Tax Legal Services · Primary-source case analysis

Corn Products: Business Hedging Produced Ordinary Treatment Under the Historical Code

By Aneeta Mishra and Timothy Chan

Published August 13, 2026

Corn Products Refining Co. v. Commissioner addressed a corn-products manufacturer that bought futures to protect its production needs against shortages and price increases and claimed capital treatment for the resulting gains and losses.

The futures were integrated with manufacturing risk

The company had limited storage and large corn requirements. It bought futures as part of its purchasing program, took delivery when needed, and sold excess contracts when a shortage did not materialize.

The Court viewed the transactions as business insurance

Although the positions were not true hedges in every technical respect, the Tax Court found them integral to manufacturing and a practical hedge against the company’s principal raw-material risk.

The 1939 Code result was ordinary treatment

The Court held that the futures were not capital assets in the taxpayer’s hands and that gains and losses were ordinary under the then-governing Code and administrative treatment of business hedges.

Later authority and statutes limit the historical rationale

Arkansas Best later rejected a broad business-motive exception to capital-asset status while preserving treatment grounded in statutory exclusions and hedging rules. A current analysis must use today’s sections 1221, 1256, regulations, identification rules, and the relevant tax year.

Key takeaways

• Document the risk being hedged and its connection to ordinary business property.
• Identify each transaction as required by current hedging regulations.
• Determine whether section 1256 or another character rule applies.
• Do not rely on Corn Products without applying Arkansas Best and current statutory text.