Cassius Clay operates a bituminous coal home heating anddelivery service in Dauphin and Center...

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Cassius Clay operates a bituminous coal home heating anddelivery service in Dauphin and Center counties. He must have asupply of bituminous coal on hand so customers may get the coalthey need to heat their homes. As a convenience to his customers,and to prevent high bills over the winter and low bills in thesummer, he allows them to buy coal in advance at set prices and topay for the coal ratably over a calendar year. To ensure himself asteady, reliable, and affordable supply of coal and to protectagainst price fluctuations, Cassius Clay enters into certainfutures contracts to buy coal at a future date and at a set price.Clay clearly indicates beforehand that the futures contract inwhich he enters to buy coal is simply to secure a supply of coaland to protect him from losses on the futures contracts with hiscustomers to sell coal, and that he does not intend to profit fromthe contract itself. Assume that Cassius Clay realizes a loss onthe futures contract in which he entered to buy coal. That is, theprice per his contract to buy coal is higher than the actual spotmarket price of coal the day he acquires a new supply of coal. Howshould Cassius Clay classify the loss—as ordinary or as capital? Besure to demonstrate your research skills in writing a memo to thefile. You must cite the relevant code section(s) (including section1221) and at least two (2) Supreme Court cases (hint: the two keycases are dated 1955 and 1988). You must also address the generalprinciple of classifying assets—as capital or as operating—and theexceptions thereto.

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26 US Code 1221 Capital asset aIn general For purposes of this subtitle the term capital asset means property held by the taxpayer whether or not connected with his trade or business but does not include 1 stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business 2 property used in his trade or business of a character which is subject to the allowance for depreciation provided in section 167 or real property used in his trade or business 3a patent invention model or design whether or not patented a secret formula or process a copyright a literary musical or artistic composition a letter or memorandum or similar property held byA a taxpayer whose personal efforts created such property B in the case of a letter memorandum or similar property a taxpayer for whom such property was prepared or produced or C a taxpayer in whose hands the basis of such property is determined for purposes of determining gain from a sale or exchange in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph A or B 4 accounts or notes receivable acquired in See Answer

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In: AccountingCassius Clay operates a bituminous coal home heating anddelivery service in Dauphin and Center counties....Cassius Clay operates a bituminous coal home heating anddelivery service in Dauphin and Center counties. He must have asupply of bituminous coal on hand so customers may get the coalthey need to heat their homes. As a convenience to his customers,and to prevent high bills over the winter and low bills in thesummer, he allows them to buy coal in advance at set prices and topay for the coal ratably over a calendar year. To ensure himself asteady, reliable, and affordable supply of coal and to protectagainst price fluctuations, Cassius Clay enters into certainfutures contracts to buy coal at a future date and at a set price.Clay clearly indicates beforehand that the futures contract inwhich he enters to buy coal is simply to secure a supply of coaland to protect him from losses on the futures contracts with hiscustomers to sell coal, and that he does not intend to profit fromthe contract itself. Assume that Cassius Clay realizes a loss onthe futures contract in which he entered to buy coal. That is, theprice per his contract to buy coal is higher than the actual spotmarket price of coal the day he acquires a new supply of coal. Howshould Cassius Clay classify the loss—as ordinary or as capital? Besure to demonstrate your research skills in writing a memo to thefile. You must cite the relevant code section(s) (including section1221) and at least two (2) Supreme Court cases (hint: the two keycases are dated 1955 and 1988). You must also address the generalprinciple of classifying assets—as capital or as operating—and theexceptions thereto.