[Letter from Ray I. Mehan to I. H. Kempner, August 28, 1944] Page: 1 of 2
[1] p. ; 28 x 21 cm.View a full description of this letter.
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DEALINGS IN FUTURES
N. V. Coffee and Sugar Exchange, Inc., circular has been read
with interest and is returned herewith.
The general view of the courts - imeasureably accepted by the
Treasury Department - is that dealings in futures are of two kinds:
1. Hedges, against merchandise on hand or purchased at a fixed
price or sold for forward delivery at a fixed price -- the profit
from which are includable in the ordinary income of the taxpayer
and the losses from which are deductible as ordinary expenses of
business operation.
2. speculative, which cannot be shown to be directly applicable as
hedges against stock on hand, fixed purchases, or fixed sales.-
the profit and loss on which are taxable as profit and loss from
the sale of capital assets; the net profit for the year, if
resulting fromi the sale of futures contracts held for more than
six months, being taxable at 25% instead of the higher rates
applicable to ordinary income, and the net loss for the year
being non-deductible from other income, except income from the
sale of capital assets, but susceptible of being carried forward
as a potential deduction from capital gains of the succeeding
five years until the capital loss is exhausted.
Straddles and in and out market operations, not capable of
direct attribution to "spot position", are open to question by revenue
agents. Where the net of the long or short interest can be shown to
bear some close relationship to the spot position, no question is likely
to be raised, particularly if the year end position in nearly balanced.
Where, however, a spot position at variance with outstanding futures
committments is disclosed, or the stated spot position is shown to be
inaccurate, the tendency of revenue agents will be to endeavour to show
that a capital loss has been suffered through speculative dealings not
related to the spot position.
Hence it may be advisable to preserve the integrity or at least
the identity of straddle operations and other operations not definitely
identifiable as being against spot position, and to be able to show that
such operations for any year result in a net profit.R. I. M.
Mr. I. H. Keepner:
8-28-44
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Mehan, Ray I. [Letter from Ray I. Mehan to I. H. Kempner, August 28, 1944], letter, August 28, 1944; (https://texashistory.unt.edu/ark:/67531/metapth1451999/m1/1/: accessed July 17, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting Rosenberg Library.