II 

115TH CONGRESS 

1ST SESSION S. 1005 

To amend the Internal Revenue Code of 1986 to modernize the tax treatment 

of derivatives and their underlying investments, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

MAY 2, 2017 

Mr. WYDEN introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to modernize 

the tax treatment of derivatives and their underlying 

investments, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Modernization of Derivatives Tax Act of 2017’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 

9 to, or repeal of, a section or other provision, the reference 


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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986. 

3 SEC. 2. MODERNIZATION OF TAX TREATMENT OF CERTAIN 

4 DERIVATIVES. 

5 (a) IN GENERAL.—Subchapter E of chapter 1 is 

6 amended by adding at the end the following new part: 

7 ‘‘PART IV—TAX TREATMENT OF DERIVATIVES 

8 AND SIMILAR CONTRACTS 

‘‘SUBPART A. DERIVATIVES

‘‘SUBPART B. SIMILAR CONTRACTS

9 ‘‘Subpart A—Derivatives 

‘‘Sec. 491. Rules for treatment of derivatives. 

‘‘Sec. 492. Investment hedging units. 

‘‘Sec. 493. Derivative defined. 

10 ‘‘SEC. 491. RULES FOR TREATMENT OF DERIVATIVES. 

11 ‘‘(a) IN GENERAL.—For purposes of this title, if 

12 there is a taxable event with respect to a derivative or an 

13 underlying investment— 

14 ‘‘(1) notwithstanding any other provision of this 

15 title, except as provided in subsection (b)(3)(A) or 

16 section 1032, gain or loss shall be recognized and 

17 taken into account in the taxable year in which the 

18 taxable event occurs, and 

19 ‘‘(2) proper adjustment shall be made in the 

20 amount of any subsequent gain or loss for gain or 

21 loss taken into account by reason of paragraph (1). 


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1 ‘‘(b) RULES RELATING TO GAIN OR LOSS.—Notwith2 standing any other provision of this title— 

3 ‘‘(1) CHARACTER AND SOURCE OF GAIN OR

4 LOSS.— 

5 ‘‘(A) CHARACTER.—Except as provided in 

6 paragraph (3)(B), any item of income, deduc7 tion, gain, or loss taken into account under sub8 section (a) with respect to a taxable event shall 

9 be treated as— 

10 ‘‘(i) ordinary income or loss, and 

11 ‘‘(ii) attributable to a trade or busi12 ness of the taxpayer for purposes of sec13 tions 62(a) and 172(d)(4). 

14 ‘‘(B) SOURCE OF GAIN OR LOSS FROM DE15 RIVATIVES.—In the case of a taxable event with 

16 respect to a derivative, any item of income, de17 duction, gain, or loss taken into account under 

18 subsection (a) shall be treated as derived from 

19 sources within the country of residence of the 

20 taxpayer. 

21 ‘‘(2) DETERMINATION OF AMOUNT.— 

22 ‘‘(A) IN GENERAL.—The amount of gain 

23 or loss taken into account under subsection (a) 

24 with respect to a taxable event shall be— 


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1 ‘‘(i) in the case of a taxable event in2 volving the termination or transfer of a de3 rivative or the sale or exchange of an un4 derlying investment, the amount of gain or 

5 loss determined under this title with re6 spect to the taxable event, or 

7 ‘‘(ii) in the case of any other taxable 

8 event, the amount of gain or loss which 

9 would be determined under this title if, im10 mediately before the taxable event— 

11 ‘‘(I) in the case of a derivative, 

12 the derivative were terminated or 

13 transferred at its fair market value, or 

14 ‘‘(II) in the case of an underlying 

15 investment, the investment were sold 

16 or exchanged at its fair market value. 

17 ‘‘(B) RELIANCE ON VALUATION.—For pur18 poses of subparagraph (A), the taxpayer may 

19 rely on a valuation which is— 

20 ‘‘(i) provided to the taxpayer by a 

21 broker under section 6045(b), or 

22 ‘‘(ii) determined under an applicable 

23 financial statement. 

24 ‘‘(3) SPECIAL RULES FOR TAXABLE EVENTS

25 WITH RESPECT TO INVESTMENT HEDGING UNITS.— 


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1 ‘‘(A) IN GENERAL.—In the case of a tax2 able event described in subsection (c)(2) with 

3 respect to a derivative or underlying investment 

4 (other than a termination or transfer of the de5 rivative or the sale or exchange of the under6 lying investment)— 

7 ‘‘(i) notwithstanding subsection (a), 

8 built-in loss (if any) with respect to the de9 rivative or underlying investment shall not 

10 be recognized and shall not be taken into 

11 account by reason of such taxable event, 

12 and 

13 ‘‘(ii) notwithstanding paragraph (1), 

14 built-in gain (if any) with respect to the 

15 underlying investment shall be treated as 

16 long-term or short-term capital gain if the 

17 built-in gain would have been so treated if 

18 the investment were sold or exchanged at 

19 its fair market value immediately before 

20 the time the built-in gain is determined 

21 under subparagraph (D). 

22 ‘‘(B) IDENTIFICATION.—For purposes of 

23 this paragraph, the determination of which por24 tions of an underlying investment have been 

25 deemed sold or exchanged in a taxable event 


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1 shall be made in the same manner as if there 

2 had been an actual sale or exchange. 

3 ‘‘(C) BUILT-IN LOSS.—For purposes of 

4 this section, the term ‘built-in loss’ means, with 

5 respect to any derivative or underlying invest6 ment in an investment hedging unit, any loss 

7 which would have been recognized and taken 

8 into account under subsection (a) if the deriva9 tive were terminated or transferred, or the un10 derlying investment were sold or exchanged, at 

11 its fair market value as of the later of the time 

12 that the investment hedging unit was estab13 lished or the time the derivative or the under14 lying investment became part of the investment 

15 hedging unit. 

16 ‘‘(D) BUILT-IN GAIN.—For purposes of 

17 this section, the term ‘built-in gain’ means, with 

18 respect to any underlying investment in an in19 vestment hedging unit, any gain which would 

20 have been recognized and taken into account 

21 under subsection (a) if the underlying invest22 ment were sold or exchanged at its fair market 

23 value as of the later of the time that the invest24 ment hedging unit was established or the time 


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1 the underlying investment became part of the 

2 investment hedging unit. 

3 ‘‘(c) TAXABLE EVENT.—For purposes of this part, 

4 the term ‘taxable event’ means— 

5 ‘‘(1) with respect to any derivative which is not 

6 part of an investment hedging unit— 

7 ‘‘(A) the termination or transfer of such 

8 derivative, and 

9 ‘‘(B) the close of any taxable year if the 

10 taxpayer has rights or obligations with respect 

11 to such derivative at such time, and 

12 ‘‘(2) with respect to all derivatives and under13 lying investments which are part of the same invest14 ment hedging unit— 

15 ‘‘(A) the establishment of the investment 

16 hedging unit, 

17 ‘‘(B) the termination or transfer of any 

18 such derivative, 

19 ‘‘(C) the sale or exchange of all or any por20 tion of any such underlying investment, 

21 ‘‘(D) the entering into of another deriva22 tive, or the acquisition of an additional amount 

23 of such underlying investment, after the estab24 lishment of the investment hedging unit if such 

25 derivative or additional amount is treated as 


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1 part of the investment hedging unit under sec2 tion 492, and 

3 ‘‘(E) in the case of— 

4 ‘‘(i) an investment hedging unit with 

5 respect to which an election is in effect 

6 under section 492(b), the close of each 

7 business day, and 

8 ‘‘(ii) any other investment hedging 

9 unit, the close of any taxable year if the 

10 applicable hedging period with respect to 

11 such unit includes such close. 

12 ‘‘(3) TERMINATION OR TRANSFER.—For pur13 poses of this part, the term ‘termination or transfer’ 

14 includes, with respect to any derivative, any termi15 nation or transfer by offsetting, by taking or making 

16 delivery, by exercise or being exercised, by assign17 ment or being assigned, by lapse, by sale or other 

18 disposition, by assumption, or otherwise. 

