II 

112TH CONGRESS 

2D SESSION S. 2033 

To amend the Internal Revenue Code of 1986 to end the costly derivatives 

blended rate loophole, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 23, 2012 

Mr. LEVIN 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 end the 

costly derivatives blended rate loophole, 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 This Act may be cited as the ‘‘Closing the Derivatives 

5 Blended Rate Loophole Act’’. 

6 SEC. 2. MODIFICATIONS TO TREATMENT OF SECTION 1256 

7 CONTRACTS. 

8 (a) ELIMINATION OF BLENDED CAPITAL GAIN OR

9 LOSS TREATMENT IN FAVOR OF SHORT-TERM CAPITAL

10 GAIN OR LOSS.— 


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1 (1) IN GENERAL.—Paragraph (3) of section 

2 1256(a) of the Internal Revenue Code of 1986 is 

3 amended to read as follows: 

4 ‘‘(3) any gain or loss with respect to a section 

5 1256 contract shall be treated as short-term capital 

6 gain or loss, and’’. 

7 (2) CONFORMING AMENDMENTS.—Subsection 

8 (f) of section 1256 of such Code is amended by 

9 striking paragraphs (2), (3), and (4) and by redesig10 nating paragraph (5) as paragraph (2). 

11 (b) CONFORMING AMENDMENTS.— 

12 (1) Clause (iv) of section 988(c)(1)(E) of the 

13 Internal Revenue Code of 1986 is amended to read 

14 as follows: 

15 ‘‘(iv) TREATMENT OF CERTAIN CUR16 RENCY CONTRACTS.—Except as provided 

17 in regulations, in the case of a qualified 

18 fund, any bank forward contract, any for19 eign currency futures contract traded on a 

20 foreign exchange, or to the extent provided 

21 in regulations any similar instrument, 

22 which is not otherwise a section 1256 con23 tract shall be treated as a section 1256 

24 contract for purposes of section 1256.’’. 


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1 (2) Subparagraph (A) of section 1212(c)(1) of 

2 such Code is amended by striking ‘‘preceding taxable 

3 year’’ and all that follows and inserting ‘‘preceding 

4 taxable year, the amount so allowed shall be treated 

5 as short-term capital loss from section 1256 con6 tracts.’’. 

7 (3) Subparagraph (A) of section 1212(c)(6) of 

8 such Code is amended by striking ‘‘preceding taxable 

9 year’’ and all that follows and inserting ‘‘preceding 

10 taxable year, the amount allowed as a carryback 

11 shall be treated as short-term gain for the loss 

12 year.’’. 

13 (4) Subparagraph (B) of section 1212(c)(6) of 

14 such Code is amended by striking ‘‘or long-term’’. 

15 (5) Subsection (f) of section 1256 of such Code 

16 is amended by striking paragraphs (3) and (4) and 

17 by redesignating paragraph (5) as paragraph (3). 

18 (c) EFFECTIVE DATES.— 

19 (1) IN GENERAL.—Except as provided in para20 graph (2), the amendments made by this section 

21 shall apply to taxable years beginning after the date 

22 of the enactment of this Act. 

23 (2) CONFORMING AMENDMENTS.—The amend24 ments made by paragraphs (2), (3), and (4) of subVerDate Mar 15 2010 02:30 Jan 24, 2012 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2033.IS S2033

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1 section (b) shall apply to losses for taxable years be2 ginning after the date of the enactment of this Act. 

3 SEC. 3. MODIFICATIONS TO TREATMENT OF DEALERS IN 

4 SECURITIES AND COMMODITIES. 

5 (a) MODIFICATION OF DEFINITION OF SECURITY.— 

6 Paragraph (2) of section 475(c) of the Internal Revenue 

7 Code of 1986 is amended by striking the second sentence. 

8 (b) REQUIRED MARK TO MARKET FOR DEALERS IN

9 COMMODITIES.—Subsection (e) of section 475 of the In10 ternal Revenue Code of 1986 is amended— 

11 (1) by striking ‘‘In the case of a dealer in com12 modities who elects the application of this sub13 section, this section shall apply to commodities held 

14 by such dealer’’ in paragraph (1) and inserting 

15 ‘‘This section shall apply to commodities held by a 

16 dealer in commodities’’, and 

17 (2) by striking paragraph (3). 

18 (c) COMMODITIES DERIVATIVES DEALERS.—Clause 

19 (i) of section 1221(b)(1)(B) of the Internal Revenue Code 

20 of 1986 is amended by striking ‘‘a note, bond, or other 

21 evidence of indebtedness, or a section 1256 contract (as 

22 defined in section 1256(b))’’ and inserting ‘‘or a note, 

23 bond, or other evidence of indebtedness)’’. 

24 (d) TECHNICAL AMENDMENT.—Paragraph (1) of 

25 section 1402(i) of the Internal Revenue Code of 1986 is 


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1 amended by striking ‘‘subsection (a)(3)(A)’’ and inserting 

2 ‘‘subsection (a)(3)’’. 

3 (e) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 the date of the enactment of this Act. 

Æ 


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