Reg. § 1.1092(b)-3T Mixed straddles; straddle-by-straddle identification under section 1092(b)(2)(A)(i)(I) (Temporary).
(a) In general Except as otherwise provided, a taxpayer shall treat in accordance with of this section gains and losses on positions that are part of a mixed straddle for which the taxpayer has made an election under of this section (hereinafter referred to as a section identified mixed straddle). No election may be made under this section for any straddle composed of one or more positions that are includible in a mixed straddle account (as defined in ) or for any straddle for which an election under section has been made. See relating to definitions.
(b) Treatment of gains and losses from positions included in a section 1092(b)(2) identified mixed straddle
(1) In general Gains and losses from positions that are part of a section identified mixed straddle shall be determined and treated in accordance with the rules of through of this section.
(2) All positions of a section 1092(b)(2) identified mixed straddle are disposed of on the same day If all positions of a section identified mixed straddle are disposed of (or deemed disposed of) on the same say, gains and losses from section contracts in the straddle shall be netted, and gains and losses from non-section positions in the straddle shall be netted. Net gain or loss from the section contracts shall then be offset against net gain or loss from the non-section positions to determine the net gain or loss from the straddle. If net gain or loss from the straddle is attributable to the positions of the straddle that are section contracts, such gain or loss shall be treated as 60 percent long-term capital gain or loss and 40 percent short-term capital gain or loss. If net gain or loss from the straddle is attributable to the positions of the straddle that are non-section positions, such gain or loss shall be treated as short-term capital gain or loss. This may be illustrated by the following examples. It is assumed in each example that the positions are the only positions held directly or indirectly (through a related person or flowthrough entity) by an individual calendar year taxpayer during the taxable year.
Example 1. On April 1, 1985, A enters into a non-section position and an offsetting section contract and makes a valid election to treat such straddle as a section identified mixed straddle. On April 10, 1985, A disposes of the non-section position at a $600 loss and the section contract at a $600 gain. Under these circumstances, the $600 loss on the non-section position will be offset against the $600 gain on the section contract and the net gain or loss from the straddle will be zero.
Example 2. Assume the facts are the same as in example (1), except that the gain on the section contract is $800. Under these circumstances, the $600 loss on the non-section position will be offset against the $800 gain on the section contract. The net gain of $200 from the straddle will be treated as 60 percent long-term capital gain and 40 percent short-term capital gain because it is attributable to the section contract.
Example 3. Assume the facts are the same as in example (1), except that the loss on the non-section position is $800. Under these circumstances, the $600 gain on the section contract will be offset against the $800 loss on the non-section position. The net loss of $200 from the straddle will be treated as short-term capital loss because it is attributable to the non-section position.
Example 4. On May 1, 1985, A enters into a straddle consisting of two non-section positions and two section contracts and makes a valid election to treat the straddle as a section identified mixed straddle. On May 10, 1985, A disposes of the non-section positions, one at a $700 loss and the other at a $500 gain, and disposes of the section contracts, one at a $400 gain and the other at a $300 loss. Under these circumstances, the gain and losses from the section contracts and non-section positions will first be netted, resulting in a net gain of $100 ($400-$300) on the section contracts and a net loss of $200 ($700-$500) on the non-section positions. The net gain of $100 from the section contracts will then be offset against the $200 net loss on the non-section positions. The net loss of $100 from the straddle will be treated as short-term capital loss because it is attributable to the non-section positions.
Example 5. On December 30, 1985, A enters into a section contract and an offsetting non-section position and makes a valid election to treat such straddle as a section identified mixed straddle. On December 31, 1985, A disposes of the non-section position at a $2,000 gain. A also realizes a $2,000 loss on the section contract because it is deemed disposed of under section . Under these circumstances, the $2,000 gain on the non-section position will be offset against the $2,000 loss on the section contract, and the net gain or loss from the straddle will be zero.
