Section 1256 contracts

(redirected from Section 1256)

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.
References in periodicals archive ?
1) The owner may elect to exclude the IRC Section 1256 contract (or contracts) from the mark-to-market tax rules explained in Q 1076 and have all the positions in the straddle taxed under the loss deferral, wash sale, and short sale rules of IRC Section 1092 (see Q 1079).
On July 10, 1985, A enters into an offsetting section 1256 contract and makes a valid election to treat the straddle as a section 1092(b)(2) identified mixed straddle.
A forward contract based on any major currency will meet these three criteria, and thus will constitute a section 1256 contract.
Section 1256 Contracts and Mark-to-Market Taxation 630 H.
Section 1256 contains mark-to-market rules that require taxpayers to annually recognize as gain or loss any unrealized appreciation or depreciation in regulated futures, foreign currency, and certain other contracts.
Andrea Kramer of McDermott Will & Emery LLP discusses popular financial products and their uses; section 1256 contracts and the tax straddle rules; the mark-to-market rules; the special rules for commodities derivatives dealers; the tax treatment of supplies and tax hedges; and the effect Dodd-Frank has on certain popular financial products.
These options are considered "IRC Section 1256 contracts.
These sessions discussed varying topics such as financial crisis legislation affecting banks, status of interest expense allocation regulations, tax implications of new reserve requirements for variable annuities, insurance reserve updates, section 1256 creep, the Schering-Plough decision, and hedge fund and other debt equity issues.
Qualification under Section 1256 of the US IRS recognizes DME as qualified board or exchange, a statement from the DME said.
Any position from which all of the appreciation is accounted for under marked to market rules, including IRC Section 1256 contracts (regulated futures contract, foreign currency contract, non-equity option, dealer equity option, or dealer securities futures contract).
Access automatic gain and loss reporting for IRS Section 1256 securities, which are subject to special tax treatment.
3) Thus, holders of these contracts generally are not subject to the mark-to-market rules of IRC Section 1256 (see Q 7697) and are not eligible for 60% long-term capital gain treatment.