On January 24, House Ways and Means Committee Chairman Camp (R-MI) released a discussion draft of proposals to reform the taxation of certain financial instruments and products (the Camp Draft). In brief, the Camp Draft:
- Requires most derivatives to be marked-to-market on an annual basis, subject to some limited exceptions;
- Modifies the rules for determining issue price in debt modifications and exchange transactions;
- Mandates the current inclusion of market discount in income over the life of a bond;
- Liberalizes hedge identification requirements;
- Directs the use of the average basis method for purposes of calculating gain or loss on the sale, exchange, or other disposition of specified securities; and
- Offers several proposals that mainly are of interest to individual taxpayers, including an expansion of the scope of the wash sale rules.
While the Camp Draft is only a proposal, it does offer a glimpse into possible changes that may be in the offing, and the preliminary response from Treasury officials has been positive.
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