Acct 613

1404 words 6 pages
Internet Based Tax Briefing 1 – Haig Simmons Aqeel A Sahibzada,
University of Maryland University College

ACCT 613/9040 – Professor Bruce McClain
October 14, 2012

Subject: Haig Simmons – Loss recognition on anthracite coal future contracts, capital or ordinary loss

Facts
Taxpayer Haig Simmons operates an in home coal heating and delivery service for consumer uses in Baltimore and Anne Arundel counties. Due to the instability of coal resources and prices, Haig Simmons enters into certain futures contract purchases in order to ensure a steady supply of coal for customers at a fixed rate. Simmons sole purpose of entering into futures contracts is to protect against price fluctuations with no profitable intentions. As a
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Corn Products Refining Company argued that “purchases and sales of corn futures in 1940 and 1942 were capital-asset transactions under §117(a) of the Internal Revenue Code of 1939 and that its futures transactions came within the "wash sales" provisions of §118.” In all court instances at the Tax Court, the Court of Appeals for the Second Circuit, and the Supreme Court, the futures transactions of Corn Product Company were found to be an integral part of the business and not separate from its business practices and were not capital assets.
The definition of “hedging transactions” was also used to support the courts’ tax decision, referencing the IRS’ General Counsel Memorandum 17322 which determined that in the case of commodity futures, “hedging transactions were essentially to be regarded as insurance rather than a dealing in capital assets.” Prior to entering into futures contracts, Haig Simmons clearly indicated that any commodity futures were for the purpose of price protection with no intention of profit. Corn Product Company’s officers also made such testimonies in the case which went against the company’s petition and supported the Court’s ruling.
In the 1988 Supreme Court case of Arkansas Best Corp. v. Commissioner of Internal Revenue (485 U.S. 212; 108 S.Ct. 971; 99 L.Ed.2d 183), Arkansas Best Corp., a holding company, claimed ordinary loss on the sale of its acquisition of 65% of diversified stock of a bank. The company claimed the purchase

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