In This Issue:

Proposed Regulations Would Expand and Clarify What Contracts Qualify as NPCs for Tax Purposes; The Handwriting is on the Wall; Recognition of Unamortized Hedge Gain Could Not Be Deferred; Ninth Circuit Affirms Samueli Ruling; Countdown to March 18, 2012: Are You Ready?; IRS and Treasury Release 2011- 2012 Priority Guidance Plan; Even Though Republicans Now Control Ways and Means Committee – Accounting Gimmicks Still Used as Pay-Fors; Tanning Tax: Was it Worth it?; GOP Presidential Candidates’ Tax Positions; The Classroom – Integrating a Debt Instrument with a Hedge into a Synthetic Debt Instrument; and MoFo in the News.

Proposed Regulations Would Expand and Clarify What Contracts Qualify as NPCs for Tax Purposes

In response to the financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd- Frank”) to, among other things, increase regulation of the capital markets. In Congress’s attempt to increase regulation, Dodd-Frank requires the Commodity Futures Trading Commission (“CFTC”) to establish a comprehensive regulatory framework for swaps,1 which includes the trading of swaps on registered exchanges. With the advent of swaps trading on registered exchanges, however, Congress feared such swaps would now qualify as “section 1256 contracts,” resulting in specific character and timing (e.g., markto- market) treatment for tax purposes. As a result, Congress included section 1256(b) (2)(B)2 in Dodd-Frank, which carves out swaps and other similar agreements, even if traded on or subject to the rules of an exchange, from the definition of a “section 1256 contract.” On September 16, 2011, the IRS and Treasury published proposed regulations providing guidance on the category of swaps and similar agreements that are included in the carve-out from a “section 1256 contract” and on the scope of the notional principal contract definition.