19 ‘‘(d) TREATMENT OF PAYMENTS WITH RESPECT TO

20 CERTAIN DERIVATIVES.—Notwithstanding any other pro21 vision of this title— 

22 ‘‘(1) IN GENERAL.—Except as provided in regu23 lations prescribed by the Secretary, in the case of a 

24 payment pursuant to a derivative (other than an op25 tion)— 


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1 ‘‘(A) any item of income, deduction, gain, 

2 or loss with respect to the payment shall be 

3 taken into account for purposes of this title at 

4 the time of the payment, and 

5 ‘‘(B) proper adjustment shall be made in 

6 the amount of any subsequent gain or loss for 

7 items taken into account by reason of subpara8 graph (A). 

9 This paragraph shall not apply to a payment in con10 nection with a taxable event. 

11 ‘‘(2) RULES RELATING TO CHARACTER AND

12 SOURCE OF GAIN OR LOSS.—In the case of any item 

13 of income, deduction, gain, or loss with respect to 

14 payments described in paragraph (1)— 

15 ‘‘(A) the rules of subsection (b)(1)(A) shall 

16 apply in determining the character of such 

17 item, and 

18 ‘‘(B) except as provided in section 871(m), 

19 the rule of subsection (b)(1)(B) shall apply in 

20 determining the source of such item. 

21 ‘‘(e) SUSPENSION OF HOLDING PERIOD WHILE UN22 DERLYING INVESTMENT PART OF HEDGING UNIT.—For 

23 purposes of section 1222, in the case of any underlying 

24 investment which is part of an investment hedging unit, 

25 the holding period for such investment shall not include 


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1 any period during which the underlying investment is part 

2 of such unit. 

3 ‘‘(f) APPLICABLE FINANCIAL STATEMENT.—For 

4 purposes of this part, the term ‘applicable financial state5 ment’ means— 

6 ‘‘(1) a financial statement which is certified as 

7 being prepared in accordance with generally accept8 ed accounting principles and which is— 

9 ‘‘(A) a 10–K (or successor form), or an10 nual statement to shareholders, required to be 

11 filed by the taxpayer with the United States Se12 curities and Exchange Commission, 

13 ‘‘(B) an audited financial statement of the 

14 taxpayer which is used for— 

15 ‘‘(i) credit purposes, 

16 ‘‘(ii) reporting to shareholders, part17 ners, or other proprietors, or to bene18 ficiaries, or 

19 ‘‘(iii) any other substantial nontax 

20 purpose, 

21 but only if there is no statement of the taxpayer 

22 described in subparagraph (A), or 

23 ‘‘(C) filed by the taxpayer with any other 

24 Federal agency for purposes other than Federal 

25 tax purposes, but only if there is no statement 


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1 of the taxpayer described in subparagraph (A) 

2 or (B), 

3 ‘‘(2) a financial statement which is made on the 

4 basis of international financial reporting standards 

5 and is filed by the taxpayer with an agency of a for6 eign government which is equivalent to the United 

7 States Securities and Exchange Commission and 

8 which has reporting standards not less stringent 

9 than the standards required by such Commission, 

10 but only if there is no statement of the taxpayer de11 scribed in paragraph (1), or 

12 ‘‘(3) a financial statement filed by the taxpayer 

13 with any other regulatory or governmental body 

14 specified by the Secretary, but only if there is no 

15 statement of the taxpayer described in paragraph 

16 (1) or (2). 

17 ‘‘SEC. 492. INVESTMENT HEDGING UNITS. 

18 ‘‘(a) INVESTMENT HEDGING UNIT.—For purposes of 

19 this part— 

20 ‘‘(1) IN GENERAL.—Except as provided in sub21 section (b)— 

22 ‘‘(A) a taxpayer shall be treated as having 

23 an investment hedging unit with respect to an 

24 underlying investment during any applicable 


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1 hedging period with respect to the underlying 

2 investment, and 

3 ‘‘(B) subject to paragraph (3), such invest4 ment hedging unit shall at any time during the 

5 applicable hedging period consist of the fol6 lowing held by the taxpayer at such time: 

7 ‘‘(i) Each derivative with respect to 

8 the underlying investment which by itself, 

9 or in combination with 1 or more other de10 rivatives, has a delta with respect to any 

11 portion of the underlying investment which 

12 is within the range beginning with minus 

13 0.7 and ending with minus 1.0. 

14 ‘‘(ii) The portions of the underlying 

15 investment described in clause (i) with re16 spect to which the derivatives have the 

17 delta described in clause (i). 

18 ‘‘(2) APPLICABLE HEDGING PERIOD.—The term 

19 ‘applicable hedging period’ means, with respect to 

20 any underlying investment of a taxpayer, a contin21 uous period— 

22 ‘‘(A) beginning with the first time (after a 

23 period which is not an applicable hedging pe24 riod) the taxpayer holds 1 or more of the de25 rivatives with respect to the underlying investVerDate Sep 11 2014 03:47 May 06, 2017 Jkt 069200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1005.IS S1005

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1 ment, and 1 or more portions of the underlying 

2 investment, which are described in paragraph 

3 (1)(B), and 

4 ‘‘(B) ending with the time none of such de5 rivatives and portions are so described. 

6 ‘‘(3) LIMITATION ON COMBINATION OF DERIVA7 TIVES IN DETERMINING DELTA.—For purposes of 

8 paragraph (1)(B), the determination of which de9 rivatives with respect to an underlying investment 

10 have a delta within the range described in paragraph 

11 (1)(B)(i), and the portion of the underlying invest12 ment with respect to which such derivatives have 

13 such delta, shall be made in the manner which re14 sults in the largest portion of such underlying in15 vestment being so described. 

16 ‘‘(b) ELECTION WITH RESPECT TO ITEMS INCLUDED

17 IN INVESTMENT HEDGING UNIT.— 

18 ‘‘(1) IN GENERAL.—A taxpayer may elect with 

19 respect to any underlying investment to treat for 

20 purposes of this part all derivatives with respect to 

21 such underlying investment, and all of such under22 lying investment, as part of an investment hedging 

23 unit. 

24 ‘‘(2) ELECTION.—Any election under this sub25 section with respect to an underlying investment— 


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1 ‘‘(A) shall apply to all derivatives with re2 spect to the underlying investment, and all of 

3 the underlying investment, held at any time 

4 after the election is made (including during any 

5 period such derivatives or underlying invest6 ment are not held simultaneously), and 

7 ‘‘(B) shall be irrevocable. 

8 ‘‘(3) DEEMED ELECTION FOR TAXPAYERS FAIL9 ING TO IDENTIFY.— 

10 ‘‘(A) IN GENERAL.—If a taxpayer— 

11 ‘‘(i) does not have an election in effect 

12 under paragraph (1) with respect to an un13 derlying investment, and 

14 ‘‘(ii) fails to meet the requirements of 

15 subsection (c) for testing and identifying 

16 derivatives with respect to the underlying 

17 investment, 

18 the taxpayer shall be treated as having made 

19 the election under paragraph (1). 

20 ‘‘(B) TREATMENT OF ELECTION.—For 

21 purposes of paragraph (2), a deemed election 

22 under this paragraph— 

23 ‘‘(i) shall be treated as made as of the 

24 first time the taxpayer fails to meet the reVerDate Sep 11 2014 03:47 May 06, 2017 Jkt 069200 PO 00000 Frm 00014 Fmt 6652 Sfmt 6201 E:\BILLS\S1005.IS S1005

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1 quirements of subsection (c) with respect 

2 to the underlying investment, and 

3 ‘‘(ii) notwithstanding paragraph 

4 (2)(B), may be revoked with the consent of 

5 the Secretary. 

6 ‘‘(c) DEFINITIONS AND RULES RELATING TO TAX7 PAYERS IDENTIFYING INVESTMENT HEDGING UNITS.—In 

8 the case of a taxpayer with respect to which an election 

9 is not in effect under subsection (b) with respect to an 

10 underlying investment— 

11 ‘‘(1) IN GENERAL.—The taxpayer shall, at the 

12 times described in paragraph (3), test the derivatives 

13 with respect to the underlying investment and make 

14 the identifications described in paragraph (2). 

