Campbell Taggart Inc. Case Summary

In the Corn Products Refining Co. case, the company had purchased corn futures in order to ensure that the corn needed for operations could be obtained in times of shortage or raising prices, without the need to worry about storage capacity limitations. The company reported the gain or loss on the futures as ordinary income and losses in 1940 and 1942, however the company later argued that the futures should be classified as a capital asset, subjecting the gain and losses incurred to Section 117 (Section 1211). The company looked to justify this shift in treatment by stating that the purchase and sale of these futures was a separate and distinct activity from the manufacturing operations of the firm, rather than hedges for the business. The
case has been utilized in number of court cases. In some instances this narrow application of capital asset status has assisted the defendant in achieving their desired results and in other cases the courts have found the ruling to be inapplicable, contradictory to the defendant’s argument, or in need of further refinement. One such case where the Corn Product case was noted is Campbell Taggart, Inc. v. U.S. In this case, Campbell Targgart Inc. (CTI) was attempting to claim ordinary losses on the sale of stock in a Spanish corporation known as Superdescuento Uno, Dos, Tres, S.A. (Supermarkets) (American Federal Tax Reports , 1984). The Commissioner of Internal Revenue disallowed the deduction on the grounds that the loss should have been classified as a capital loss. As discussed in the reading, stock is typically classified as a capital asset. Specifically, even when the stock ownership is utilized as a means to facilitate everyday operations of the business, since it still holds a “substantial investment motive”, it needs to be classified as a capital asset (escaping the span of the Corn Products Refining Co.