Example 6. Assume the facts are the same as in example (5), except that the section identified mixed straddle was entered into on November 12, 1985, A realizes a $2,200 loss on the section contract, and on December 15, 1985, A enters into a non-section position that is offsetting to the non-section gain position of the section identified mixed straddle. At year-end there is $200 of unrecognized gain in the non-section position that was entered into on December 15. Under these circumstances, the $2,200 loss on the section contract will be offset against the $2,000 gain on the non-section position. The net $200 loss from the straddle will be treated as 60 percent long-term capital loss and 40 percent short-term capital loss because it is attributable to the section contract. The net loss of $200 from the straddle will be disallowed in 1985 under the loss deferral rules of section because there is $200 of unrecognized gain in a successor position (as defined in ) at year-end. See of this section.
(3) All of the non-section 1256 positions of a section 1092(b)(2) identified mixed straddle disposed of on the same day This applies if all of the non-section positions of a section identified mixed straddle are disposed of on the same day or if this is made applicable by of this section. In the case to which this applies, gain and loss realized from non-section positions shall be netted. Realized and unrealized gain and loss with respect to the section contracts of the straddle also shall be netted on that day. Realized net gain or loss from the non-section positions shall then be offset against net gain or loss from the section contracts to determine the net gain or loss from the straddle on that day. Net gain or loss from the straddle that is attributable to the non-section positions shall be realized and treated as short-term capital gain or loss on that day. Net gain or loss from the straddle that is attributable to realized gain or loss with respect to section contracts shall be realized and treated as 60 percent long-term capital gain or loss and 40 percent short-term capital gain or loss. Any gain or loss subsequently realized on the section contracts shall be adjusted (through an adjustment to basis or otherwise) to take into account the extent to which gain or loss was offset by unrealized gain or loss on the section contracts on that day. This may be illustrated by the following examples. It is assumed in each example that the positions are the only positions held directly or indirectly (through a related person or flowthrough entity) by an individual calendar year taxpayer during the taxable year.
Example 1. On July 20, 1985, A enters into a section contract and an offsetting non-section position and makes a valid election to treat such straddle as a section identified mixed straddle. On July 27, 1985, A disposes of the non-section position at a $1,500 loss, at which time there is $1,500 of unrealized gain in the section contract. A holds the section contract at year-end at which time there is $1,800 of gain. Under these circumstances, on July 27, 1985, A offsets the $1,500 loss on the non-section position against the $1,500 gain on the section contract and realizes no gain or loss. On December 31, 1985, A realizes a $300 gain on the section contract because the position is deemed disposed of under section . The $300 gain is equal to $1,800 of gain less a $1,500 adjustment for unrealized gain offset against the loss realized on the non-section position on July 27, 1985, and the gain will be treated as 60 percent long-term capital gain and 40 percent short-term capital gain.
Example 2. Assume the facts are the same as in example (1), except that on July 27, 1985, A realized a $1,700 loss on the non-section position. Under these circumstances, on July 27, 1985, A offsets the $1,700 loss on the non-section position against the $1,500 gain on the section contract. A realizes a $200 loss from the straddle on July 27, 1985, which will be treated as short-term capital loss because it is attributable to the non-section position. On December 31, 1985, A realizes a $300 gain on the section contract, computed as in example (1), which will be treated as 60 percent long-term capital gain and 40 percent short-term capital gain.
Example 3. On March 1, 1985, A enters into a straddle consisting of two non-section positions and two section contracts and makes a valid election to treat such straddle as a section identified mixed straddle. On March 11, 1985, A disposes of the non-section positions, one at a $100 loss and the other at a $150 loss, and disposes of one section contract at a $100 loss. On that day there is $100 of unrealized gain on the section contract retained by A. A holds the remaining section contract at year-end, at which time there is $150 of gain. Under these circumstances, on March 11, 1985, A will first net the gains and losses from the section contracts and net the gains and losses from the non-section positions resulting in no gain or loss on the section contracts and a net loss of $250 on the non-section positions. Since there is no gain or loss to offset against the non-section positions, the net loss of $250 will be treated as short-term capital loss because it is attributable to the non-section positions. On December 31, 1985, A realizes a $50 gain on the remaining section contract because the position is deemed disposed of under section . The $50 gain is equal to $150 gain less a $100 adjustment to take into account the $100 unrealized gain that was offset against the $100 loss realized on the section contract on March 11, 1985.