15 ‘‘(2) IDENTIFICATION.— 

16 ‘‘(A) IN GENERAL.—The taxpayer shall 

17 identify the following with respect to an under18 lying investment: 

19 ‘‘(i) Each derivative described in sub20 section (a)(1)(B)(i). 

21 ‘‘(ii) The portions of the underlying 

22 investment described in subsection 

23 (a)(1)(B)(ii). 

24 ‘‘(B) DERIVATIVES AND UNDERLYING IN25 VESTMENT NOT PART OF HEDGING UNIT.—A 


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1 taxpayer shall identify the derivatives with re2 spect to an underlying investment, and the por3 tions of the underlying investment, which are 

4 not required to be identified under subpara5 graph (A). 

6 ‘‘(C) PORTION MAY INCLUDE ALL OF UN7 DERLYING INVESTMENT.—For purposes of this 

8 part, the term ‘portion’ with respect to any un9 derlying investment identified may include all of 

10 the underlying investment. 

11 ‘‘(3) TIMES IDENTIFICATIONS REQUIRED TO BE

12 MADE.— 

13 ‘‘(A) IN GENERAL.—The taxpayer shall 

14 test and make the identifications required 

15 under this subsection at the following times 

16 during any continuous period the taxpayer si17 multaneously holds 1 or more derivatives with 

18 respect to an underlying investment and 1 or 

19 more portions of the underlying investment: 

20 ‘‘(i) The beginning of the period. 

21 ‘‘(ii) Immediately after the taxpayer 

22 (during such period)— 

23 ‘‘(I) enters into another deriva24 tive with respect to the underlying in25 vestment or acquires an additional 


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1 amount of such underlying invest2 ment, or 

3 ‘‘(II) terminates or transfers 1 or 

4 more derivatives with respect to the 

5 underlying investment or sells or ex6 changes any portion of the underlying 

7 investment, except that no testing and 

8 identification shall be required under 

9 this subclause with respect to any 

10 such transaction if the taxpayer does 

11 not have an investment hedging unit 

12 with respect to the underlying invest13 ment immediately before such trans14 action. 

15 ‘‘(iii) Such other times during such 

16 period as the Secretary may prescribe by 

17 regulations or other guidance. 

18 ‘‘(B) NO OTHER TIMES FOR TESTING.— 

19 Except as provided by the Secretary, there shall 

20 not be taken into account for purposes of this 

21 part any testing and identification done by the 

22 taxpayer with respect to an underlying invest23 ment at a time other than the times required 

24 under subparagraph (A). 


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1 ‘‘(4) MANNER.—A taxpayer shall be treated as 

2 timely making the identifications required under this 

3 subsection if derivatives with respect to, and por4 tions of, an underlying investment are clearly identi5 fied as part of (or as not part of) the investment 

6 hedging unit for purposes of this paragraph before 

7 the close of the day on which the identification is re8 quired (or such other time as the Secretary may pre9 scribe). 

10 ‘‘(5) TREATMENT OF INCORRECT IDENTIFICA11 TION OF HEDGING TRANSACTIONS.—The Secretary 

12 shall prescribe regulations to properly characterize 

13 any income, gain, expense, or loss arising from any 

14 derivative or underlying investment which is incor15 rectly identified under paragraph (2) as being part 

16 of, or not being part of, an investment hedging unit. 

17 ‘‘(d) DELTA.—For purposes of this section— 

18 ‘‘(1) IN GENERAL.—The term ‘delta’ means, 

19 with respect to any derivative and underlying invest20 ment, the ratio of the expected change in the fair 

21 market value of the derivative to any change in the 

22 fair market value of the underlying investment. 

23 ‘‘(2) METHOD OF DETERMINATION.—The delta 

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1 derlying investment (or any combination of such de2 rivatives) shall be determined— 

3 ‘‘(A) in a commercially reasonable manner, 

4 and 

5 ‘‘(B) except as provided by the Secretary, 

6 in a manner which is consistent with the man7 ner used by the taxpayer or the taxpayer’s 

8 broker for purposes of an applicable financial 

9 statement. 

10 ‘‘(3) TIME FOR MAKING DETERMINATION.—The 

11 delta with respect to any derivative and underlying 

12 investment shall be determined as of any date the 

13 taxpayer is required to make the identifications de14 scribed in subsection (c). 

15 ‘‘(4) MULTIPLE UNDERLYING INVESTMENTS.— 

16 ‘‘(A) IN GENERAL.—Except as provided in 

17 subparagraph (B), if the value of a derivative is 

18 determined by reference to more than 1 under19 lying investment, the delta shall be determined 

20 separately with respect to each underlying in21 vestment. 

22 ‘‘(B) METHODS FOR CERTAIN COMBINA23 TIONS OF UNDERLYING INVESTMENTS.—The 

24 Secretary may by regulations provide methods 

25 for determining the delta of any derivative with 


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1 respect to certain combinations of 2 or more 

2 underlying investments. 

3 ‘‘(e) OTHER DEFINITIONS AND RULES.—For pur4 poses of this part— 

5 ‘‘(1) UNDERLYING INVESTMENT.— 

6 ‘‘(A) IN GENERAL.—The term ‘underlying 

7 investment’ means, with respect to any deriva8 tive, any item— 

9 ‘‘(i) which is described in any of the 

10 paragraphs (1) through (8) of section 

11 493(a) (or any item substantially the same 

12 as any such item), and 

13 ‘‘(ii) by reference to which the value 

14 of the derivative is determined either di15 rectly or indirectly. 

16 ‘‘(B) COORDINATION WITH SECTION 475.— 

17 In the case of a dealer in securities to which 

18 section 475 applies (and a dealer in commod19 ities with respect to which an election is in ef20 fect under section 475(e)), such term shall not 

21 include any item which, but for this subpara22 graph, would be treated as an underlying in23 vestment if such item is treated as a security 

24 under section 475 (including a commodity 

25 treated as a security under section 475(e)). 


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1 ‘‘(2) ESTABLISHMENT OF INVESTMENT HEDG2 ING UNIT.—A taxpayer shall be treated as having 

3 established an investment hedging unit with respect 

4 to an underlying investment— 

5 ‘‘(A) in the case of a taxpayer with an 

6 election in effect under subsection (b) with re7 spect to the underlying investment, as of the 

8 date the election takes effect, and 

9 ‘‘(B) in the case of any other taxpayer, as 

10 of the beginning of each applicable hedging pe11 riod with respect to the underlying investment. 

12 ‘‘(3) RELATED PARTIES, ETC.—For purposes of 

13 this section— 

14 ‘‘(A) ATTRIBUTION BETWEEN RELATED

15 PERSONS.—Any derivative or underlying invest16 ment held by a related party (within the mean17 ing of subsection (f)) with respect to the tax18 payer shall be treated as held by the taxpayer. 

19 ‘‘(B) CERTAIN FLOWTHROUGH ENTI20 TIES.—If part or all of the income, gain, loss, 

21 or expense with respect to a derivative or un22 derlying investment held by a partnership, 

23 trust, or other entity would properly be taken 

24 into account for purposes of this chapter by the 

25 taxpayer, then, except to the extent otherwise 


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1 provided in regulations, such derivative or in2 vestment shall be treated as held by the tax3 payer. 

