Tex Meier is from Georgia but now lives in Miami, Florida, with his wife Augusta, who is from Brazil. They own a business that manufactures and sells cookware in Brazil. The business is profitable in and of itself, but Tex is worried that if the value of the Brazilian Real falls compared to the U.S. dollar, it will wipe out his profit. Therefore, last year Tex entered into a forward contract with the bank Bradesco where Tex agreed to sell 100,000 Brazilian Reais to Bradesco at the then prevailing rate of 5.5 Reais per 1 U.S. Dollar, 13 months after the date of the contract. At the end of the contract, the value of the Real fell as Tex feared, to 5.2 per Dollar. Fortunately, the forward contract protected him against this decline. Instead of buying Reais and delivering them to Bradesco, Tex sold the forward contract to another bank, Santander, at a gain. The reason that he sold the contract to a third party was for convenience, and so he could claim a long-term capital gain instead of a short-term capital gain, which he would have to do if he had purchased Reais and exchanged them with Bradesco. You believe that the Tax Court case Carborundum Co. v. Commissioner of Internal Revenue, 74 T.C. 730, supports his position. Use Westlaw’s KeyCite feature to ensure that you can rely on it. Analyze any negative citing references and provide a clear explanation why you think Tex can or can’t rely on the case.

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