ranged, our actual holding was that the transactions lacked economic substance and were therefore shams. Here, the opinion refers to the transactions as prearranged apparently to enhance the opinion's effort to come within the exclusion from the benefit of section 108(b) set forth in the committee report. However, the majority makes no effort to determine what Congress intended by its use of the word "prearranged," and, furthermore, the majority's holding is not based on whether the transactions were prearranged, but is based on the conclusion that no losses were incurred.5 The 1986 committee report explains the necessity for the inclusion of section 108(b) in the 1984 Act by stating that a profit-motive presumption was provided for commodities dealers "because of the inherent difficulty in distinguishing tax-motivated straddle transactions from profit-motivated straddle transactions when the taxpayer was in the trade or business of trading in commodities." H. Rept. 99-426, at 910-911 (1985), 1986-1 C.B. (Vol. 2) 910-911. Although transactions without economic substance but motivated by tax considerations are normally not recognized for tax purposes (Frank Lyon Co. v. United States, supra), Congress, by enacting section 108, intended to allow straddle trading losses of commodities dealers. Those transactions are not to be tested for economic substance, at least, as I conclude, where effected in the domestic market. Thus, petitioner would fit within section 108(b) unless Congress intended to protect dealers only when trading in U.S. markets. The majority opinion simply writes section 108 off the books, without recognizing that more than 80 years ago the Supreme Court held that there is a presumption against interpreting a statute in a way that renders it ineffective or futile. Bird v. United States, 187 U.S. 118, 124 (1902). This rule of statutory construction is particularly apt where, as here, Congress restated retroactively with some modification in the 1986 Act the provision first enacted in the 1984 Act. I believe the majority should instead focus on the scope of the section. "In my opinion, in order for the majority to rely on the word "prearranged" (assuming, as I conclude, that Congress used that word as synonymous with "fictitious") the majority could not rely on Glass, but would have to make express findings that the transactions were fictitious. Section 108(f) of the act defines a commodities dealer as a taxpayer who is an individual described in section 1402(i)(2)(B). Section 1402(i)(2)(B) defines a commodities dealer as "a person who is actively engaged in trading section 1256 contracts and is registered with a domestic board of trade which is designated as a contract member by the commodities futures trading commission." The parties here agree that petitioner is such a commodities dealer. Majority opinion at pages 976-977. But that does not answer the inquiry. To determine the scope of section 108, I look again to the committee report. That report provides in part: If a person qualifies as a commodity dealer, the subsection (b) treatment applies with respect to any position disposed of by such person. It would, for example, apply without regard to whether the position was in a commodity regularly traded by the person, whether it was traded on an exchange on which the dealer was a member, or whether an identical position was reestablished on the same trading day or subsequently. In the cases of trade on a domestic exchange described in Code section 1402(i)(2)(B), the identification of positions disposed of shall be as provided in exchange procedures and records of the exchange or clearing house shall be controlling in the absence of proof that the rules were violated. *** Further, the presumption would not be available in any cases where the trades were fictitious, prearranged or otherwise in violation of the rules of the exchange in which the dealer is a member. [H. Rept. 99-426, at 911 (1985), 1986-3 C.B. (Vol. 2) 911; emphasis supplied.] The committee obviously was concerned with the normal trading pattern of commodities dealers it was intending to benefit. It was only the losses incurred in that normal trading pattern which would present the problem of classification between business and tax motivation. Trading on the London metals exchange does not comport with the rules of trading in the United States on any of the several domestic commodities futures exchanges. The London options transactions would have been in violation of the rules of the commodities exchanges in this country. The presumption of section 108(b) would, therefore, not apply to trades by petitioner on the London Metal Exchange. Moreover, the definition of the term "commodity dealers” as set forth in section 1402(i) refers to a person who is engaged in trading section 1256 contracts. Section 1256(b) defines a section 1256 contract to mean (1) any regulated futures contract, (2) any foreign currency contract, (3) any nonequity option, and (4) any dealer equity option. This provision was added to the Code by Economic Recovery Tax Act of 1981, Pub. L. 97-34, sec. 503(a), 95 Stat. 327. The definitions of these terms set out in section 1256(b) as amplified by the applicable committee reports 6 demonstrate that section 1256 contracts refer to financial transactions which take place on domestic exchanges or in the interbank market in the United States. The concern which Congress sought to avoid by enacting section 108 was to preclude the Internal Revenue Service from attacking straddle transactions of a taxpayer trading for his own account through