Appeal of Edward R. Bacon Grain Co.

*560OPINION.

The taxpayer kept its accounts and rendered its return for 1921 on a cash receipts and disbursements basis. It sustained a cash loss of $80,272.37 in 1920, which resulted from a 1920 cash disbursement. The deduction of that amount from 1921 income could only be permitted as an accrued liability chargeable against that year’s income. The use of the cash basis precludes such treatment of the matter.

At the time the hedge was finally closed out, on November 22, 1920, it could not be said that the taxpayer thereby made any capital investment. In August it bought futures at one price. In November it sold them at a lower price. The hedge was but a temporary insurance and that only during the existence of a rising market. The taxpayer closed out the hedge only because it expected the market to go still lower between November 22 and December 31. It was obliged by the rules of the Chicago Board of Trade to close out futures by December 31, and it did so by November 22 to save itself from further loss of cash in 1920 due to the constantly falling market.

In our opinion the contracts for sale of cash grain in December or later months, and the loss sustained on November 22 from the dealings in futures, were distinct and séparate transactions. The contract for December cash grain was an agreement to sell in December, 1920, or in later months of 1921, at the buyer’s election. If the taxpayer had been keeping its accounts upon an accrfial basis, the contract would not have been the foundation for an accrual of income until something was due, and such could be determined only when the buyer elected to make it due. By November 22 it became certain to the taxpayer that that event would not occur during 1920 and it *561then took its loss to prevent what would have been a greater loss if it had delayed closing the transaction until later.

The 1920 loss resulted from expense incurred in anticipation of a possible 1920 liability. No liability actually arose in 1920. The sales in 1921 were separate transactions, entirely distinct and apart from the 1920 cash loss.