Example 4. Assume the facts are the same as in example (3), except that A disposes of the section contract at a $500 gain. As in example (3), A has a net loss of $250 on the non-section positions disposed of. In this example, however, A has net gain of $600 ($500 + $100) on the section contracts on March 11, 1985. Therefore, of the net gain from the straddle of $350 ($600-$250), $250 ($500-$250) is treated as 60 percent long-term capital gain and 40 percent short-term capital gain because only $250 is attributable to the realized gain from the section contract. In addition, because none of the $100 unrealized gain from the remaining section contract was offset against gain or loss on the non-section positions, no adjustment is made under of this section and the entire $150 gain on December 31 with respect to that contract is realized on that date.
(4) All of the section 1256 contracts of a section 1092(b)(2) identified mixed straddle disposed of on the same day This applies if all of the section contracts of a section identified mixed straddle are disposed of (or deemed disposed of) on the same day or if this is made applicable by of this section. In the case to which this applies, gain and loss realized from section contracts shall be netted. Realized and unrealized gain and loss with respect to the non-section positions of the straddle also shall be netted on that day. Realized net gain or loss from the section contracts shall be treated as short-term capital gain or loss to the extent of net gain or loss on the non-section positions on that day. Net gain or loss with respect to the section contracts that exceeds the net gain or loss with respect to the non-section positions of the straddle shall be treated as 60 percent long-term capital gain or loss and 40 percent short-term capital gain or loss. See of this section relating to the gain or loss on such non-section positions. This may be illustrated by the following examples. It is assumed in each example that the positions are the only positions held directly or indirectly (through a related person or flowthrough entity) by an individual calendar year taxpayer during the taxable year.
Example 1. On December 30, 1985, A enters into a section contract and an offsetting non-section position and makes a valid election to treat such straddle as a section identified mixed straddle. On December 31, 1985, A disposes of the section contract at a $1,000 gain, at which time there is $1,000 of unrealized loss in the non-section position. Under these circumstances, the $1,000 gain realized on the section contract will be treated as short-term capital gain because there is a $1,000 loss on the non-section position.
Example 2. Assume the facts are the same as in example (1), except that A realized a $1,500 gain on the disposition of the section contract. Under these circumstances, $1,000 of the gain realized on the section contract will be treated as short-term capital gain because there is a $1,000 loss on the non-section position. The net gain of $500 from the straddle will be treated as 60 percent long-term capital gain and 40 percent short-term capital gain because it is attributable to the section contract.
Example 3. Assume the facts are the same as in example (1), except that A realized a $1,000 loss on the section contract and there is $1,000 of unrecognized gain on the non-section position. Under these circumstances, the $1,000 loss on the section contract will be treated as short-term capital loss because there is a $1,000 gain on the non-section position. Such loss, however, will be disallowed in 1985 under the loss deferral rules of section because there is $1,000 of unrecognized gain in an offsetting position at year-end. See of this section.
Example 4. Assume the facts are the same as in example (1), except that the section contract and non-section position were entered into on December 1, 1985, and the section contract is disposed of on December 19, 1985, for a $1,000 gain, at which time there is $1,000 of unrealized loss on the non-section position. At year-end there is only $800 of unrealized loss in the non-section position. Under these circumstances, the result is the same as in example (1) because there was $1,000 of unrealized loss on the non-section position at the time of the disposition of the section contract.
Example 5. On July 15, 1985, A enters into a straddle consisting of two non-section positions and two section contracts and makes a valid election to treat such straddle as a section identified mixed straddle. On July 20, 1985, A disposes of one non-section position at a gain of $1,000 and both section contracts at a net loss of $1,000. On the same day there is $200 of unrealized loss on the non-section position retained by A. Under these circumstances, realized and unrealized gain and loss with respect to the non-section positions is netted, resulting in a net gain of $800. Thus, $800 of the net loss on the section contracts disposed of will be treated as short-term capital loss because there is $800 of net gain on the non-section positions. In addition, the net loss of $200 from the straddle will be treated as 60 percent long-term capital loss and 40 percent short-term capital loss because it is attributable to the section contract.