4 ‘‘(f) RELATED PARTY.—For purposes of this sec5 tion— 

6 ‘‘(1) IN GENERAL.—A person is a related party 

7 to the taxpayer if, with respect to any period during 

8 which a derivative or underlying investment is held 

9 by such person, such person— 

10 ‘‘(A) is the taxpayer’s spouse, 

11 ‘‘(B) is a dependent of the taxpayer or any 

12 other taxpayer with respect to whom the tax13 payer is a dependent, 

14 ‘‘(C) is an individual, corporation, partner15 ship, trust, or estate which controls, or is con16 trolled by (within the meaning of section 

17 954(d)(3)), the taxpayer or any individual de18 scribed in subparagraph (A) or (B) with respect 

19 to the taxpayer (or any combination thereof), 

20 ‘‘(D) is an individual retirement plan, Ar21 cher MSA (as defined in section 220(d)), or 

22 health savings account (as defined in section 

23 223(d)), of the taxpayer or of any individual de24 scribed in subparagraph (A) or (B) with respect 

25 to the taxpayer, 


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1 ‘‘(E) is an account under a qualified tui2 tion program described in section 529, an 

3 ABLE account (as defined in section 

4 529A(f)(6)), or a Coverdell education savings 

5 account (as defined in section 530(b)) if the 

6 taxpayer, or any individual described in sub7 paragraph (A) or (B) with respect to the tax8 payer, is the designated beneficiary of such ac9 count or has the right to make any decision 

10 with respect to the investment of any amount in 

11 such account, 

12 ‘‘(F) is an account under— 

13 ‘‘(i) a plan described in section 

14 401(a), 

15 ‘‘(ii) an annuity plan described in sec16 tion 403(a), 

17 ‘‘(iii) an annuity contract described in 

18 section 403(b), or 

19 ‘‘(iv) an eligible deferred compensa20 tion plan described in section 457(b) and 

21 maintained by an employer described in 

22 section 457(e)(1)(A), 

23 if the taxpayer or any individual described in 

24 subparagraph (A) or (B) with respect to the 

25 taxpayer has the right to make any decision 


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1 with respect to the investment of any amount in 

2 such account, or 

3 ‘‘(G) files a consolidated return (within the 

4 meaning of section 1501) with the taxpayer for 

5 any taxable year which includes a portion of 

6 such period. 

7 ‘‘(2) DETERMINATION OF MARITAL STATUS.— 

8 ‘‘(A) IN GENERAL.—Except as provided in 

9 subparagraph (B), marital status shall be deter10 mined under section 7703. 

11 ‘‘(B) SPECIAL RULE FOR MARRIED INDI12 VIDUALS FILING SEPARATELY AND LIVING

13 APART.—A husband and wife who— 

14 ‘‘(i) file separate returns for any tax15 able year, and 

16 ‘‘(ii) live apart at all times during 

17 such taxable year, 

18 shall not be treated as married individuals. 

19 ‘‘(g) REGULATIONS.—The Secretary shall prescribe 

20 such regulations or other guidance as may be appropriate 

21 to carry out this section, including regulations or guidance 

22 which require in appropriate cases a taxpayer to bifurcate 

23 derivatives described in subsection (d)(4) for purposes of 

24 applying this part or which may be necessary to prevent 

25 the avoidance of the purposes of subsection (f) (including 


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1 treating persons as related parties if such persons are 

2 formed or availed of to avoid the purposes of such sub3 section). 

4 ‘‘SEC. 493. DERIVATIVE DEFINED. 

5 ‘‘(a) IN GENERAL.—For purposes of this part, except 

6 as otherwise provided in this section, the term ‘derivative’ 

7 means any contract (including any option, forward con8 tract, futures contract, short position, swap, or similar 

9 contract) the value of which, or any payment or other 

10 transfer with respect to which, is (directly or indirectly) 

11 determined by reference to one or more of the following: 

12 ‘‘(1) Any share of stock in a corporation. 

13 ‘‘(2) Any partnership or beneficial ownership 

14 interest in a partnership or trust. 

15 ‘‘(3) Any evidence of indebtedness. 

16 ‘‘(4) Except as provided in subsection (b)(1), 

17 any real property. 

18 ‘‘(5) Any commodity which is actively traded 

19 (within the meaning of section 1092(c)(4)). 

20 ‘‘(6) Any currency. 

21 ‘‘(7) Any rate, price, amount, index, formula, or 

22 algorithm. 

23 ‘‘(8) Any other item as the Secretary may pre24 scribe. 


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1 Except as provided in regulations prescribed by the Sec2 retary to prevent the avoidance of the purposes of this 

3 part, such term shall not include any item described in 

4 paragraphs (1) through (8). 

5 ‘‘(b) EXCEPTIONS.— 

6 ‘‘(1) CERTAIN REAL PROPERTY.— 

7 ‘‘(A) IN GENERAL.—For purposes of this 

8 part, the term ‘derivative’ shall not include any 

9 contract with respect to interests in real prop10 erty (as defined in section 856(c)(5)(C)) if such 

11 contract requires physical delivery of such real 

12 property. 

13 ‘‘(B) OPTIONS TO SETTLE IN CASH.— 

14 ‘‘(i) IN GENERAL.—For purposes of 

15 subparagraph (A), a contract which pro16 vides for an option of cash settlement shall 

17 not be treated as requiring physical deliv18 ery of real property unless the option is— 

19 ‘‘(I) not exercisable uncondition20 ally, and 

21 ‘‘(II) exercisable only in unusual 

22 and exceptional circumstances. 

23 ‘‘(ii) OPTION OF CASH SETTLE24 MENT.—For purposes of clause (i), a con25 tract provides an option of cash settlement 


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•S 1005 IS

1 if the contract settles in (or could be set2 tled in) cash or property other than the 

3 underlying real property. 

4 ‘‘(2) HEDGING TRANSACTIONS.— 

5 ‘‘(A) IN GENERAL.—For purposes of this 

6 part, the term ‘derivative’ shall not include any 

7 contract which is part of a hedging transaction 

8 (as defined in section 1221(b)). 

9 ‘‘(B) SECTION 988 HEDGING TRANS10 ACTIONS.—For exception for section 988 hedg11 ing transactions, see section 988(d)(1). 

12 ‘‘(3) SECURITIES LENDING, SALE-REPURCHASE, 

13 AND SIMILAR FINANCING TRANSACTIONS.—To the 

14 extent provided by the Secretary, for purposes of 

15 this part, the term ‘derivative’ shall not include the 

16 right to the return of the same or substantially iden17 tical securities transferred in a securities lending 

18 transaction, sale-repurchase transaction, or similar 

19 financing transaction. 

20 ‘‘(4) OPTIONS RECEIVED IN CONNECTION WITH

21 THE PERFORMANCE OF SERVICES.—For purposes of 

22 this part, the term ‘derivative’ shall not include any 

23 option described in section 83(e)(3) received in con24 nection with the performance of services. 


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1 ‘‘(5) INSURANCE CONTRACTS, ANNUITIES, AND

2 ENDOWMENTS.—For purposes of this part, the term 

3 ‘derivative’ shall not include any insurance, annuity, 

4 or endowment contract issued by an insurance com5 pany to which subchapter L applies (or issued by 

6 any foreign corporation to which such subchapter 

7 would apply if such foreign corporation were a do8 mestic corporation). 

9 ‘‘(6) DERIVATIVES WITH RESPECT TO STOCK

10 OF MEMBERS OF SAME WORLDWIDE AFFILIATED

11 GROUP.—For purposes of this part, the term ‘deriv12 ative’ shall not include any derivative (determined 

13 without regard to this paragraph) with respect to 

14 stock issued by any member of the same worldwide 

15 affiliated group (as defined in section 864(f)) in 

16 which the taxpayer is a member. 

17 ‘‘(7) COMMODITIES USED IN NORMAL COURSE

18 OF TRADE OR BUSINESS.—For purposes of this part, 

19 the term ‘derivative’ shall not include any contract 

20 with respect to any commodity if— 

21 ‘‘(A) such contract requires physical deliv22 ery with the option of cash settlement only in 

23 unusual and exceptional circumstances, and 

24 ‘‘(B) such commodity is used (and is used 

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1 tive relates) in the normal course of the tax2 payer’s trade or business (or, in the case of an 

3 individual, for personal consumption). 

4 ‘‘(c) CONTRACTS WITH EMBEDDED DERIVATIVE

5 COMPONENTS.— 

6 ‘‘(1) IN GENERAL.—If a contract has derivative 

7 and nonderivative components, then each derivative 

8 component shall be treated as a derivative for pur9 poses of this part. If the derivative component can10 not be separately valued, then the entire contract 

11 shall be treated as a derivative for purposes of this 

12 part. 

