyday operation income gain loss. preferential provided applies normal income. 'to relieve taxpayer excessive burdens resulting conversion investments, remove deterrent those conversions.' 106, 75. section exception requirements Code, definition asset narrowly interpreted broadly. effectuate basic congressional purpose. has always construed term Hort Commissioner, 313 28, 31, 61 757, 758, 85 1168; Kieselbach 317 399, 403, 63 303, 305, 87 358. 9 problem appropriate first arose revision.7 Thereafter Treasury issued G.C.M. supra, distinguishing speculative transactions. regarded losses. interpretation outlined memorandum consistently followed well Commissioner.8 passed validity, recognized years; change though re-enacted subsequent occasions. bespeaks approval. Helvering Winmill, 305 79, 83, 59 45, 46, 83 52. Furthermore, since specifically consideration short-sale rule 1233(a) 1954 1233(a).9 10 believe statute clearly refutes Products. Moreover, significant note practical considerations lead same conclusion. otherwise engaged transmute into will. hedger may either contract itself. created transaction while not, loophole frustrated. 11 judgment affirmed. 12 Affirmed. 13 HARLAN took decision case. A amount price. involved present case, terms multiple five thousand eleven months less after contract. Cf. Hoffman, Future Trading (1932), grant limited following questions: '1. Are hedges' thus subject limitations Section give deductions? '2. 'securities' 1939?' Makransky's Estate Cir., 154 59; Commissioner Farmers Ginners Cotton Oil Co., 120 772; Trenton 147 33. consumers furnish, ten years more, quantities starch feed. January 1940, 2,000,000 bags corp several future. Also, members canning industry Pacific Coast sugar days. dispositions dispute follows: Sales Delivery 1938........... 17,400. 4,975 1939........... 14,180. 2,865 1940........... 14,595. 250 1941........... 2,545. 2,175 1942........... 5,695. 4,460 '(1) Capital assets. means proprty (whether connected his business), include other kind properly included inventory hand close taxable year, primarily course business, property, character allowance depreciation 23(1), *.' 208(8) Act 1924, U.S.C.A.Int.Rev.Acts, 13, retained until 1934, 659 et seq. rules various exchanges required closed periods shorter years, qualify Stewart Silk Corporation Reports KF6280 A2 U55 174; Battelle 47 B.T.A. 117; Grote 41 247. Makransky 397, 412, affirmed per curiam, 33, 35; 772, 774; Tennessee Egg 558, 560; 18383, 1937—2 244, 245; I.T. 3137, 164, 166. Banfield, 122 1017, 1019—1020; 18658, 77. provides short futures,' shall extent 'that including future, constitutes hands taxpayer.' legislative history recognizes explicitly exception. H.R.Rep. 1337, 83d Cong., 2d Sess., Page A278; S.Rep. 1622, 437: 'Under existing law bona fide result based upon regulations. continue excepted subsection.'

Classification Label: 11