II 

111TH CONGRESS 

1ST SESSION S. 1588 

To amend the Internal Revenue Code of 1986 to provide the same tax 

treatment for both commercial and noncommercial investors in oil and 

natural gas and related commodities, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

AUGUST 6, 2009 

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 provide 

the same tax treatment for both commercial and noncommercial investors in oil and natural gas and related 

commodities, 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 ‘‘Stop Tax-breaks for 

5 Oil Profiteering Act’’ or the ‘‘STOP Act’’. 


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1 SEC. 2. CAPITAL GAIN OR LOSS FROM SALE OR EXCHANGE 

2 OF OIL OR NATURAL GAS AND RELATED COM3 MODITIES TREATED AS SHORT-TERM CAP4 ITAL GAIN OR LOSS. 

5 (a) GAIN OR LOSS ON APPLICABLE COMMODITIES.— 

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

7 chapter 1 of the Internal Revenue Code of 1986 (re8 lating to special rules for determining capital gains 

9 and losses) is amended by adding at the end the fol10 lowing new section: 

11 ‘‘SEC. 1261. CAPITAL GAIN OR LOSS FROM SALE OR EX12 CHANGE OF OIL OR NATURAL GAS AND RE13 LATED COMMODITIES TREATED AS SHORT14 TERM CAPITAL GAIN OR LOSS. 

15 ‘‘(a) GENERAL RULE.—If a taxpayer has gain or loss 

16 from the sale or exchange of any applicable commodity 

17 which, without regard to this section, would be treated as 

18 long-term capital gain or loss, such gain or loss shall, not19 withstanding any other provision of this title, be treated 

20 as short-term capital gain or loss. 

21 ‘‘(b) APPLICABLE COMMODITY.—For purposes of 

22 this section— 

23 ‘‘(1) IN GENERAL.—The term ‘applicable com24 modity’ means— 

25 ‘‘(A) oil or natural gas (or any primary 

26 product of oil or natural gas) which is actively 


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1 traded (within the meaning of section 

2 1092(d)(1)), 

3 ‘‘(B) a specified index (within the meaning 

4 of section 1221(b)(1)(B)(ii)) a substantial por5 tion of which is, as of the date the taxpayer ac6 quires its position with respect to such specified 

7 index, based on 1 or more commodities de8 scribed in subparagraph (A), 

9 ‘‘(C) any notional principal contract with 

10 respect to any commodity described in subpara11 graph (A) or (B), and 

12 ‘‘(D) any evidence of an interest in, or a 

13 derivative instrument in, any commodity de14 scribed in subparagraph (A), (B), or (C), in15 cluding any option, forward contract, futures 

16 contract, short position, and any similar instru17 ment in such a commodity. 

18 ‘‘(2) EXCEPTION FOR CERTAIN SECTION 1256

19 CONTRACTS.—Such term shall not include a section 

20 1256 contract (as defined in section 1256(b)) which 

21 is required to be marked to market under section 

22 1256(a). 

23 ‘‘(c) SPECIAL RULE FOR CERTAIN PARTNERSHIP IN24 TERESTS.—For purposes of this section, if a taxpayer rec25 ognizes gain or loss on the sale or exchange of any interest 


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1 in a partnership, the portion of such gain or loss which 

2 is attributable to unrecognized gain or loss with respect 

3 to 1 or more applicable commodities shall be treated as 

4 short-term capital gain or loss. The preceding sentence 

5 shall not apply if the taxpayer is otherwise required to 

6 treat such portion of gain or loss as ordinary income or 

7 loss. 

8 ‘‘(d) APPLICATION.—This section shall apply to any 

9 applicable commodity acquired after August 31, 2009, and 

10 before January 1, 2014.’’. 

11 (2) CONFORMING AMENDMENTS.— 

12 (A) Section 1222 of such Code is amended 

13 by striking the last sentence thereof. 

14 (B) The table of sections for part IV of 

15 subchapter P of chapter 1 of such Code is 

16 amended by adding at the end the following 

17 new item: 

‘‘Sec. 1261. Capital gain or loss from sale or exchange of oil or natural gas and 

related commodities treated as short-term capital gain or 

loss.’’. 