13 ‘‘(2) EXCEPTION FOR CERTAIN EMBEDDED DE14 RIVATIVE COMPONENTS OF DEBT INSTRUMENTS.—A 

15 debt instrument shall not be treated as having a de16 rivative component merely because— 

17 ‘‘(A) such debt instrument is denominated 

18 in a nonfunctional currency (as defined in sec19 tion 988(c)(1)(C)(ii)), or 

20 ‘‘(B) payments with respect to such debt 

21 instrument are determined by reference to the 

22 value of a nonfunctional currency (as so de23 fined). 

24 ‘‘(d) TREATMENT OF AMERICAN DEPOSITORY RE25 CEIPTS AND SIMILAR INSTRUMENTS.—Except as otherVerDate Sep 11 2014 03:47 May 06, 2017 Jkt 069200 PO 00000 Frm 00029 Fmt 6652 Sfmt 6201 E:\BILLS\S1005.IS S1005

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1 wise provided by the Secretary, for purposes of this part, 

2 American depository receipts (and similar instruments) 

3 with respect to shares of stock in foreign corporations 

4 shall be treated as shares of stock in such foreign corpora5 tions. 

6 ‘‘Subpart B—Similar Contracts 

‘‘Sec. 494. Tax treatment of contracts similar to derivatives. 

7 ‘‘SEC. 494. TAX TREATMENT OF CONTRACTS SIMILAR TO 

8 DERIVATIVES. 

9 ‘‘(a) IN GENERAL.—For purposes of this title, if 

10 there is a taxable transaction with respect to any applica11 ble property interest, then, notwithstanding any other pro12 vision of this title other than section 1032, gain or loss 

13 attributable to the taxable transaction shall be considered 

14 gain or loss from the sale or exchange of property which 

15 has the same character as the property to which the appli16 cable property interest relates has (or would have) in the 

17 hands of the taxpayer. 

18 ‘‘(b) DEFINITIONS.—For purposes of this section— 

19 ‘‘(1) APPLICABLE PROPERTY INTEREST.—The 

20 term ‘applicable property interest’ means any right 

21 or obligation with respect to property other than— 

22 ‘‘(A) a derivative (as defined in section 

23 493), or 


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1 ‘‘(B) any position in applicable property to 

2 which section 1092 applies. 

3 ‘‘(2) TAXABLE TRANSACTION.—The term ‘tax4 able transaction’ means, with respect to any applica5 ble property interest— 

6 ‘‘(A) any termination or transfer (as de7 fined in section 491(c)(3)) of such interest, or 

8 ‘‘(B) any payment in fulfillment or partial 

9 fulfillment of such interest.’’. 

10 SEC. 3. COORDINATION OF NEW RULES WITH EXISTING 

11 RULES. 

12 (a) COORDINATION WITH RULES FOR DEALERS AND

13 TRADERS.— 

14 (1) DERIVATIVES NOT TREATED AS SECURI15 TIES.—Section 475(c)(2) is amended— 

16 (A) by adding ‘‘and’’ at the end of sub17 paragraph (C), 

18 (B) by striking subparagraphs (D) and (E) 

19 and by redesignating subparagraph (F) as sub20 paragraph (D), 

21 (C) by striking ‘‘subparagraph (A), (B), 

22 (C), (D), or (E)’’ in subparagraph (D)(i), as so 

23 redesignated, and inserting ‘‘subparagraph (A), 

24 (B), or (C)’’, and 


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1 (D) by amending the last sentence to read 

2 as follows: ‘‘Such term shall not include any de3 rivative to which section 491(a) applies.’’. 

4 (2) DERIVATIVES NOT TREATED AS COMMOD5 ITIES.—Section 475(e)(2) is amended— 

6 (A) by adding ‘‘and’’ at the end of sub7 paragraph (A), 

8 (B) by striking subparagraphs (B) and (C) 

9 and by redesignating subparagraph (D) as sub10 paragraph (B), and 

11 (C) by striking ‘‘subparagraph (A), (B) or 

12 (C)’’ in subparagraph (B)(i), as so redesig13 nated, and inserting ‘‘subparagraph (A)’’. 

14 (3) CONFORMING AMENDMENTS.— 

15 (A) Section 475(b) is amended by striking 

16 paragraph (4). 

17 (B) Section 475(d)(2)(B) is amended— 

18 (i) by striking ‘‘subsection 

19 (c)(2)(F)(iii)’’ and inserting ‘‘subsection 

20 (c)(2)(D)(iii)’’, and 

21 (ii) by striking ‘‘subsection (c)(2)(F)’’ 

22 and inserting ‘‘subsection (c)(2)(D)’’. 

23 (C) Section 475(f)(1)(D) is amended by 

24 striking ‘‘subsections (b)(4) and (d)’’ and in25 serting ‘‘subsection (d)’’. 


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1 (b) COORDINATION WITH STRADDLE RULES.— 

2 (1) IN GENERAL.—Section 1092 is amended to 

3 read as follows: 

4 ‘‘SEC. 1092. STRADDLES. 

5 ‘‘(a) RECOGNITION OF LOSS IN CASE OF STRAD6 DLES, ETC.— 

7 ‘‘(1) LIMITATION ON RECOGNITION OF LOSS.— 

8 ‘‘(A) IN GENERAL.—Any loss with respect 

9 to 1 or more positions shall be taken into ac10 count for any taxable year only to the extent 

11 that the amount of such loss exceeds the unrec12 ognized gain (if any) with respect to 1 or more 

13 positions which were offsetting positions with 

14 respect to 1 or more positions from which the 

15 loss arose. 

16 ‘‘(B) CARRYOVER OF LOSS.—Any loss 

17 which may not be taken into account under 

18 subparagraph (A) for any taxable year shall, 

19 subject to the limitations under subparagraph 

20 (A), be treated as sustained in the succeeding 

21 taxable year. 

22 ‘‘(2) UNRECOGNIZED GAIN.—For purposes of 

23 this subsection— 

24 ‘‘(A) IN GENERAL.—The term ‘unrecog25 nized gain’ means— 


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1 ‘‘(i) in the case of any position held 

2 by the taxpayer as of the close of the tax3 able year, the amount of gain which would 

4 be taken into account with respect to such 

5 position if such position were sold on the 

6 last business day of such taxable year at 

7 its fair market value, and 

8 ‘‘(ii) in the case of any position with 

9 respect to which, as of the close of the tax10 able year, gain has been realized but not 

11 recognized, the amount of gain so realized. 

12 ‘‘(B) REPORTING OF GAIN.—Each tax13 payer shall disclose to the Secretary, at such 

14 time and in such manner and form as the Sec15 retary may prescribe by regulations— 

16 ‘‘(i) each position (whether or not 

17 part of a straddle) with respect to which, 

18 as of the close of the taxable year, there is 

19 unrecognized gain, and 

20 ‘‘(ii) the amount of such unrecognized 

21 gain. 

22 The Secretary may waive the requirement to re23 port under this subparagraph with respect to 

24 any position if such reporting is not required to 

25 carry out the purposes of this section. 


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1 ‘‘(3) SPECIAL RULES FOR PHYSICALLY SET2 TLED POSITIONS.—For purposes of this subsection, 

3 if a taxpayer settles a position which is part of a 

4 straddle by delivering property to which the position 

5 relates (and such position, if terminated, would re6 sult in a realization of a loss), then such taxpayer 

7 shall be treated as if such taxpayer— 

8 ‘‘(A) terminated the position for its fair 

9 market value immediately before the settlement, 

10 and 

11 ‘‘(B) sold the property so delivered by the 

12 taxpayer at its fair market value. 

13 ‘‘(b) REGULATIONS.—The Secretary shall prescribe 

14 such regulations with respect to gain or loss on positions 

15 which are a part of a straddle as may be appropriate to 

16 carry out the purposes of this section and section 263(g). 

17 To the extent consistent with such purposes, such regula18 tions shall include rules applying the principles of sub19 sections (a) and (d) of section 1091 and of subsections 

20 (b) and (d) of section 1233 (as in effect before their re21 peal). 

22 ‘‘(c) DEFINITIONS AND RULES RELATING TO STRAD23 DLES.—For purposes of this section— 


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1 ‘‘(1) STRADDLE DEFINED.—The term ‘straddle’ 

2 means offsetting positions with respect to applicable 

3 property. 

