OPINION.
OppeR, eJudge:Respondent treated the call and short sale as parts of a single transaction. He computed the net result as follows:
Costs:
Paid to Oppenheimer & Co. for call_ $750. 00
Charge by Oppenheimer & Co. for shares pursuant to call_ 32, 250. 00
Amount paid lender of stock incident to short position- 12, 500. 00 $45, 500.00
Less:
Credit by Oppenheimer & Co. on exercise of option for dividend paid during option period_ 12, 500. 00
Proceeds of short sale_ 31, 479. 82 43, 979. 82
Net short-term capital loss_ 1, 520.18
In this we think he was correct.
The short sale and the purchase of the call, which were planned and contracted for simultaneously, were obviously hedges against each other.1 Had such a hedge been undertaken in the course of any regular trade or business conducted by petitioner, it might have been deductible as ordinary and necessary expense of its operations. Corn Products Co. v. Commissioner, 350 U.S. 46 (1955). In situations of that kind we have permitted dealers or traders in securities, who were regularly engaged in that business, to deduct the cost of dividends paid on short sales as ordinary and necessary expenses. W. Hinckle Smith, 44 B.T.A. 104 (1941); Norbert H. Wiesler, 6 T.C. 1148 (1946), affd. 161 F. 2d 997 (C.A. 6, 1947), certiorari denied 332 U.S. 842 (1947); W. T. Wilson, 10 T.C. 251 (1948), affirmed sub nom. Wilson Bros. & Co. v. Commissioner, 170 F. 2d 423 (C.A. 9, 1948), certiorari denied 336 U.S. 909 (1949); Commissioner v. Wilson, 163 F. 2d 680 (C.A. 9, 1947), affirming a Memorandum Opinion of this Court, certiorari denied 332 U.S. 842 (1947). See Deputy v. duPont, 308 U.S. 488 (1940); and cf. Dart v. Commissioner, 74 F. 2d 845 (C.A. 4, 1935), reversing 29 B.T.A. 125 (1933).
In the present circumstances, however, petitioner was not a dealer or trader in securities so that this operation cannot be considered a part of its regular business. In Gladys G. Terbell, 29 B.T.A. 44, 45 (1933), which, was affirmed per curiam 71 F. 2d 1017 (C.A. 2, 1934), and was referred to with apparent approval in Deputy v. duPont, supra, in the same footnote in which the Dart case is mentioned, we said:
It is respondent’s view tnat tile amount of $22,500 may not be deducted either as interest or as an ordinary and necessary expense, but that it is an item of cost to be taken into consideration when the transaction is finally completed by a covering purchase. I.T. 1764, C.B. II-2, p. 22; S.M. 4281, C.B. IV-2, p. 187. We find no authority holding to the contrary and petitioners call our attention to none. It is clear that the sum of $22,500 paid the lender of the stock was not interest ver se, and the petitioners do not seriously contend that it is. Nor can the sum paid be regarded as an ordinary and necessary expense of carrying on a trade or business. We have only the stipulated facts and there is no suggestion in those facts that the decedent was engaged in the business of making short sales or in dealing in securities generally.
We recently took a similar position in Empire Press, Inc., 35 T.C. 136 (1960), where we said in disallowing to a corporate taxpayer a deduction similar to that claimed here (p. 141) :
The petitioner was engaged in the printing business. However, it has made no attempt to relate its [short] transactions * * * to its business.
And in Corn Products Co. v. Commissioner, supra at 51-52, 53-54, the Supreme Court said:
Admittedly, petitioner’s corn futures do not come within the literal language of the exclusions set out in that section [117(a) of the 1939 Code]. They were not stock in trade, actual inventory, property held for the sale to customers or depreciable property used in a trade or business. But the capital-asset provision of § 117 must not be so broadly applied as to defeat rather than further the purpose of Congress. * * * 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. The preferential treatment provided by § 111 applies to transactions in property which are not the normal source of business income. * * * [Emphasis added.]
* * * Moreover, it is significant to note that practical considerations lead to the same conclusion. To hold otherwise would permit those engaged in hedging transactions to transmute ordinary income into capital gain at will. * * * [I]f a sale of the future created a capital transaction while delivery of the commodity under the same future did not, a loophole in the statute would be created and the purpose of Congress frustrated.
This is not to say that where a taxpayer makes a short sale and is required to pay a dividend it will always be treated as a capital item. Cf. Doyle v. Commissioner, 286 F. 2d 654 (C.A. 7, 1961), reversing a Memorandum Opinion of this Court. We deal only with the facts shown here by the record. But in this instance the dividend had already been declared when petitioner bought the call and made the short sale and it is apparent that the call and short sale were but two halves of a single transaction. Petitioner knew that it would have to pay the amount of this dividend on account of its short position in the stock and would obtain credit for an exactly equal amount on its exercise of the call. It is stipulated that the vendor of the call on petitioner’s exercise of the option “Pursuant to the terms of the call * * * charged petitioner with the agreed purchase price of $64.50 [per share] or $32,500.00 and credited petitioner with $25.00 per share or $12,500.00 representing the dividend paid * * * of $25.00 a share on December 13,1956. The petitioner paid a net amount of $19,750.00 * * * [for the 500 shares involved in the call] and delivered the five hundred shares to * * * cover the short sale * * (Emphasis added.) 2 “That was the crux of the business to [petitioner] and that is the crux of the business to us.” Griffiths v. Commissioner, 308 U.S. 355, 357 (1939).
The call and its accompanying adjustment for the receipt of the dividend were admittedly capital items,3 and since the commitments were reciprocal, and were entered into and closed out together, we think the entire operation must be viewed as a capital transaction. “A given result at the end of a straight path is not made a different result because reached by following a devious path.” Minnesota Tea Co. v. Hehvering, 302 U.S. 609, 613 (1938).
^Reviewed by the Court.
Decision will he entered for the respondent.
Petitioner phrases it that “The purpose for purchasing the call in this situation was for the protection of petitioner in the event the price of the stock sold short did not go down to the extent of the dividend and the cheapest method of getting such protection is through the purchase of a call.” It also states in its brief: “At the time the call was exercised by petitioner, the evidence showed the price of the stock sold short did not fall by as much as the amount of the dividend and that by exercising its call, petitioner was gble to make a better purchase to close its short sale at the option price in the call.”
Neither party refers to or apparently relies on the enactment of the 1954 Code, particularly section 1233 thereof.
As a further indication of the capital nature of the entire transaction, had petitioner been a stockholder It would not have been charged with ordinary Income because of the distribution on any stock owned by It. As petitioner points out: “The dividend paid by Midland Enterprises, Inc., was nontaxable to Its stockholders who received the dividend, since the corporation had a deficit surplus during the year 1956 and It had no earnings or profits during that year.”