Edward R. Bacon Grain Co. v. Reinecke, 35969.

• Decision Date: 26 May 1928
• Docket Number: No. 35969.,35969.
• Citation: 26 F.2d 705
• Parties: EDWARD R. BACON GRAIN CO. v. REINECKE, Collector of Internal Revenue.
• Court: U.S. District Court — Northern District of Illinois

26 F.2d 705 (1928)

EDWARD R. BACON GRAIN CO. v. REINECKE, Collector of Internal Revenue.

No. 35969.

District Court, N. D. Illinois, E. D.

May 26, 1928.

Cassels, Potter & Bentley, of Chicago, Ill. (E. H. Cassels, of Chicago, Ill., of counsel), for plaintiff.

George E. Q. Johnson, U. S. Atty., and Dwight H. Green, both of Chicago, Ill. (C. M. Charest and Frederick W. Dewart, both of Washington, D. C., of counsel), for defendant.

LINDLEY, District Judge.

Plaintiff seeks to recover additional income tax assessed and paid for the year 1921 in the sum of $27,722.39. The proper steps preliminary to such a suit have been taken. The sole question involved is whether a deduction of $80,272.37 should be subtracted from the income for the year 1921, as contended by plaintiff, or from that for the year 1920, as contended by the defense.

Plaintiff is a cash grain dealer in the city of Chicago. In August, 1920, it had sold for future delivery 390,000 bushels of "cash" oats for delivery in December, 1920, or any such month thereafter as the buyers might elect, and at the end of the year 326,000 bushels were as yet undelivered. On August 30th plaintiff purchased on the Chicago Board of Trade 330,000 bushels of oats to be delivered in December. This was what was known as a December "future," and was intended as a "hedge" against plaintiff's sale of "cash" oats for December, or later delivery. Under the rules of the Board of Trade it was necessary to close out this purchase of December oats prior to the end of that month. Accordingly, on November 22d, fearing that there would be a further loss on this "future" contract, plaintiff closed out its "hedge" at a loss of $80,272.37. The buyers of the "cash" grain exercised their option to receive their oats in the year 1921. The loss of $80,272.37 was charged upon plaintiff's books as an advance upon the "cash" oats not then delivered, and carried as such until the delivery of the oats in 1921, whereupon it was deducted from the profit of the "cash" oats transaction.

Plaintiff contends that the sale of "cash" oats and the "hedge" were to all intents and purposes one indivisible transaction, and that therefore it was proper not to deduct the loss upon the future contract in returning its income for the year 1920, but to carry the same over as one of its costs of its "cash" oats delivered in 1921. Defendant contends that the transactions were separate, and that the loss upon the "hedging" contract actually occurred in the year 1920, and, if deducted in making an income tax return, should have been deducted in that year, and not in the succeeding year.

Income taxes are, under section 200 of the Revenue Acts of 1918 and 1921 (Comp. St. § 6336 1/8a), computed upon either a calendar year or a fiscal year basis. Section 212 (Comp. St. § 6336 1/8f) provides that the income shall be computed upon the basis of the taxpayer's actual accounting period, fiscal or calendar, as the case may be. Section 234 (Comp. St. § 6336 1/8pp) provides that there shall be allowed as deductions from the gross income all of the ordinary or necessary expenses paid or incurred during the taxable year. Another section provides for the deduction of losses sustained...