Corn Products Refining Co. v. Commissioner, 350 U.S. 46 (1955)

Corn Products Refining Co. v.

Commissioner of Internal Revenue
No. 20

Argued October 18, 1955
Decided November 7, 1955
350 U.S. 46

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

Petitioner’s purchases and sales of corn futures in 1940 and 1942, which, though not "true hedges," were an integral part of its manufacturing business, held not capital asset transactions under § 117(a) of the Internal Revenue Code of 1939, and gains and losses therefrom gave rise to ordinary income and ordinary deductions. Pp. 47-54.

(a) The finding by both the Tax Court and the Court of Appeals that petitioner’s purchases constitute "an integral part of its manufacturing business" is here sustained. Pp. 50-51.

(b) Through its purchases of commodity futures, petitioner obtained partial insurance against its principal risk -- the possibility of a price rise. P. 51.

(c) The capital asset provision of § 117 is to be narrowly construed. P. 52.

(d) 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. P. 52.

(e) The Treasury ruling, G.C.M. 17322, that hedging transactions were essentially to be regarded as insurance, rather than dealings in capital assets, and that gains and losses therefrom were ordinary business gains and losses, has been consistently followed by the courts as well as by the Commissioner, and has had the tacit approval of Congress. Pp. 52-53.

(f) The conclusion here reached is supported by practical considerations, as well as by the statute. Pp. 53-54.

215 F.2d 513, affirmed.