the domestic investment banking or securities dealer facilities used for customers. There is no difficulty distinguishing transactions such as those here involved where the commodities dealer taxpayer uses trading facilities and dealers doing business in a foreign country. In my opinion, a commodities dealer during this period of time who chose for his own account to trade in a foreign market simply placed those transactions outside the scope of section 108. It is on this basis that I would hold for respondent in this case. WILLIAMS, J., agrees with this concurring opinion. WELLS, J., concurring: I agree with the majority opinion, but Judge Whitaker raises an additional ground with which I also agree. Judge Whitaker concludes that because the transactions on the London Metals Exchange would have been in violation of the rules of domestic exchanges in the United States, the presumption of section 108 does not apply to shield petitioner's trades. As an alternative ground for a holding for respondent in the instant case, I agree with Judge Whitaker's conclusion. 6S. Rept. 97-144, at 158 (1981), 1981-2 C.B. 475; H. Rept. 97-215 (Conf.), at 258 (1981), 1981-2 C.B. 512. I also would like to address other comments made by Judge Whitaker with which I disagree. Judge Whitaker states that the "majority opinion simply writes section 108 off the books." With that I do not agree. The majority opinion interprets Congress' intent to be that section 1081 does not serve to shelter from scrutiny transactions which were fictitious, prearranged, or otherwise in violation of the rules of the exchange. Dealers' transactions which are not fictitious, are not prearranged, and are in accordance with the rules of the exchange still are fully protected by section 108, i.e., such transactions per se are deemed to be entered into in the course of a trade or business and losses thereon are allowed. See H. Rept. 99-426 (Conf.), at 911 (1985), 1986-3 C.B. (Vol. 2) 911. Judge Whitaker seems to suggest that transactions by dealers which are devoid of economic substance are to be protected from disallowance by section 108. Congress surely did not intend such a result. The House report's reference to fictitious and prearranged transactions bears out such a conclusion. Congress may not have used the buzz words "economic substance," but what are transactions which are either prearranged or fictitious other than transactions devoid of economic substance? Judge Whitaker's interpretation of the word "prearranged" is too narrow. He would limit its use to the description of a transaction that is illusory because it is fictitious, i.e., did not take place or only took place in the papers drawn up to take advantage of the tax benefits. He apparently would not use the word "prearranged" to describe a transaction which may have actually taken place in the marketplace, but which was entered into from the outset in such a way as to be designed to lack any real economic significance. I would subscribe to the broader view of the interpretation of the word "prearranged."2 Transactions that are fictitious and transactions that are prearranged are both illusory transactions. By using the word "prearranged" in the House report, I believe Congress intended that we should scrutinize illusory transactions of both types. 'All references to "section 108" are to sec. 108 of the Deficit Reduction Act of 1984 as amended by the Tax Reform Act of 1986. 2Any other interpretation would render superfluous the language in the House report, "fictitious, prearranged." The purpose of section 108 is to eliminate the requirement that commodities dealers prove a subjective profit motive, as might otherwise be required by section 165(c) of the Internal Revenue Code. Section 108 is not a carte blanche grant to commodities dealers of tax benefits for illusory transactions.3 It is clear that Congress did not intend to single out commodities dealers for special treatment for transactions which lack economic substance. The economic substance test was in existence prior to the enactment of section 108,4 and Congress easily could have provided that transactions of commodities dealers need not have economic substance if Congress had so intended. STERRETT, CHABOT, PARKER, HAMBLEN, COHEN, JACOBS, WRIGHT, and PARR, JJ., agree with this concurring opinion. RAY H. AND PATRICIA POTTS, PETITIONERS V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket No. 2356-87. Filed May 16, 1988. Petitioners extracted oil and gas in 1981, reported gross income therefrom in 1982, and offset that income with a percentage depletion allowance pursuant to sec. 613A, I.R.C. 1954. In computing the allowance, petitioners used a rate of 20 percent, the applicable percentage depletion rate for 1981 under the rate schedule of sec. 613A(c)(5), I.R.C. 1954, instead of 18 percent, the applicable percentage depletion rate thereunder for 1982. Held, petitioners must use the 1982 rate of 18 percent, and not the 1981 rate of 20 percent, as the applicable percentage depletion rate under the rate schedule of sec. 613A(c)(5), I.R.C. 1954. William E. Owen, for the petitioners. 3As we noted in Cherin v. Commissioner, 89 T.C. 986, 992 (1987) (Court-reviewed), the existence of a profit motive simply does not preclude a finding that a transaction lacks economic substance. Certainly, the fact that a taxpayer is in a trade or business (as sec. 108 deems commodity dealers to be) does not preclude the taxpayer's transactions from being subject to a test for economic substance. *See, e.g., Frank Lyon Co. v. Commissioner, 435 U.S. 561, 583-584 (1978). |