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Section 1256 Contracts
(redirected from Section 1256 Contract)

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Section 1256 Contracts
Investments that fall under Section 1256 of the U.S. Tax Code, namely, any regulated futures contract, any foreign currency contract, any non-equity option, any dealer equity option, and any dealer securities futures contract. Section 1256 contracts are treated differently from other securities for tax purposes. Specifically, rather than waiting to tax them until they are sold, Section 1256 contracts are treated as if they were sold at market value on the last day of the tax year. This means that one may be liable for capital gains taxes on a Section 1256 contracts even though the positions are still open. See also: Form 6781.
Section 1256 contracts
Any of several types of futures and options contracts that are subject to a special tax rule of the Internal Revenue Service. Named for a section of the IRS Code, these contracts must generally be treated as if they are sold at fair market value on the last business day of the tax year. Section 1256 contracts include regulated futures contracts, foreign currency contracts, nonequity options, dealer equity options, and dealer securities futures contracts.
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The taxpayers took the position that because the euro is a "major" currency traded on the interbank market, its options are section 1256 contracts that must be marked to market (allowing them to recognize a loss), and because the krone is a "minor" currency its options are not section 1256 contracts and are not marked to market (enabling them to avoid recognizing a gain).
Currency option not a contract in "major/minor" shelter by Reichert, Charles J. / Journal of Accountancy
Taxation as a Financial Instrument: Section 1256 Contracts As discussed above, HedgeStreet is the only exchange to take a position on the taxation of its contracts, and it advises its customers to claim the traded contracts are regulated futures contracts under section 1256.
Predicting the taxation of prediction markets by Robin Cleary, Philip / Virginia Tax Review
A taxpayer other than a corporation, estate or trust (section 1212(c)) may elect to carry back a "net section 1256 contracts loss" to each of the three taxable years preceding the loss year to offset any net section 1256 contract gain in those years.
Turning business losses into tax refunds: take best advantage of the ... by Harrison, Robert E. / Journal of Accountancy
 
 
 
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