1256 contract is defined as any of the following types of contracts: (1) any regulated futures contract, (2) any foreign currency contract, (3) any nonequity option
, (4) any dealer equity option, or (5) any dealer securities futures contracts.
(Prior to December 21, 2000, if the Commodity FuturesTrading Commission had designated a contract market for trading an option whose value was determined directly or indirectly by reference to a particular stock, or if the Treasury had determined that the requirements for CFTC designation had been met, then the option was a nonequity option
. (5a)) Broad-based stock index futures, however, remain under the exclusive jurisdiction of the CFTC.
If a tax straddle is made up solely of regulated futures contracts, foreign currency contracts, and nonequity option
contracts (i.e., "IRC Section 1256 contracts"), each contract is generally taxed independently under the mark-to-market tax rules explained in Q 7697, except that if the investor takes delivery under, or exercises, any of the contracts making up the straddle, all the contracts in the straddle are deemed to have been terminated on the day of the delivery or exercise.
988 transaction if it represents a regulated futures contract or nonequity option
that would be marked to market under Sec.
At issue was whether the option would be viewed as a listed nonequity option
. If so, a holder would be constrained to mark the instrument to market each year and pay tax (prematurely) on the unrealized gain.
used a regulated futures contract or a nonequity option
to hedge its foreign currency exposure, the instrument would be marked to market at December 31, 1991, and treated as 60% long-term and 40% short-term capital loss.
PROPERTY SUBJECT TO STRADDLE RULES Section 1256 Contracts Non-Section 1256 Property Regulated futures contracts Stock options Nonequity option
contracts (see Q 1068) Other equity options (see Q 1067) Foreign currency contracts Direct ownership of stock--but only when Dealer equity options at least one offsetting position is: 1) an option (other than a qualified covered call option) on such stock or on substantially similar stock or securities; 2) substantially similar property; or 3) stock of certain corporations which take positions that offset positions held by Shareholders (see Q 1078) Forward contracts Other actively traded personal property which is not a Section 1256 contract Securities futures contracts (see Q 1072) 1078.
* Regulated futures contracts, foreign currency contracts, nonequity options
(IRC section 1256 contracts)
1256 contracts, which include regulated futures contracts, foreign currency contracts, nonequity options
, dealer equity options, and dealer securities futures contracts.
IRC section 1256(b) encompasses any of the following types of contracts: 1) regulated futures contracts, 2) foreign currency contracts, 3) nonequity options
, 4) dealer equity options, or 5) dealer securities futures contracts.
1256, even if such options are listed and otherwise would be nonequity options
Other types of instruments that are taxed in the same manner are foreign currency contracts and nonequity options
. See Q 7689.