Court Opinion

ID: 9639488
Source: CourtListenerOpinion
Date Created: 2023-08-22 16:20:09.552983+00
Date Added: 2024-06-11T18:10:19.140195
License: Public Domain

HOLMES, Circuit Judge
(concurring).
There is no evidence that these were wagering contracts or gambling transactions, and the presumption is that they were not. There is no claim that they were hedges.
Conceding, arguendo, that the taxpayer merely entered into executory contracts, on margins, for the delivery of commodities at a future date which were terminated before the time therein named for delivery, such contracts were intangible property which arc deemed to have a value the instant they are made; their subsequent value or lack of value depends upon the market price of the commodity at the time of valuation. These contracts are capable of ownership and of being transferred by act of the parties or by operation of law. They are capital assets within the meaning of Sec. 117 (b) and (d) of the Revenue Act of 1936; but a trader in commodities, on exchanges,' does something more (and the taxpayer herein did more) than merely enter into executory contracts.
This record shows that all of these transactions involved futures contracts executed on exchanges governed by rules which are substantially in accord. In many cases, such contracts culminate in the delivery of the actual commodity, but for the most part those who sell on such exchanges subsequently buy an equal quantity of the same commodity for delivery in the same month in which they sold, making their offsetting purchases before the delivery month is reached. Their sales offset their previous purchases, and the need for actual delivery is avoided by accounting methods employed in exchange clearing houses, just as banks, which are clearing-house members, avoid the needless use of actual money in their daily settlements with each other. All of the contracts of this taxpayer were terminated in this manner without deliveries of the actual commodities, but the trading was in the commodity itself.
Transactions in commodity futures are commonly spoken of as purchases and sales of a specific commodity such as corn, wheat, or cotton, but the traders really acquire rights to the specific commodity rather than the commodity itself. These rights are intangible property which may appreciate or depreciate in value. They are capital assets held by the taxpayer (whether or not connected with his trade or business), but, unless they are hedges (which are in a class by themselves), they cannot be regarded as stock in trade or other property of a kind which would properly be included in the inventories of the taxpayer if on hand at the close of the taxable year. Neither are they property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. *772In Lyons Milling Co. v. Goffe & Carkener, 10 Cir., 46 F.2d 241, page 247, 83 A.L.R. 501, the court said: “A set-off is a method by which a contract to purchase is set off against a contract to sell without the formality of an exchange of warehouse receipts or other actual delivery and, in legal effect, is a delivery.”
In Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236, page 248, 25 S.Ct. 637, page 638, 49 L.Ed. 1031, the court said: “We must suppose that from the beginning, as now, if a member had a contract with another member to buy a certain amount of wheat at a certain time, and another to sell the same amount at the same time, it would be deemed unnecessary to exchange warehouse receipts. We must suppose that then as now, a settlement would be made by the payment of differences, after, the analogy of a clearing house. This naturally would take place no less that the contracts.were made in good faith, for actual delivery, since the result of actual delivery would be to leave the parties just where they were before. Set-off has all the effects of delivery.”
In United States v. New York Coffee & Sugar Exchange, 263 U.S. 611, 619, 44 S.Ct. 225, 227, 68 L.Ed. 475, the court said: “Those who deal in ‘futures’ are divided into three classes: First, those who use them to hedge, i. e., to insure themselves against loss by unfavorable changes in price at the time of actual delivery of what they have to sell or buy in their business; second, legitimate capitalists, who, exercising their judgment as to the conditions, purchase or sell for future delivery with a view to profit based on the law of supply and demand; and, third, gamblers or irresponsible speculators, who buy or sell as upon the turn of a card.”
As we have observed, there is no claim here that these contracts were hedges, and the presumption is that they were not wagering contracts.1 The taxpayer, therefore, should be classified with those “legitimate capitalists, who, exercising their judgment as to the conditions, purchase or sell for future delivery with a view to profit based on the law of supply and demand.”
For purposes of taxation it is immaterial whether this taxpayer was a trader in the actual commodities or in rights to the commodities. In either event his losses which resulted from trading in commodity futures contracts were properly classified as capital losses subject to the limitations of Sec. 117 (d) of the Revenue Act of 1936. The substance of the transaction is the same whether the taxpayer acquires tangible or intangible property. It was the primary purpose of Congress in imposing the capital loss . limitation to prevent such trading losses from wiping out all ordinary income for tax purposes. H. Rep. No. 704, 73d. Cong., 2d Sess., pp. 30, 31.

 Wagering losses are allowed only to the extent of the gains from such transactions, Sec. 23(g); whereas, capital losses are allowed to the extent of $2,-000 plus the gains from such sales or exchanges, See. 117(d).