Corn Products Refining Co. v. Commissioner

350 U.S. 46 (1955)

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Nature of the Case

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Facts

P made products from grain corn. It used from 35-60 million bushels of corn per year in its products from 1937-1942. Most of its contracts were short-term 30-day orders, and at times P would sell to a few customers on long term contracts. Droughts in 1934 and 1936 caused a sharp increase in the price of grain. P only had a storage capacity of 2.3 million bushels of corn and eventually from price increases found that it could not compete with cane and beet sugar prices. To avoid this in the future, P began to take long term positions in corn futures to maintain stability in its pricing. When prices were favorable, P would buy futures and take delivery on those contracts for needed production and sell the remainder if no shortage was imminent. If a shortage appeared, it sold futures only as it bought spot corn for production. P made no effort to protect itself against a decline in prices. P netted $680,587.39 in 1940 from its strategy and lost $109,969.38 in 1942. P reported these figures as ordinary profit and loss. However, it has now changed its mind and has decided that the futures were capital assets under 117. The IRS disagreed, and the tax court and court of appeals agreed with the IRS.