(5) Disposition of one or more, but not all, positions of a section 1092(b)(2) identified mixed straddle on the same day If one or more, but not all, of the positions of a section identified mixed straddle are disposed of on the same day, and and of this section are not applicable (without regard to this ), the gain and loss from the non-section positions that are disposed of on that day shall be netted, and the gain and loss from the section contracts that are disposed of on that day shall be netted. In order to determine whether the rules of or of this section apply, net gain or loss from the section contracts disposed of shall then be offset against net gain or loss from the non-section positions disposed of to determine net gain or loss from such positions of the straddle. If net gain or loss from the disposition of such positions of the straddle is attributable to the non-section positions disposed of, the rules prescribed in of this section apply. If net gain or loss from the disposition of such positions is attributable to the section contracts disposed of, the rules prescribed in of this section apply. If the net gain or loss from the netting of non-section positions disposed of and the netting of section contracts disposed of are either both gains or losses, the rules prescribed in of this section shall apply to net gain or loss from such non-section positions, and the rules prescribed in of this section shall apply to net gain or loss from such section contracts. However, for purposes of determining the treatment of gain or loss subsequently realized on a position of such straddle, to the extent that unrealized gain or loss on other positions was used to offset realized gain or loss on a non-section position under of this section, or was used to treat realized gain or loss on a section contract as short-term capital gain or loss under of this section, such amount shall not be used for such purposes again. This may be illustrated by the following examples. It is assumed that the positions are the only positions held directly or indirectly (through a related person or flowthrough entity) by an individual calendar year taxpayer during the taxable year.
Example 1. On July 15, 1985, A enters into a straddle consisting of four non-section positions and four section contracts and makes a valid election to treat such straddle as a section identified mixed straddle. On July 20, 1985, A disposes of one non-section position at a gain of $800 and one section contract at a loss of $300. On the same day there is $400 of unrealized net loss on the section contracts retained by A and $100 of unrealized net loss on the non-section positions retained by A. Under these circumstances, the loss of $300 on the section contract disposed of will be offset against the gain of $800 on the non-section position disposed of. The net gain of $500 is attributable to the non-section position. Therefore, the rules of of this section apply. Under the rules of of this section, the net loss of $700 on the section contracts is offset against the net gain of $800 attributable to the non-section position disposed of. The net gain of $100 will be treated as short-term capital gain because it is attributable to the non-section position disposed of. Gain or loss subsequently realized on the section contracts will be adjusted to take into account the unrealized loss of $400 that was offset against the $800 gain attributable to the non-section position disposed of.
Example 2. Assume the facts are the same as in Example 1, except that A disposes of the non-section position at a gain of $300 and the section contract at a loss of $800, and there is $200 of unrealized net gain in the non-section positions retained by A. Under these circumstances, the gain of $300 on the non-section position disposed of will be offset against the loss of $800 on the section contract disposed of. The net loss of $500 is attributable to the section contract. Therefore, the rules of of this section apply. Under the rules of of this section, $500 of the net loss realized on the section contract will be treated as short-term capital loss because there is $500 of realized and unrealized gain in the non-section positions. The remaining net loss of $300 will be treated as 60 percent long-term capital loss and 40 percent short-term capital loss because it is attributable to a section contract disposed of. In addition, A realizes a $300 short-term capital gain attributable to the disposition of the non-section position.
Example 3.
(i) Assume the facts are the same as in example (1), except that the section contract was disposed of at a $500 gain. Under these circumstances, there is gain of $500 attributable to the section contact disposed of and a gain of $800 attributable to the non-section position. Therefore, the rules of both paragraphs (b) (3) and (4) of this apply.
(ii) Under of this section, the realized and unrealized gains and losses on the section contracts are netted, resulting in a net gain of $100 ($500-$400). The section contract net gain does not offset the gain on the non-section position disposed of. Therefore, the gain of $800 on the non-section position disposed of will be treated as a short-term capital gain because there is no net loss on the section contracts.
(iii) Under of this section, the realized and unrealized gains and losses on the non-section positions are netted, resulting in a non-section position net gain of $700 ($800-$100). Because there is no net loss on the non-section positions, the $500 gain realized on the section contract will be treated as 60 percent long-term capital gain and 40 percent short-term capital gain.
