David Cook v. Commissioner of Internal Revenue

ORDER

The memorandum disposition filed April 22, 1991, 931 F.2d 59 , (9th Cir.) is, as re vised, redesignated as an authored opinion by Judge Kleinfeld.

OPINION

The central issue in this appeal is whether a commodities dealer could deduct losses on the first leg of a pre-1982 straddle, where the straddle was an economic but not a factual sham. We have previously decided that persons other than commodities dealers could not take a deduction in similar circumstances. The statute includes a special provision for commodities dealers, which the taxpayer would construe to allow recognition of these losses. We conclude that the sham losses are not deductible, and affirm the decision below, Cook v. Commissioner, 90 T.C. 975 (1988). The Second Circuit reached the same conclusion in DeMartino v. Commissioner, 862 F.2d 400 (2d Cir.1988).

Facts

The parties stipulated to all material facts. Cook was a commodities dealer when he entered into commodities straddles on the London metals exchange in 1976 and 1977. These straddles were economic shams but not factual shams. This means that they were not intended to generate a trading profit, but the options really were bought and sold.

A…