4 ‘‘(2) OFFSETTING POSITIONS.—A taxpayer 

5 holds offsetting positions with respect to applicable 

6 property if the taxpayer holds any position which by 

7 itself, or in combination with 1 or more other posi8 tions held by the taxpayer, has a delta with respect 

9 to any other position held by the taxpayer which is 

10 within the range beginning with minus 0.7 and end11 ing with minus 1.0. For purposes of this paragraph, 

12 positions shall be taken into account whether or not 

13 they are in the same applicable property. 

14 ‘‘(3) DELTA.— 

15 ‘‘(A) IN GENERAL.—The term ‘delta’ 

16 means, with respect to any positions in applica17 ble property, the ratio of the expected change in 

18 the fair market value of 1 position to any 

19 change in the fair market value of another posi20 tion. 

21 ‘‘(B) METHOD OF DETERMINATION.—The 

22 delta with respect to any position in applicable 

23 property with respect to another position in ap24 plicable property (or any combination of such 

25 positions) shall be determined— 


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1 ‘‘(i) in a commercially reasonable 

2 manner, and 

3 ‘‘(ii) except as provided by the Sec4 retary, in a manner which is consistent 

5 with the manner used by the taxpayer or 

6 the taxpayer’s broker for purposes of an 

7 applicable financial statement. 

8 ‘‘(C) TIMING OF DELTA DETERMINATION

9 AND OTHER SPECIAL RULES.—Rules similar to 

10 the rules of paragraphs (3) and (4) of section 

11 492(d) shall apply for purposes of this para12 graph. 

13 ‘‘(4) APPLICABLE PROPERTY AND POSITION DE14 FINED.— 

15 ‘‘(A) APPLICABLE PROPERTY.—The term 

16 ‘applicable property’ means any item which is— 

17 ‘‘(i) described in paragraph (1), (2), 

18 (3), (5), (6), (7), or (8) of section 493(a) 

19 (or any item substantially the same as any 

20 such item), and 

21 ‘‘(ii) of a type which is actively trad22 ed. 

23 ‘‘(B) POSITION.— 


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1 ‘‘(i) IN GENERAL.—The term ‘posi2 tion’ means an interest in applicable prop3 erty. 

4 ‘‘(ii) DERIVATIVES EXCLUDED.—Such 

5 term shall not include a derivative (as de6 fined in section 493). 

7 ‘‘(5) POSITIONS HELD BY RELATED PERSONS, 

8 ETC.— 

9 ‘‘(A) IN GENERAL.—In determining wheth10 er 2 or more positions are offsetting, the tax11 payer shall be treated as holding any position 

12 held by a related party (within the meaning of 

13 section 492(f)). 

14 ‘‘(B) CERTAIN FLOWTHROUGH ENTI15 TIES.—If part or all of the gain or loss with re16 spect to a position held by a partnership, trust, 

17 or other entity would properly be taken into ac18 count for purposes of this chapter by a tax19 payer, then, except to the extent otherwise pro20 vided in regulations, such position shall be 

21 treated as held by the taxpayer. 

22 ‘‘(6) SPECIAL RULES FOR FOREIGN CUR23 RENCY.— 

24 ‘‘(A) POSITION TO INCLUDE INTEREST IN

25 CERTAIN DEBT.—For purposes of paragraph 


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1 (4)(B)(i), an obligor’s interest in a nonfunc2 tional currency denominated debt obligation is 

3 treated as a position in the nonfunctional cur4 rency. 

5 ‘‘(B) ACTIVELY TRADED REQUIREMENT.— 

6 For purposes of paragraph (4)(A)(ii), foreign 

7 currency for which there is an active interbank 

8 market is presumed to be actively traded. 

9 ‘‘(d) EXCEPTION FOR HEDGING TRANSACTIONS AND

10 INVESTMENT HEDGING UNITS.—This section shall not 

11 apply in the case of— 

12 ‘‘(1) any hedging transaction (as defined in sec13 tion 1221(b)), and 

14 ‘‘(2) any investment hedging unit (as defined in 

15 section 492). 

16 ‘‘(e) CROSS REFERENCE.—For provisions requiring 

17 capitalization of certain interest and carrying charges 

18 where there is a straddle, see section 263(g).’’. 

19 (2) CONFORMING AMENDMENTS.—The last sen20 tence of section 246(c)(4) is amended— 

21 (A) by inserting ‘‘(as in effect before its re22 peal)’’ after ‘‘section 1092(c)(4)’’, and 

23 (B) by inserting ‘‘(as so in effect)’’ after 

24 ‘‘section 1092(f)’’. 


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1 (c) DEBT INSTRUMENTS HELD BY INSURANCE COM2 PANIES.— 

3 (1) IN GENERAL.—Subsection (a) of section 

4 1221 is amended by striking ‘‘or’’ at the end of 

5 paragraph (7), by striking the period at the end of 

6 paragraph (8) and inserting ‘‘; or’’, and by adding 

7 at the end the following: 

8 ‘‘(9) any bond, debenture, note, or certificate or 

9 other evidence of indebtedness held by an applicable 

10 insurance company (as defined in subsection 

11 (b)(5)).’’. 

12 (2) APPLICABLE INSURANCE COMPANY.—Sec13 tion 1221(b), as amended by this Act, is amended 

14 by adding at the end the following: 

15 ‘‘(5) APPLICABLE INSURANCE COMPANY.—For 

16 purposes of subsection (a)(9)— 

17 ‘‘(A) IN GENERAL.—The term ‘applicable 

18 insurance company’ means, with respect to any 

19 taxable year, an insurance company (as defined 

20 in the last sentence of section 816(a))— 

21 ‘‘(i) which is subject to tax under sec22 tion 801(a)(1) or section 831(a), 

23 ‘‘(ii) with respect to which sections 

24 831(b), 835, 842, and 847 do not apply, 

25 and 


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1 ‘‘(iii) which is not treated as a stock 

2 insurance company solely by reason of sec3 tion 833(a)(1). 

4 ‘‘(B) PERMANENT TREATMENT BY COM5 PANY AS ORDINARY ASSET.—If an asset is 

6 treated as an asset described in subsection (a) 

7 (9) with respect to any applicable insurance 

8 company for any taxable year, such asset shall 

9 be treated as so described during any subse10 quent taxable year such asset is held by such 

11 company.’’. 

12 (3) REGULATIONS.—Paragraph (4) of section 

13 1221(b) is amended— 

14 (A) by striking ‘‘The Secretary’’ and in15 serting: 

16 ‘‘(A) RELATED PARTIES.—The Secretary’’, 

17 and 

18 (B) by adding at the end the following: 

19 ‘‘(B) ASSETS OF INSURANCE COMPA20 NIES.—The Secretary shall prescribe such regu21 lations as may be necessary or appropriate to 

22 carry out the purposes of subsection (a)(9), in23 cluding such regulations as may be necessary to 

24 prevent the avoidance of Federal income tax 


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1 through the sale or exchange of assets described 

2 in such subsection.’’. 

3 (4) EFFECTIVE DATE.— 

4 (A) IN GENERAL.—The amendments made 

5 by this subsection shall apply to any bond, de6 benture, note, or certificate or other evidence of 

7 indebtedness held or acquired after the 90-day 

8 period beginning with the date of the enactment 

9 of this Act. 

10 (B) TRANSITION RULE.—If a taxpayer has 

11 a capital loss carryover to any taxable year of 

12 the taxpayer beginning after the close of the 

13 90-day period described in subparagraph (A), 

14 the taxpayer shall, in addition to other short15 term capital gain of the taxpayer (if any), treat 

16 as short-term capital gain (rather than as ordi17 nary income) an amount equal to the lesser 

18 of— 

19 (i) the net gain (if any) from sales or 

20 exchanges during such taxable year of as21 sets to which section 1221(a)(9) of such 

22 Code (as added by paragraph (1)) applies, 

23 or 


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1 (ii) the capital loss carryovers to such 

2 taxable year from taxable years beginning 

3 before the close of such period. 

4 (d) RICS ALLOWED NET OPERATING LOSS DEDUC5 TION.— 

6 (1) IN GENERAL.—Paragraph (2) of section 

7 852(b) is amended by striking subparagraph (B) 

8 and by redesignating subparagraphs (C) through (G) 

9 as subparagraphs (B) through (F), respectively. 

