Financial Reform Legislation Amends Section 1256 of the Internal Revenue Code to Provide Greater Certainty with Respect to the Tax Treatment of Swaps, Caps, Floors, and Similar Agreements

more+
less-

Among other things, the financial reform legislation signed by the President today mandates the formation of exchanges for certain types of derivative instruments. In response to the proposed legislation, concerns were raised that this aspect of the legislation would materially alter the U.S. federal income tax treatment of investments in these types of derivative instruments, specifically causing them to be subject to the mark-to-market requirement and special gain characterization rules of section 1256.

Section 1256 provides for “mark-to-market” treatment for "section 1256 contracts.” In general, a taxpayer holding a section 1256 contract is treated for tax purposes as having sold that contract for fair market value at the end of the taxpayer's taxable year, recognizing any gain or loss in the contract. The gain or loss recognized is subject to a special rule: 40% of any gain or loss is treated as “short term” capital gain or loss (i.e., the type of gain or loss recognized on capital assets held by the taxpayer for less than one year), and 60% of any gain or loss is treated as “long term” capital gain or loss.

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.


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.

© Sutherland Asbill & Brennan LLP | Attorney Advertising

Written by:

more+
less-

Sutherland Asbill & Brennan LLP on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
×
Loading...
×
×