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Electronic Code of Federal Regulations

e-CFR Data is current as of April 22, 2014

Title 26: Internal Revenue
PART 1—INCOME TAXES (CONTINUED)


§1.1092(b)-6T   Mixed straddles; accrued gain and loss associated with a position that becomes part of a section 1092(b)(2) identified mixed straddle.

(a) In general. Except as otherwise provided, if one or more positions of a section 1092(b)(2) identified mixed straddle were held by the taxpayer on the day prior to the day the section 1092(b)(2) identified mixed straddle is established, any unrealized gain or loss on the day prior to the day the section 1092(b)(2) identified mixed straddle is established with respect to such position or positions is taken into account at the time, and has the character, provided by the provisions of the Internal Revenue Code that would apply to the gain or loss if the section 1092(b)(2) identified mixed straddle were not established. Unrealized gain or loss is the difference between the fair market value of the position or positions on the day before a section 1092(b)(2) identified mixed straddle is established and the taxpayer's basis in that position or positions. See §1.1092(b)-2T for treatment of holding periods with respect to such positions. Changes in value of the position or positions that occur after the section 1092(b)(2) identified mixed straddle is established are accounted for under the other provisions of §1.1092(b)-3T.

(b) Examples. Paragraph (a) of this section may be illustrated by the following examples. It is assumed in each example that the positions are the only positions held directly or indirectly (through a related person or flowthrough entity) by an individual calendar year taxpayer during the taxable year and no section 1256 contract is substantially identical to an offsetting non-section 1256 contract. It is also assumed that any gain or loss recognized on disposition of any position in the straddle would be capital gain or loss. The following examples assume that this section applies to identified mixed straddles established after August 1, Year 2.

Example 1. On August 13, Year 2, A enters into a section 1256 contract. As of the close of the day on August 15, Year 2, there is $500 of unrealized loss on the section 1256 contract. On August 16, Year 2, A enters into an offsetting non-section 1256 position and makes a valid election to treat the straddle as a section 1092(b)(2) identified mixed straddle. A continues to hold both positions of the section 1092(b)(2) identified mixed straddle on January 1, Year 3. Under these circumstances, A will recognize the $500 loss on the section 1256 contract that existed prior to establishing the section 1092(b)(2) identified mixed straddle on the last business day of Year 2 because the section 1256 contract would be treated as sold on December 31, Year 2, (the last business day of the taxable year) under section 1256(a). The loss recognized in Year 2 will be treated as 60% long-term capital loss and 40% short-term capital loss. All gains and losses occurring after the section 1092(b)(2) identified mixed straddle is established are accounted for under the applicable provisions in §1.1092(b)-3T.

Example 2. On September 3, Year 1, A enters into a non-section 1256 position. As of the close of the day on August 22, Year 2, there is $400 of unrealized short-term capital gain on the non-section 1256 position. On August 23, Year 2, A enters into an offsetting section 1256 contract and makes a valid election to treat the straddle as a section 1092(b)(2) identified mixed straddle. On September 10, Year 2, A closes out the section 1256 contract at a $500 loss and disposes of the non-section 1256 position, realizing an $875 gain. Under these circumstances, A has $400 of short-term capital gain attributable to the non-section 1256 position prior to the day the section 1092(b)(2) identified mixed straddle was established. The $400 unrealized gain earned on the non-section 1256 position will be recognized on September 10, Year 2, when the non-section 1256 position is disposed of. The gain will be short-term capital gain. See §1.1092(b)-2T for rules concerning holding period. On September 10, Year 2, the gain of $875 on the non-section 1256 position will be reduced to $475 to take into account the $400 of unrealized gain when the section 1092(b)(2) identified mixed straddle was established. The $475 gain on the non-section 1256 position will be offset by the $500 loss on the section 1256 contract. The net loss of $25 from the straddle will be treated as 60% long-term capital loss and 40% short-term capital loss because it is attributable to the section 1256 contract.

(c) Effective/applicability date. The rules of this section apply to all section 1092(b)(2) identified mixed straddles established after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register.

(d) Expiration date. The applicability of this section expires on August 1, 2016.

[T.D. 9627, 78 FR 46809, Aug. 2, 2013, as amended at 78 FR 64397, Oct. 29, 2013]



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