Future Contract Loss - Essay Example

A future contract is a contract between two individuals or parties to sell or buy assets for a cost fixed upon today with payment and delivery occurring at a future date. In this case, according to Clark Ghosh (2004), contracts are negotiated and agreed upon at future exchanges that act as a trading place between the seller and the buyer. Haig Simmons caseHaig Simmons engaged herself in a future contract that made her incur a loss due to fluctuations in the price of the commodity.

In this case, the loss incurred by Haig Simmons can only be classified as an ordinary loss. A similar observation was reached by the USA supreme in the case Corn Products Refining Co. v. Commissioner, 350 U.S. 46 (1955). According to the ruling, capital assets include the property held by the taxpayer but do not include goods in trade or assets held by the taxpayer for the primary purpose of resale. It is, therefore, viable to conclude that Haig Simmons did not incur a loss on capital and hence the loss is categorized as ordinary.

The Supreme Court held the verdict of the Court of Appeals and the Tax Court that the petitioner’s future business transactions are designed to caution its manufacturing business against the price increase that would reduce the profit margin. In this case, Anderson (2001) declares that the loss emanating from such transactions should be included as an income when determining the tax payable.