18 (b) APPLICATION TO SECTION 1256 CONTRACTS.— 

19 (1) IN GENERAL.—Section 1256(f) of the Inter20 nal Revenue Code of 1986 (relating to special rules) 

21 is amended by adding at the end the following new 

22 paragraph: 

23 ‘‘(6) SPECIAL RULES FOR CERTAIN COMMODITY

24 CONTRACTS.— 


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1 ‘‘(A) ALL GAIN OR LOSS FROM COMMODITY

2 CONTRACTS TREATED AS SHORT-TERM GAIN OR

3 LOSS.—In the case of a section 1256 contract 

4 which is an applicable commodity, subsection 

5 (a)(3) shall be applied to any gain or loss with 

6 respect to such contract— 

7 ‘‘(i) by substituting ‘100 percent’ for 

8 ‘40 percent’ in subparagraph (A) thereof, 

9 and 

10 ‘‘(ii) without regard to subparagraph 

11 (B) thereof. 

12 ‘‘(B) TREATMENT OF MIXED STRAD13 DLES.—A taxpayer may not make an election 

14 under subsection (d), or an election under the 

15 regulations prescribed pursuant to section 

16 1092(b)(2), with respect to any mixed straddle 

17 if any position forming a part of such straddle 

18 is a section 1256 contract which is an applica19 ble commodity. For purposes of this subpara20 graph, if any section 1256 contract which is 

21 part of a straddle is an applicable commodity, 

22 any other section 1256 contract which is part 

23 of such straddle shall be treated as an applica24 ble commodity. 


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1 ‘‘(C) APPLICABLE COMMODITY.—For pur2 poses of this paragraph, the term ‘applicable 

3 commodity’ has the meaning given such term by 

4 section 1261(b), except that such section shall 

5 be applied without regard to paragraph (2) 

6 thereof. 

7 ‘‘(D) APPLICATION.—This paragraph shall 

8 apply to any applicable commodity acquired 

9 after August 31, 2009, and before January 1, 

10 2014.’’. 

11 (2) SPECIAL RULE FOR LOSS CARRYBACKS.— 

12 Section 1212(c) of such Code (relating to carryback 

13 of losses from section 1256 contracts to offset prior 

14 gains from such contracts) is amended by redesig15 nating paragraph (7) as paragraph (8) and by in16 serting after paragraph (6) the following new para17 graph: 

18 ‘‘(7) SPECIAL RULE FOR LOSSES ALL OF WHICH

19 ARE TREATED AS SHORT-TERM.—If any portion of 

20 the net section 1256 contracts loss for any taxable 

21 year is attributable to a net loss from contracts to 

22 which section 1256(f)(6) applies— 

23 ‘‘(A) this subsection shall be applied first 

24 to such portion of such net section 1256 conVerDate Nov 24 2008 03:19 Aug 07, 2009 Jkt 079200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1588.IS S1588

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1 tracts loss and then to the remainder of such 

2 loss, and 

3 ‘‘(B) in applying this subsection to such 

4 portion— 

5 ‘‘(i) notwithstanding paragraph 

6 (1)(B), all of the loss attributable to such 

7 portion and allowed as a carryback shall be 

8 treated as a short-term capital loss, and 

9 ‘‘(ii) notwithstanding paragraph 

10 (6)(A), all of the loss attributable to such 

11 portion and allowed as a carryback shall be 

12 treated for purposes of applying paragraph 

13 (6) as a short-term capital gain for the 

14 loss year.’’. 

15 (c) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to applicable commodities acquired 

17 after August 31, 2009, in taxable years ending after such 

18 date. 

19 SEC. 3. GAINS AND LOSSES FROM OIL AND NATURAL GAS 

20 AND RELATED COMMODITIES TREATED AS 

21 UNRELATED BUSINESS TAXABLE INCOME. 

22 (a) IN GENERAL.—Section 512(b) of the Internal 

23 Revenue Code of 1986 (relating to modifications to unre24 lated business taxable income) is amended by adding at 

25 the end the following new paragraph: 


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1 ‘‘(20) TREATMENT OF GAINS OR LOSSES FROM

2 COMMODITIES.— 

3 ‘‘(A) IN GENERAL.—Notwithstanding para4 graph (5) or any other provision of this part— 

5 ‘‘(i) income, gain, or loss of an organi6 zation with respect to any applicable com7 modity shall not be excluded but shall be 

8 taken into account as income, gain, or loss 

9 from an unrelated trade or business, and 

10 ‘‘(ii) all deductions directly connected 

11 with such income or gain shall be allowed. 

12 ‘‘(B) EXCEPTION FOR ORDINARY INCOME

13 AND LOSSES.—Subparagraph (A) shall not 

14 apply to any income, gain, or loss of an organi15 zation which, if not excluded under this title 

16 and without regard to subparagraph (A), would 

17 be treated as ordinary income or loss. 