(6) Accrued gain and loss with respect to positions of a section 1092(b)(2) identified mixed straddle established on or before August 18, 2014 The rules of this apply to all section identified mixed straddles established on or before August 18, 2014; see for section identified mixed straddles established after August 18, 2014. If one or more positions of a section identified mixed straddle were held by the taxpayer on the day prior to the day the section identified mixed straddle is established, such position or positions shall be deemed sold for their fair market value as of the close of the last business day preceding the day such straddle is established. See and for application of the loss deferral and wash sale rules and for treatment of holding periods and losses with respect to such positions. An adjustment (through an adjustment to basis or otherwise) shall be made to any subsequent gain or loss realized with respect to such to such position or positions for any gain or loss recognized under this . This may be illustrated by the following examples. It is assumed in each example that the positions are the only positions held directly or indirectly (through a related person or flowthrough entity) by an individual calendar year taxpayer during the taxable year.
Example 1. On January 1, 1985, A enters into a non-section position. As of the close of the day on July 9, 1985, there is $500 of unrealized long-term capital gain in the non-section position. On July 10, 1985, A enters into an offsetting section contract and makes a valid election to treat the straddle as a section identified mixed straddle. Under these circumstances, on July 9, 1985, A will recognize $500 of long-term capital gain on the non-section position.
Example 2. On February 1, 1985, A enters into a section contract. As of the close of the day on February 4, 1985, there is $500 of unrealized gain on the section contract. On February 5, 1985, A enters into an offsetting non-section position and makes a valid election to treat the straddle as a section identified mixed straddle. Under these circumstances, on February 4, 1985, A will recognize a $500 gain on the section contract, which will be treated as 60 percent long-term capital gain and 40 percent short-term capital gain.
Example 3. Assume the facts are the same as in example (2) and that on February 10, 1985, there is $2,000 of unrealized gain in the section contract. A disposes of the section contract at a $2,000 gain and disposes of the offsetting non-section position at a $1,000 loss. Under these circumstances, the $2,000 gain on the section contract will be reduced to $1,500 to take into account the $500 gain recognized when the section identified mixed straddle was established. The $1,500 gain on the section contract will be offset against the $1,000 loss on the non-section position. The net $500 gain from the straddle will be treated as 60 percent long-term capital gain and 40 percent short-term capital gain because it is attributable to the section contract.
Example 4. On March 1, 1985, A enters into a non-section position. As of the close of the day on March 2, 1985, there is $400 of unrealized short-term capital gain in the non-section position. On March 3, 1985, A enters into an offsetting section contract and makes a valid election to treat the straddle as a section identified mixed straddle. On March 10, 1985, A disposes of the section contract at a $500 loss and the non-section position at a $500 gain. Under these circumstances, on March 2, 1985, A will recognize $400 of short-term capital gain attributable to the gain accrued on the non-section position prior to the day the section identified mixed straddle was established. On March 10, 1985, the gain of $500 on the non-section position will be reduced to $100 to take into account the $400 of gain recognized when the section identified mixed straddle was established. The $100 gain on the non-section position will be offset against the $500 loss on the section contract. The net loss of $400 from the straddle will be treated as 60 percent long-term capital loss and 40 percent short-term capital loss because it is attributable to the section contract.
(7) Treatment of gain and loss from non-section 1256 positions after disposition of all section 1256 contracts Gain or loss on a non-section position that is part of a section identified mixed straddle and that is held after all section contracts in the straddle are disposed of shall be treated as short-term capital gain or loss to the extent attributable to the period when the positions were part of such straddle. See for rules concerning the holding period of such positions. This may be illustrated by the following example. It is assumed that the positions are the only positions held directly or indirectly (through a related person or flowthrough entity) during the taxable years.
