Corn Products Refining Co. v. Commissioner, 350 U.S. 46 (1955)
Nov 16, 2014 by Vahid Dejwakh

Facts and Procedural History

* CP is committed to selling corn syrup six months from now at $1.2 mil, regardless of price of inputs (e.g. corn) at that time. Price of corn fluctuates, so CP buys a corn futures contract for $800K, with fees and other expenses related to making syrup at $220K, for total costs of $1.02 mil and expected profit of $180K. If, six months from now, price of corn goes up to $980K, then CP has two options:
        i. Buy the corn at the rate of the futures contract, $800K, and earn the profit from selling the syrup (i.e. $180K), or
       ii. Sell the futures contract and make a profit on the difference on the corn price (i.e. 980-800K, or 180K), then buy the corn at market rate ($980K) and break even from making syrup

*CP exercises option 2 above, and claims the futures contract is a capital asset and gains therefrom should therefore be taxed at the capital gains rate instead of as ordinary income
*Tax Court and Court of Appeals find the futures to be an integral part of the taxpayer’s business, and therefore treats it as ordinary income

Issue(s)

Should the sale of a corn futures contract by a corn syrup manufacturer be classified as a capital asset sale or as ordinary income?

Holding and Dissent(s)

Affirm against taxpayer, and treat futures contract sale as ordinary income.
“…if a sale of the future created a capital transaction while delivery of the commodity under the same future did not, a loophole in the statute would be created and the purpose of Congress frustrated.”

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