7597. How is a tax straddle taxed if it is made up solely of Section 1256 contracts?Nuco Employeercline202014-06-27T14:45:00Z2014-06-27T14:45:00Z23862201Case Western Reserve University185258214Site Map/Investments/StraddlesTaxFactsDefaultArticle2006-01-04T00:00:00Z121111080-00-tf2.xml1080.00;#1842;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2How is a tax straddle taxed if it is made up solely of Section 1256 contracts?
46700.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-14T23:03:30Z7597. How is a tax straddle taxed if it is made up solely of Section 1256 contracts?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 7585, 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. That is, all contracts will be deemed to have been sold or otherwise terminated on that day.IRC Secs. 1256(a), 1256(c)(2).A tax straddle made up solely of IRC Section 1256 contracts is excepted from the loss deferral, wash sale, and short sale rules of IRC Section 1092 and the capitalization provisions of IRC Section 263(g). See Q 7592 for an explanation of those rules.IRC Sec. 1256(a)(4).A portion of any gain recognized upon disposition or other termination of a straddle that is part of a conversion transaction (See Q 7603) may be treated as ordinary income. A straddle will be subject to these rules if substantially all of the taxpayer’s expected return from the investment is attributable to the time value of the taxpayer’s net investment in the transaction.IRC Sec. 1258(c). See Q 7603 and Q 7604 for the definition and tax treatment of conversion transactions.Although IRC Section 1256 contracts are excluded from the definition of an appreciated financial position under IRC Section 1259(b)(2)(B) (see Q 7605), depending on the taxpayer’s other holdings, it appears that a constructive sale could result from entering into an IRC Section 1256 contract to deliver property that is the same as or substantially identical to an appreciated financial position held by the taxpayer (see Q 7605 to Q 7607).See IRC Secs. 1259(c)(1)(C), 1259(c)(1)(E).