Tom C. Clark

“ To avoid a recurrence of this situation, petitioner, in 1937, began to establish a long position in corn futures 'as a part of its corn buying program' and 'as the most economical method of obtaining an adequate supply of raw corn' without entailing the expenditure of large sums for additional storage facilities. At harvest time each year it would buy futures when the price appeared favorable. It would take delivery on such contracts as it found necessary to its manufacturing operations and sell the remainder in early summer if no shortage was imminent. ”

“ The problem of the appropriate tax treatment of hedging transactions first arose under the 1934 Tax Code revision. [7] Thereafter the Treasury issued G.C.M. 17322, supra, distinguishing speculative transactions in commodity futures from hedging transactions. It held that hedging transactions were essentially to be regarded as insurance rather than a dealing in capital assets and that gains and losses therefrom were ordinary business gains and losses. ”

“ Since we hold that these futures do not constitute capital assets in petitioner's hands, we do not reach the issue of whether the transactions were 'wash sales.' Petitioner is a nationally known manufacturer of products made from grain corn. It manufactures starch, syrup, sugar, and their byproducts, feeds and oil. Its average yearly grind of raw corn during the period 1937 through 1942 varied from thirty-five to sixty million bushels. Most of its products were sold under contracts requiring shipment in thirty days at a set price or at market price on the date of delivery, whichever was lower. ”

“ Likewise the claim of Corn Products that it was dealing in the market as a 'legitimate capitalist' lacks support in the record. There can be no quarrel with a manufacturer's desire to protect itself against increasing costs of raw materials. Transactions which provide such protection are considered a legitimate form of insurance. ”

“ The interpretation outlined in this memorandum has been consistently followed by the courts as well as by the Commissioner. [8] While it is true that this Court has not passed on its validity, it has been well recognized for 20 years ”