10 (2) RESTRICTION ON CARRYBACK OF LOSSES.— 

11 Subparagraph (B) of section 172(b)(1) is amend12 ed— 

13 (A) by striking ‘‘REIT’’ each place it ap14 pears in the text and inserting ‘‘RIC or REIT’’, 

15 (B) by striking ‘‘part II of subchapter M 

16 (relating to real estate investment trusts)’’ in 

17 clause (iii) and inserting ‘‘part I or II of sub18 chapter M’’, 

19 (C) by striking ‘‘REIT’S’’ in the heading 

20 for such subparagraph and inserting ‘‘RIC’s or 

21 REIT’s’’, and 

22 (D) by striking ‘‘REIT’’ in the heading for 

23 clause (iii) and inserting ‘‘RIC or REIT’’. 

24 (3) OTHER MODIFICATIONS.—Paragraph (6) of 

25 section 172(d) is amended to read follows: 


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1 ‘‘(6) MODIFICATIONS RELATED TO RICS AND

2 REITS.—In the case of any taxable year for which 

3 part I or II of subchapter M applies to the tax4 payer— 

5 ‘‘(A) the net operating loss for such tax6 able year shall be computed by taking into ac7 count— 

8 ‘‘(i) in the case of a regulated invest9 ment company, the adjustments described 

10 in section 852(b)(2) (other than the deduc11 tion for dividends paid described in sub12 paragraph (C) thereof)), and 

13 ‘‘(ii) in the case of a real estate in14 vestment trust, the adjustments described 

15 in section 857(b)(2) (other than the deduc16 tion for dividends paid described in sub17 paragraph (B) thereof), and 

18 ‘‘(B) where such taxable year is a ‘prior 

19 taxable year’ referred to in paragraph (2) of 

20 subsection (b), references in such paragraph to 

21 ‘taxable income’ shall be treated as references 

22 to— 

23 ‘‘(i) in the case of a regulated invest24 ment company, regulated investment comVerDate Sep 11 2014 03:47 May 06, 2017 Jkt 069200 PO 00000 Frm 00044 Fmt 6652 Sfmt 6201 E:\BILLS\S1005.IS S1005

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1 pany taxable income (as defined in section 

2 852(b)(2)), and 

3 ‘‘(ii) in the case of a real estate in4 vestment trust, real estate investment tax5 able income (as defined in section 

6 857(b)(2)).’’. 

7 (4) CONFORMING AMENDMENTS.— 

8 (A) Section 852(a)(1)(A) is amended by 

9 striking ‘‘subsection (b)(2)(D)’’ and inserting 

10 ‘‘subsection (b)(2)(C)’’. 

11 (B) Section 4982(e)(1)(A) is amended by 

12 striking ‘‘and (D)’’ and inserting ‘‘and (C)’’. 

13 (5) EFFECTIVE DATE.—The amendments made 

14 by this subsection shall apply to net operating losses 

15 for taxable years ending after the 90th day after the 

16 date of the enactment of this Act. 

17 (e) NONRECOGNITION OF GAIN OR LOSS FROM

18 TRANSACTIONS BY A CORPORATION WITH RESPECT TO

19 ITS STOCK.— 

20 (1) IN GENERAL.—Section 1032 is amended to 

21 read as follows: 

22 ‘‘SEC. 1032. TRANSACTIONS BY A CORPORATION WITH RE23 SPECT TO ITS STOCK. 

24 ‘‘(a) NONRECOGNITION ON EXCHANGE OF STOCK

25 FOR PROPERTY.—No gain or loss shall be recognized to 


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1 a corporation on the receipt of money or other property 

2 in exchange for stock of such corporation. 

3 ‘‘(b) DERIVATIVE TRANSACTIONS BY A CORPORATION

4 WITH RESPECT TO ITS STOCK.— 

5 ‘‘(1) IN GENERAL.—Except as otherwise pro6 vided in this subsection, section 1032 derivative 

7 items of a corporation shall not be taken into ac8 count in determining such corporation’s liability for 

9 tax under this subtitle. 

10 ‘‘(2) INCOME RECOGNITION ON CERTAIN FOR11 WARD CONTRACTS.— 

12 ‘‘(A) IN GENERAL.—If— 

13 ‘‘(i) a corporation acquires its stock, 

14 and 

15 ‘‘(ii) such acquisition is part of a plan 

16 (or series of related transactions) pursuant 

17 to which the corporation enters into a for18 ward contract with respect to its stock, 

19 such corporation shall include amounts in in20 come as if the excess of the amount to be re21 ceived under the forward contract over the fair 

22 market value of the stock as of the date the 

23 corporation entered into the forward contract 

24 were original issue discount on a debt instru25 ment acquired on such date. The preceding senVerDate Sep 11 2014 03:47 May 06, 2017 Jkt 069200 PO 00000 Frm 00046 Fmt 6652 Sfmt 6201 E:\BILLS\S1005.IS S1005

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1 tence shall apply only to the extent that the 

2 amount of stock involved in the forward con3 tract does not exceed the amount acquired as 

4 described in clause (i). 

5 ‘‘(B) PLAN PRESUMED TO EXIST.—If a 

6 corporation enters into a forward contract with 

7 respect to its stock within the 60-day period be8 ginning on the date which is 30 days before the 

9 date that the corporation acquires its stock, 

10 such acquisition shall be treated as pursuant to 

11 a plan described in subparagraph (A)(ii) unless 

12 it is established that entering into such contract 

13 and such acquisition are not pursuant to a plan 

14 or series of related transactions. 

15 ‘‘(c) SECTION 1032 DERIVATIVE ITEMS.—For pur16 poses of this section, the term ‘section 1032 derivative 

17 item’ means, with respect to any corporation, any item of 

18 income, gain, loss, or deduction if— 

19 ‘‘(1) such item arises out of the rights or obli20 gations under any derivative (as defined in section 

21 493) to the extent such derivative relates to the cor22 poration’s stock (or is attributable to any transfer or 

23 extinguishment of any such right or obligation), or 

24 ‘‘(2) such item arises under any other contract 

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1 flects (or is determined by reference to) changes in 

2 the value of such stock or distributions thereon. 

3 Such term shall not include any deduction with respect 

4 to which section 83(h) applies and shall not include any 

5 deduction for any item which is in the nature of compensa6 tion for services rendered. For purposes of this subpara7 graph, de minimis relationships, as determined by the Sec8 retary, shall be disregarded. 

9 ‘‘(d) COORDINATION WITH DERIVATIVE AND STRAD10 DLE RULES.—In the case of a derivative or other contract 

11 or position described in subsection (c) which is held by 

12 a corporation with respect to its stock— 

13 ‘‘(1) this section (rather than part IV of sub14 chapter E or section 1092) shall apply in deter15 mining the treatment of section 1032 derivative 

16 items under this subtitle, and 

17 ‘‘(2) such derivative or other contract or posi18 tion shall not be taken into account in determining 

19 whether the corporation has an investment hedging 

20 unit, applicable property interest, or straddle with 

21 respect to its stock for purposes of such part or sec22 tion. 

23 ‘‘(e) REGULATIONS.—The Secretary shall prescribe 

24 such regulations or other guidance as may be appropriate 

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1 tions or other guidance which treat the portion of an in2 strument which is described in subsection (c)(1) separately 

3 from the portion of such instrument which is not so de4 scribed. 

5 ‘‘(f) BASIS.—For basis of property acquired by a cor6 poration in certain exchanges for its stock, see section 

7 362.’’. 

8 (2) CLERICAL AMENDMENT.—The item relating 

9 to section 1032 in the table of sections for part III 

10 of subchapter O of chapter 1 is amended to read as 

11 follows: 

‘‘Sec. 1032. Transactions by a corporation with respect to its stock.’’. 

12 (3) EFFECTIVE DATE.—The amendments made 

13 by this subsection shall apply to transactions entered 

14 into after the date of the enactment of this Act. 

