## Facts

- Corn Products Refining Company manufactured corn-based products and required large quantities of raw corn as a primary manufacturing input.
- After drought-driven corn price spikes and limited storage capacity, the company sought a method to reduce exposure to rising spot-corn prices without building substantial storage facilities.
- Beginning in 1937, the company regularly took long positions in corn futures as part of its corn-buying program to help stabilize the cost and availability of its raw corn supply.
- For tax years 1940 and 1942, the company’s treatment of gains and losses from corn futures became disputed; it ultimately claimed the futures were capital assets producing capital gains and losses.
- The Tax Court and the Second Circuit found the futures transactions, though not classic “true hedges,” were an integral part of the company’s manufacturing business and produced ordinary income and deductions.

## Issues

1. Whether corn futures contracts entered into to manage a manufacturer’s raw-material price risk are “capital assets” under § 117(a) of the Internal Revenue Code of 1939, such that resulting gains and losses receive capital treatment.
2. Whether the integration of the futures activity with the company’s inventory procurement and cost-protection program requires ordinary income and loss treatment.

## Decision

- The Supreme Court affirmed the judgment for the Commissioner.
- The Court held the corn futures transactions were not capital asset transactions under § 117(a).
- Gains and losses from the futures gave rise to ordinary income and ordinary deductions because the contracts were integral to the company’s manufacturing business and functioned as protection against raw-material price increases.
- Because the futures were not capital assets, the Court did not reach whether the transactions were “wash sales” under § 118.

## Legal Principles

- The statutory capital-asset category is construed narrowly; capital-gain treatment is an exception to ordinary income taxation.
- Profits and losses arising from everyday business operations ordinarily receive ordinary income or loss treatment rather than capital treatment.
- Commodity-futures transactions closely connected to a business’s inventory system and entered into to manage raw-material price risk are treated like ordinary business risk-management transactions, not investment dealings in capital assets.
- Transactions that operate as a substitute for inventory procurement or as protection tied to inventory costs may fall within the inventory-related exclusions from capital-asset treatment.

## Conclusion

The Court classified a manufacturer’s corn futures positions used to protect against increases in the cost of its primary raw material as ordinary business transactions rather than capital-asset investments, making the resulting gains and losses ordinary for federal income tax purposes.


Corn Prods. Refin. Co. v. Comm'r, 350 U.S. 46 (1955)