Hoover Co. v. Commissioner

Chabot, J.,

dissenting: Neither party relies upon Corn Products Refining Co. v. Commissioner, 350 U.S. 46 (1955); petitioner disclaims reliance upon that case and respondent asserts it is inapplicable. Since I believe that the general doctrine enunciated in Corn Products is applicable and that it should cause us to hold for petitioner, I respectfully dissent.

The Court should not allow itself to be boxed into deciding particular issues of law in a case merely because the parties in that case want us to decide those issues. The question before us is not what the law would be in the absence of Corn Products, but what the law is, taking Corn Products into account. Estate of Sanford v. Commissioner, 308 U.S. 39, 51 (1939); London-Butte Gold M. Co. v. Commissioner, 116 F.2d 478, 479-480 (10th Cir. 1940); Estate of Saia v. Commissioner, 61 T.C. 515, 519-520 (1974); Coates Trust v. Commissioner, 55 T.C. 501, 511 (1970), affd. without discussion of this point 480 F.2d 468 (9th Cir. 1973), cert. denied 414 U.S. 1045 (1973); Rosano.v. Commissioner, 46 T.C. 681, 687 n. 4 (1966); A.B.C.D. Lands, Inc. v. Commissioner, 41 T.C. 840, 849 n. 12 (1964); Ohio Clover Leaf Dairy Co. v. Commissioner, 8 B.T.A. 1249, 1256 (1927), affd. per curiam 34 F.2d 1022 (6th Cir. 1929), cert. denied 280 U.S. 588 (1929). See NLRB v. Catholic Bishop of Chicago, 440 U.S. 490 (1979); Toner v. Commissioner, 71 T.C. 772 (1979), and the various concurring and dissenting opinions therein.

Also, I am concerned that we not embark on the evolution of a court-made “one-way street.” See sec. 1231. Compare our first decision in International Flavors & Fragrances Inc. v. Commissioner, 62 T.C. 232 (1974), revd: and remanded 524 F.2d 357 (2d Cir. 1975), supplemental opinion on remand T.C. Memo. 1977-58, with our decision in the instant case (see especially Judge Tannenwald’s concurring opinion herein).

The Supreme Court’s holding in Corn Products dealt with the definition of and tax treatment accorded to hedging transactions. I do not dispute the conclusion of the majority herein that the holding does not require a decision for petitioner in this case. However, Corn Products stands for more than its holding:

Nor can we find support for petitioner’s contention that hedging is not within the exclusions of § 117(a). [Sec. 117 of the 1939 Code was the predecessor of subch. P of ch. 1 of the 1954 Code.] Admittedly, petitioner’s corn futures do not come within the literal language of the exclusions set out in that section. They were not stock in trade, actual inventory, property held for sale to customers or depreciable property used in a trade or business. But the capital-asset provision of § 117 must not be so broadly applied as to defeat rather than further the purpose of Congress. Burnet v. Harmel, 287 U.S. 103, 108. Congress intended that profits and losses arising from the everyday operation of a business be considered as ordinary income or loss rather than capital gain or loss. The preferential treatment provided by § 117 applies to transactions in property which are not the normal source of business income. It was intended “to relieve the taxpayer from * * * excessive tax burdens on gains resulting from a conversion of capital investments, and to remove the deterrent effect of those burdens on such conversions.” Burnet v. Harmel, 287 U.S., at 106. Since this section is an exception from the normal tax requirements of the Internal Revenue Code, the definition of a capital asset must be narrowly applied and its exclusions interpreted broadly. This is necessary to effectuate the basic congressional purpose. This Court has always construed narrowly the term “capital assets” in § 117. See Hort v. Commissioner, 313 U.S. 28, 31; Kieselbach v. Commissioner, 317 U.S. 399, 403. [350 U.S. at 51-52.]

The transactions dealt with herein appear to have been entered into primarily for the purpose of protecting aspects of petitioner’s trade or business and not as investments to provide revenue; they appear to conform to the general criteria as to nature and frequency laid down by the Supreme Court in Corn Products Refining Co. v. Commissioner, supra (certainly more so than the situation we dealt with in International Flavors & Fragrances, Inc. v. Commissioner, supra). I would hold that the transactions involved gave rise to ordinary income and ordinary loss, resulting in this case in a net ordinary loss.