15 SEC. 4. TECHNICAL AND CONFORMING AMENDMENTS. 

16 (a) REPEAL OF CERTAIN OTHER SUPERCEDED

17 RULES FOR DETERMINING CAPITAL GAINS AND

18 LOSSES.— 

19 (1) IN GENERAL.—Part IV of subchapter P of 

20 chapter 1 is amended by striking sections 1233, 

21 1234, 1234A, 1234B, 1236, 1256, 1258, 1259, and 

22 1260 (and by striking the items relating to such sec23 tions in the table of sections for such part). 


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1 (2) CONFORMING AMENDMENTS RELATED TO

2 REPEAL OF SECTION 1234.—Section 6045(h)(2) is 

3 amended— 

4 (A) by striking ‘‘(as defined in section 

5 1234(b)(2)(A)’’, and 

6 (B) by adding at the end the following: 

7 ‘‘For purposes of the preceding sentence, the 

8 term ‘closing transaction’ means any termi9 nation of the taxpayer’s obligation under an op10 tion in property other than through the exercise 

11 or lapse of the option.’’. 

12 (3) CONFORMING AMENDMENTS RELATED TO

13 REPEAL OF SECTION 1236.— 

14 (A) Section 475(d)(3)(A) is amended by 

15 striking ‘‘or section 1236(b)’’. 

16 (B) Section 512(b)(5) is amended by strik17 ing ‘‘section 1236(c)’’ and inserting ‘‘section 

18 1058(c)’’. 

19 (C) Section 1058 is amended— 

20 (i) by striking ‘‘(as defined in section 

21 1236(c))’’ in subsection (a), and 

22 (ii) by redesignating subsection (c) as 

23 subsection (d) and by inserting after sub24 section (b) the following new subsection: 


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1 ‘‘(c) SECURITIES.—For purposes of this section, the 

2 term ‘security’ means any share of stock in any corpora3 tion, certificate of stock or interest in any corporation, 

4 note, bond, debenture, or evidence of indebtedness, or any 

5 evidence of an interest in or right to subscribe to or pur6 chase any of the foregoing.’’. 

7 (4) CONFORMING AMENDMENTS RELATED TO

8 REPEAL OF SECTION 1256.— 

9 (A)(i) Section 461(i)(3)(B) is amended to 

10 read as follows: 

11 ‘‘(B) any partnership or other entity (other 

12 than a corporation which is not an S corpora13 tion) if more than 35 percent of the losses of 

14 such entity during the taxable year are allocable 

15 to limited partners or limited entrepreneurs 

16 (within the meaning of subsection (k)(4)), 

17 and’’. 

18 (ii) Section 461 is amended— 

19 (I) by redesignating the second sub20 section (j) (relating to farming syndicate 

21 defined) as subsection (k), and 

22 (II) by striking ‘‘subsection (j)’’ in 

23 subsection (i)(4) and inserting ‘‘subsection 

24 (k)’’. 


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1 (B) Section 475(d)(1) is amended by strik2 ing ‘‘sections 263(g), 263A, and 1256(a)’’ and 

3 inserting ‘‘sections 263(g) and 263A’’. 

4 (C) Section 988(c)(1) is amended by strik5 ing subparagraphs (D) and (E). 

6 (D) Section 1212 is amended by striking 

7 subsection (c). 

8 (E) Section 1223 is amended by striking 

9 paragraphs (7) and (14). 

10 (F) Section 1281(b)(1)(E) is amended to 

11 read as follows: 

12 ‘‘(E) is part of a hedging transaction (as 

13 defined in section 1221(b)) or an investment 

14 hedging unit (as defined in section 492), or’’. 

15 (G) Section 1402 is amended by striking 

16 subsection (i). 

17 (H) Section 4982(e)(6)(B) is amended by 

18 striking ‘‘sections 1256 and 1296’’ and insert19 ing ‘‘sections 491 and 1296’’. 

20 (5) CONFORMING AMENDMENTS RELATED TO

21 REPEAL OF SECTION 1259.—Section 475(f)(1) is 

22 amended by striking subparagraph (C) and by redes23 ignating subparagraph (D) as subparagraph (C). 

24 (b) OTHER CONFORMING AMENDMENTS.— 


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1 (1) Section 355(g)(2)(B)(i)(V) is amended to 

2 read as follows: 

3 ‘‘(V) any derivative (as defined in 

4 section 493),’’. 

5 (2) Section 856(n)(4) is amended by inserting 

6 ‘‘or derivatives (as defined in section 493)’’ after 

7 ‘‘securities (as defined in section 475(c)(2))’’. 

8 (3) Section 857(e)(2)(C)(i) is amended by strik9 ing ‘‘section 860E or 1272’’ and inserting ‘‘section 

10 491, 860E, or 1272’’. 

11 (4) Section 988(d)(1) is amended— 

12 (A) by striking ‘‘or 1256’’ and inserting 

13 ‘‘or 491’’, and 

14 (B) by striking ‘‘1092, and 1256’’ and in15 serting ‘‘491, and 1092’’. 

16 (5) Section 1091(e) is amended to read as fol17 lows: 

18 ‘‘(e) COORDINATION WITH MARK TO MARKET OF

19 DERIVATIVES AND UNDERLYING INVESTMENTS.—For 

20 purposes of this section, the term ‘stock or securities’ shall 

21 not include— 

22 ‘‘(1) any derivative (as defined in section 493), 

23 or 

24 ‘‘(2) any underlying investment (as defined in 

25 section 492(e)(1)) which, at the time of the sale or 


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1 other disposition, is part of an investment hedging 

2 unit (as defined in section 492).’’. 

3 (6)(A) Section 1221(a)(6) is amended to read 

4 as follows: 

5 ‘‘(6) any— 

6 ‘‘(A) derivative (as defined in section 493), 

7 or 

8 ‘‘(B) any underlying investment (as de9 fined in section 492(e)(1)) which is part of an 

10 investment hedging unit (as defined in section 

11 492),’’. 

12 (B) Section 1221(b) is amended by striking 

13 paragraph (1). 

14 (7) Section 4975(f)(11)(D) is amended by 

15 striking clauses (i) and (ii) and inserting the fol16 lowing: 

17 ‘‘(i) SECURITY.—The term ‘security’ 

18 means any security described in section 

19 475(c)(2) (without regard to subparagraph 

20 (D)(iii) thereof) and any derivative with re21 spect to such a security (within the mean22 ing of section 493). 

23 ‘‘(ii) COMMODITY.—The term ‘com24 modity’ means any commodity described in 

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1 paragraph (B)(iii) thereof) and any deriva2 tive with respect to such a commodity 

3 (within the meaning of section 493).’’. 

4 (8) The table of parts for subchapter E of 

5 chapter 1 is amended by adding at the end the fol6 lowing new item: 

‘‘PART IV. TAX TREATMENT OF DERIVATIVES AND SIMILAR CONTRACTS’’. 

7 SEC. 5. EFFECTIVE DATES. 

8 (a) IN GENERAL.—Except as provided in this Act— 

9 (1) the amendments made by section 2 shall 

10 apply to taxable events occurring after the 90-day 

11 period beginning with the date of the enactment of 

12 this Act, in taxable years ending after the last day 

13 of such period, and 

14 (2) the amendments made by sections 3 and 4 

15 shall apply to derivatives and underlying investments 

16 held after the last day of such period. 

17 (b) IDENTIFICATION REQUIREMENTS.—If, as of the 

18 close of the 90-day period described in subsection (a)(1), 

19 a taxpayer simultaneously holds 1 or more derivatives with 

20 respect to an underlying investment and the underlying 

21 investment— 

22 (1) the taxpayer shall make the identifications 

23 required under section 492(c)(2) of Internal Rev24 enue Code of 1986 (as added by section 2 of this 

25 Act) before the close of such period, and 


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1 (2) if such identifications result in an invest2 ment hedging unit, the first applicable hedging pe3 riod with respect to such unit shall begin on the day 

4 after the close of such period. 

5 (c) DEFINITIONS.—For purposes of this section, any 

6 term used in this section which is also used in part IV 

7 of subchapter E of chapter 1 of such Code (as so added) 

8 shall have the same meaning as when used in such part. 

Æ 


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