vides for an option of cash settlement shall 
not be treated as requiring physical deliv-
ery of real property unless the option is— 
‘‘(I) not exercisable uncondition-
ally, and 
‘‘(II) exercisable only in unusual 
and exceptional circumstances. 
‘‘(ii) 
OPTION
OF
CASH
SETTLE-
MENT.—For purposes of clause (i), a con-
tract provides an option of cash settlement 
if the contract settles in (or could be set-
tled in) cash or property other than the 
underlying real property. 
‘‘(2) SECURITIES LENDING, SALE-REPURCHASE, 
AND
SIMILAR
FINANCING
TRANSACTIONS.—To the 
extent provided by the Secretary, for purposes of 
this subchapter, the term ‘derivative’ shall not in-
clude the right to the return of the same or substan-
tially identical securities transferred in a securities 
lending transaction, sale-repurchase transaction, or 
similar financing transaction. 
‘‘(3) OPTIONS RECEIVED IN CONNECTION WITH 
THE PERFORMANCE OF SERVICES.—For purposes of 
this subchapter, the term ‘derivative’ shall not in-
clude any option described in section 83(e)(3) re-
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ceived in connection with the performance of serv-
ices. 
‘‘(4) INSURANCE CONTRACTS, ANNUITIES, AND 
ENDOWMENTS.—For purposes of this subchapter, 
the term ‘derivative’ shall not include any insurance, 
annuity, or endowment contract issued by an insur-
ance company to which subchapter L applies (or 
issued by any foreign corporation to which such sub-
chapter would apply if such foreign corporation were 
a domestic corporation). 
‘‘(5) DERIVATIVES WITH RESPECT TO STOCK 
OF
MEMBERS
OF
SAME
WORLDWIDE
AFFILIATED 
GROUP.—For purposes of this subchapter, the term 
‘derivative’ shall not include any derivative (deter-
mined without regard to this paragraph) with re-
spect to stock issued by any member of the same 
worldwide affiliated group (as defined in section 
864(f)) in which the taxpayer is a member. 
‘‘(6) COMMODITIES USED IN NORMAL COURSE 
OF TRADE OR BUSINESS.—For purposes of this sub-
chapter, the term ‘derivative’ shall not include any 
contract with respect to any commodity if— 
‘‘(A) such contract requires physical deliv-
ery with the option of cash settlement only in 
unusual and exceptional circumstances, and 
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‘‘(B) such commodity is used (and is used 
in quantities with respect to which such deriva-
tive relates) in the normal course of the tax-
payer’s trade or business (or, in the case of an 
individual, for personal consumption). 
‘‘(c) CONTRACTS WITH EMBEDDED DERIVATIVE 
COMPONENTS.— 
‘‘(1) IN GENERAL.—If a contract has derivative 
and nonderivative components, then each derivative 
component shall be treated as a derivative for pur-
poses of this subchapter. If the derivative component 
cannot be separately valued, then the entire contract 
shall be treated as a derivative for purposes of this 
subchapter. 
‘‘(2) EXCEPTION FOR CERTAIN EMBEDDED DE-
RIVATIVE COMPONENTS OF DEBT INSTRUMENTS.—A 
debt instrument shall not be treated as having a de-
rivative component merely because— 
‘‘(A) such debt instrument is denominated 
in a nonfunctional currency (as defined in sec-
tion 988(c)(1)(C)(ii)), or 
‘‘(B) payments with respect to such debt 
instrument are determined by reference to the 
value of a nonfunctional currency (as so de-
fined). 
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‘‘(d) TREATMENT OF AMERICAN DEPOSITORY RE-
CEIPTS AND SIMILAR INSTRUMENTS.—Except as other-
wise provided by the Secretary, for purposes of this sub-
chapter, American depository receipts (and similar instru-
ments) with respect to shares of stock in foreign corpora-
tions shall be treated as shares of stock in such foreign 
corporations.’’. 
(b) INFORMATION REPORTING WITH RESPECT TO 
CONTROLLED
FOREIGN
CORPORATIONS.—Section 
6038(a)(1)(B) of such Code is amended by inserting ‘‘and 
transactions which are covered transactions for purposes 
of section 4475 by reason of the application of section 
4475(h)(1) to such corporation’’ before the semicolon at 
the end. 
(c) CONFORMING AMENDMENT.—The table of sub-
chapters for chapter 36 of such Code is amended by in-
serting after the item relating to subchapter B the fol-
lowing new item: 
‘‘SUBCHAPTER C. TAX ON TRADING TRANSACTIONS’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions after December 31, 
2023. 
Æ 
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