Example: On December 1, 1985, A, an individual calendar year taxpayer, enters into a section contract and an offsetting non-section position and makes a valid election to treat such straddle as a section identified mixed straddle. On December 31, 1985, A disposes of the section contract at a $1,000 loss. On the same day, there is $1,000 of unrecognized gain in the non-section position. The $1,000 loss on the section contract is treated as short-term capital loss because there is a $1,000 gain on the non-section position, but the $1,000 loss is disallowed in 1985 because there is $1,000 of unrecognized gain in the offsetting nonsection 1256 position. See section and . On July 10, 1986, A disposes of the non-section position at a $1,500 gain, $500 of which is attributable to the post-straddle period. Under these circumstances, $1,000 of the gain on the non-section position will be treated as short-term capital gain because that amount of the gain is attributable to the period when the position was part of a section identified mixed straddle. The remaining $500 of the gain will be treated as long-term capital gain because the position was held for more than six months after the straddle was terminated. In addition, the $1,000 short-term capital loss disallowed in 1985 will be taken into account at this time.
(c) Coordination with loss deferral and wash sale rules of § 1.1092(b)-1T This section shall apply prior to the application of the loss deferral and wash sale rules of .
(d) Identification required
(1) In general To elect the provisions of this section, a taxpayer must clearly identify on a reasonable and consistently applied economic basis each position that is part of the section identified mixed straddle before the close of the day on which the section identified mixed straddle is established. If the taxpayer disposes of a position that is part of a section identified mixed straddle before the close of the day on which the straddle is established, such identification must be made at or before the time that the taxpayer disposes of the position. In the case of a taxpayer who is an individual, the close of the day is midnight (local time) in the location of the taxpayer's principal residence. In the case of all other taxpayers, the close of the day is midnight (local time) in the location of the taxpayer's principal place of business. Only the person or entity that directly holds all positions of a straddle may make the election under this section.
(2) Presumptions A taxpayer is presumed to have identified a section identified mixed straddle by the time prescribed in of this section if the taxpayer receives independent verification of the identification (within the meaning of of this section). The presumption referred to in this may be rebutted by clear and convincing evidence to the contrary.
(3) Corroborating evidence If the presumption of of this section does not apply, the burden shall be on the taxpayer to establish that an election under of this section was made by the time specified in of this section. If the taxpayer has no evidence of the time when the identification required by of this section is made, other than the taxpayer's own testimony, the election is invalid unless the taxpayer shows good cause for failure to have evidence other than the taxpayer's own testimony.
(4) Independent verification For purposes of this section, the following constitute independent verification:
(i) Separate account Placement of one or more positions of a section identified mixed straddle in a separate account designated as a section identified mixed straddle account that is maintained by a broker (as defined in ), futures commission merchant (as defined in 7 U.S.C. 2 and 17 CFR 1.3(p)), or similar person and in which notations are made by such person identifying all positions of the section identified mixed straddle and stating the date the straddle is established.
(ii) Confirmation A written confirmation from a person referred to in of this section, or from the party from which one or more positions of the section identified mixed straddle are acquired, stating the date the straddle is established and identifying the other positions of the straddle.
(iii) Other methods Such other methods of independent verification as the Commissioner may approve at the Commissioner's discretion.
(5) Section 1092 (b)(2) identified mixed straddles established before February 25, 1985 Notwithstanding the provisions of of this section, relating to the time of identification of a section identified mixed straddle, a taxpayer may identify straddles that were established before February 25, 1985 as section identified mixed straddles after the time specified in of this section if the taxpayer adopts a reasonable and consistent economic basis for identifying the positions of such straddles.
(e) Effective date
(1) In general The provisions of this section shall apply to straddles established on or after January 1, 1984.
(2) Pre-1984 accrued gain If the last business day referred to in of this section is contained in a period to which paragraph (b)(6) does not apply, the gains and losses from the deemed sale shall be included in the first period to which paragraph (b)(6) applies.
(Secs. 1092(b)(1), 1092(b)(2) and 7805 of the Internal Revenue Code of 1954 (68A Stat. 917, 98 Stat. 627; 26 U.S.C. 1092(b)(1), 1092(b)(2), 7805))
[T.D. 8008, 50 FR 3325, Jan. 24, 1985; 50 FR 12243, Mar. 28, 1985; 50 FR 19344, May 8, 1985; T.D. 9627, 78 FR 46808, Aug. 2, 2013; 78 FR 64397, Oct. 29, 2013; T.D. 9678, 79 FR 41888, July 18, 2014]