18 ‘‘(C) LOOK-THRU IN THE CASE OF FOR19 EIGN CORPORATIONS.— 

20 ‘‘(i) IN GENERAL.—If an organization 

21 owns directly or indirectly stock in a for22 eign corporation, the organization’s pro 

23 rata share of any income, gain, or loss of 

24 such corporation (and any deductions di25 rectly connected with such income or gain) 


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1 with respect to 1 or more applicable com2 modities shall be taken into account under 

3 subparagraph (A) in the same manner as 

4 if such commodities were held directly by 

5 the organization. Any such item shall be 

6 taken into account for the taxable year of 

7 the organization in which the item arises 

8 without regard to whether there was an ac9 tual distribution to the organization with 

10 respect to the item. For purposes of this 

11 clause, the rule under section 1261(c) shall 

12 apply in determining the income, gain, or 

13 loss of the foreign corporation with respect 

14 to applicable commodities. 

15 ‘‘(ii) SALE OF INTERESTS IN COR16 PORATION.—If a taxpayer recognizes gain 

17 or loss on the sale or exchange of any 

18 share of stock in a foreign corporation, the 

19 portion of such gain or loss which is attrib20 utable to unrecognized gain or loss with re21 spect to 1 or more applicable commodities 

22 shall be taken into account under subpara23 graph (A) in the same manner as if such 

24 commodities were sold or exchanged di25 rectly by the organization. 


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1 ‘‘(iii) NO DOUBLE COUNTING.—The 

2 Secretary shall prescribe such rules as are 

3 necessary to ensure that any item of in4 come, gain, loss, or deduction described in 

5 clause (i) or (ii) is taken into account only 

6 once for purposes of this paragraph. 

7 ‘‘(D) APPLICABLE COMMODITY.—For pur8 poses of this paragraph, the term ‘applicable 

9 commodity’ has the meaning given such term by 

10 section 1261(b), except that such section shall 

11 be applied without regard to paragraph (2) 

12 thereof. 

13 ‘‘(E) REGULATIONS.—The Secretary shall 

14 prescribe such regulations as are necessary to 

15 carry out the provisions of this paragraph, in16 cluding regulations— 

17 ‘‘(i) to prevent the avoidance of the 

18 purposes of this paragraph through the use 

19 of pass-thru entities or tiered structures, 

20 and 

21 ‘‘(ii) to provide that this paragraph 

22 shall not apply to ownership interests of 

23 organizations in foreign corporations in 

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1 modity is otherwise subject to tax imposed 

2 by this chapter. 

3 ‘‘(F) APPLICATION.—This paragraph shall 

4 apply to any applicable commodity acquired 

5 after August 31, 2009, and before January 1, 

6 2014.’’. 

7 (b) EFFECTIVE DATE.—The amendment made by 

8 this section shall apply to applicable commodities acquired 

9 after August 31, 2009, in taxable years ending after such 

10 date. 

11 SEC. 4. STUDY OF TAX TREATMENT OF COMMODITIES AND 

12 SECTION 1256 CONTRACTS. 

13 (a) STUDY.—The Secretary of the Treasury, or the 

14 Secretary’s delegate, shall conduct a study of the Federal 

15 income tax treatment of section 1256 contracts under sec16 tion 1256 of the Internal Revenue Code of 1986 and of 

17 applicable commodities under sections 1261, 1256(f)(6), 

18 and 512(b)(20) of such Code. Such study shall include an 

19 analysis of— 

20 (1) the average annual number of sales or ex21 changes of such contracts and commodities, includ22 ing the number of sales and exchanges involving or23 ganizations exempt from Federal income taxation 

24 under such Code, 


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1 (2) whether the amendments made by this Act 

2 have had any effect on the number or type of such 

3 sales and exchanges, 

4 (3) the effect of tax policy on the operation of 

5 the commodities exchanges and on the demand for, 

6 and price of, commodities, particularly with respect 

7 to oil and natural gas, and 

8 (4) such other matters with respect to such tax 

9 treatment as the Secretary determines appropriate. 

10 (b) REPORT.—The Secretary shall, not later than 

11 January 1, 2012, report the results of the study conducted 

12 under subsection (a) to the Committee on Finance of the 

13 Senate and the Committee on Ways and Means of the 

14 House of Representatives, together with such legislative 

15 recommendations as the Secretary determines appropriate 

16 with respect to the Federal income tax treatment of sec17 tion 1256 contracts and applicable commodities. 

Æ 


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