Legal Alert: Camping on "The Street": A First Step in the Reform of the Taxation of Financial Instruments and Products

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.

Please see full alert below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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