‘‘(A) a regulated investment company,
‘‘(B) a real estate investment trust,
‘‘(C) an S corporation,
‘‘(D) a partnership,
‘‘(E) a trust,
‘‘(F) a common trust fund,
‘‘(G) a passive foreign investment company
(as defined in section 1297),
‘‘(H) a foreign personal holding company,
and
‘‘(I) a foreign investment company (as de-
fined in section 1246(b)).
‘‘(d) CONSTRUCTIVE OWNERSHIP TRANSACTION.—
For purposes of this section—
‘‘(1) IN
GENERAL.—The taxpayer shall be
treated as having entered into a constructive owner-
ship transaction with respect to any financial asset
if the taxpayer—
‘‘(A) holds a long position under a notional
principal contract with respect to the financial
asset,
‘‘(B) enters into a forward or futures con-
tract to acquire the financial asset,
‘‘(C) is the holder of a call option, and is
the grantor of a put option, with respect to the
financial asset and such options have substan-
tially equal strike prices and substantially con-
temporaneous maturity dates, or
‘‘(D) enters into 1 or more other trans-
actions (or acquires 1 or more positions) that
have substantially the same effect as a trans-
action described in any of the preceding sub-
paragraphs.
‘‘(2) EXCEPTION FOR POSITIONS WHICH ARE
MARKED TO MARKET.—This section shall not apply
to any constructive ownership transaction if all of
the positions which are part of such transaction are
marked to market under any provision of this title
or the regulations thereunder.
‘‘(3) LONG POSITION UNDER NOTIONAL PRIN-
CIPAL
CONTRACT.—A person shall be treated as
holding a long position under a notional principal
contract with respect to any financial asset if such
person—
‘‘(A) has the right to be paid (or receive
credit for) all or substantially all of the invest-
ment yield (including appreciation) on such fi-
nancial asset for a specified period, and
‘‘(B) is obligated to reimburse (or provide
credit for) all or substantially all of any decline
in the value of such financial asset.
‘‘(4) FORWARD CONTRACT.—The term ‘forward
contract’ means any contract to acquire in the fu-
ture (or provide or receive credit for the future value
of) any financial asset.
‘‘(e) 
NET
UNDERLYING
LONG-TERM
CAPITAL
GAIN.—For purposes of this section, in the case of any
constructive ownership transaction with respect to any fi-
nancial asset, the term ‘net underlying long-term capital
gain’ means the aggregate net capital gain that the tax-
payer would have had if—
‘‘(1) the financial asset had been acquired for
fair market value on the date such transaction was
opened and sold for fair market value on the date
such transaction was closed, and
‘‘(2) only gains and losses that would have re-
sulted from the deemed ownership under paragraph
(1) were taken into account.
The amount of the net underlying long-term capital gain
with respect to any financial asset shall be treated as zero
unless the amount thereof is established by clear and con-
vincing evidence.
‘‘(f) SPECIAL RULE WHERE TAXPAYER TAKES DE-
LIVERY.—Except as provided in regulations prescribed by
the Secretary, if a constructive ownership transaction is
closed by reason of taking delivery, this section shall be
applied as if the taxpayer had sold all the contracts, op-
tions, or other positions which are part of such transaction
for fair market value on the closing date. The amount of
gain recognized under the preceding sentence shall not ex-
ceed the amount of gain treated as short-term gain under
subsection (a). Proper adjustments shall be made in the
amount of any gain or loss subsequently realized for gain
recognized under this subsection.
‘‘(g) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section, including regula-
tions permitting taxpayers to mark to market constructive
ownership transactions in lieu of applying this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections
for part IV of subchapter P of chapter 1 of such Code
is amended by adding at the end the following new item:
‘‘Sec. 1260. Gains from constructive ownership transactions.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to gains recognized after the date
of the enactment of this Act; except that such amendments
shall not apply to transactions entered into before Feb-
ruary 5, 1998, and not extended or substantially modified
on or after such date.
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