Charles L. Murphy v. United States

Charles. L. Murphy appeals the district court’s summary judgment in his action challenging the constitutionality of 26 U.S.C. § 1256 . Murphy contends that Congress exceeded its authority by taxing “unrealized” gains. We have jurisdiction under 28 U.S.C. § 1291 and affirm.

BACKGROUND

During 1987, Murphy was an investor in commodity futures contracts. The parties stipulated and the district court found that all of his contracts “had been purchased on, and were regularly traded on, a national securities exchange registered with the Securities Exchange Commission or a board of trade designated as a contract market by the Commodity Futures Trading Commission.” Ml were held in marked-to-market accounts.

At the end of the 1987 tax year, the fair market value of Murphy’s futures contracts had increased by $20,645. Pursuant to 26 U.S.C. § 1256 , Murphy reported that amount on his 1987 tax return as taxable gain! The corresponding -tax owed was $4,372, which Murphy paid under protest. Murphy then filed a claim for refund, which was denied. Ultimately, he filed this refund action in the district court in which he claimed that section 1256 was unconstitutional because it taxed unrealized…