concurring: Having joined the majority opinion, I write separately to respond to some of the strictures in the dissenting opinion.
With all due respect, the author of the dissenting opinion and the Court of Appeals for the District of Columbia Circuit in Stoller v. Commissioner, 994 F.2d 855 (D.C. Cir. 1993), revg. in part T.C. Memo. 1990-659, have not paid proper heed to the body of judge-made law in the Second and Third Circuits, as well as this Court, that treats even true cancellations of some types of contracts as capital gain or loss transactions; this is just another area in which the capital character of the asset and other circumstances properly focus the analysis upon the nature of the contract rights in question, rather than merely upon the structure of the transaction as a “sale or exchange”, as opposed to a cancellation, termination, or relinquishment. See, e.g., Commissioner v. Ferrer, 304 F.2d 125 (2d Cir. 1962), revg. in part and remanding 35 T.C. 617 (1961); Commissioner v. McCue Bros. & Drummond, Inc., 210 F.2d 752 (2d Cir. 1954), affg. 19 T.C. 667 (1953); Commissioner v. Golonsky, 200 F.2d 72 (3d Cir. 1952), affg. 16 T.C. 1450 (1951); see also Sirbo Holdings, Inc. v. Commissioner, 509 F.2d 1220 (2d Cir. 1975), affg. 61 T.C. 723 (1974); Maryland Coal & Coke Co. v. McGinnes, 225 F. Supp. 854 (E.D. Pa. 1964), affd. 350 F.2d 293 (3d Cir. 1965).
Other special circumstances present in the cases at hand provide a principled basis for looking beyond the conceded facts that the transactions in question were bona fide, had economic substance, and were entered into for profit — all of which only go to the economics of the amount of gain or loss — to recognize the also inescapable facts that Holly and AGS were related parties with no adverse interests insofar as the treatment of the closing transactions as offsets or cancellations was concerned. The custom or usage of the trade among dealers and traders in forward contracts and the underlying commodities, which Holly and AGS arbitrarily ignored, is that true cancellations are only employed to correct mistakes, not to close out forward contracts entered into and disposed of in the ordinary course of business.1 See Brown v. Commissioner, 85 T.C. 968, 994 (1985), affd. sub nom. Sochin v. Commissioner, 843 F.2d 351 (9th Cir. 1988); Stoller v. Commissioner, T.C. Memo. 1990-659, 60 T.C.M. (CCH) 1554, 1566, 1990 T.C.M. (P-H) par. 90,659, at 3220-90; majority op. p. 213.
In these circumstances, the analysis in the majority opinion of the forward contracts in question and the ways in which they were handled by Holly and AGS is consistent with and supported by Judge Friendly’s analysis in Commissioner v. Ferrer, supra, and its ancestors and descendants. The cases at hand, then, are the latest ones in which it is appropriate to observe that “the ‘formalistic distinction’ between two-party and three-party transactions that was criticized in Ferrer is fast becoming a footnote to history.” Bittker & McMahon, Federal Income Taxation of Individuals, par. 32.1[5], at 32-5, 6 (1995).
Chabot, Jacobs, and Parr, JJ., agree with this concurring opinion.Another fact, shown in the stipulated record, that points up the arbitrary treatment of the transactions between Holly and AGS, insofar as the choice of tax consequences was concerned, is that, in the case of offsetting transactions, Holly and AGS agreed to recognize both gains and losses as of the trade date of the offset. This would seem to be contradicted by the fact that both contracts remain in existence, and a net profit or loss is locked in but remains unrealized until the settlement date when the securities are deemed delivered and received pursuant to both contracts and the net profit or loss debited or credited to the trader’s account. I don’t understand how agreement of the parties could change the tax consequences. If such an agreement were efficacious, the validity of short sales against the box in not only locking in gain but also postponing realization would seem to be thrown into doubt.