Text of new short-sale tax rule (long):
This is taken from Thomas website, HR 2014 as delivered to President. At first glance, it seems to take the fun out of boxing a short position (or shorting against the box), retroactive to June 9, 1997.
`SEC. 1259. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL
POSITIONS.
`(a) IN GENERAL- If there is a constructive sale of an
appreciated financial position--
`(1) the taxpayer shall recognize gain as if such position
were sold, assigned, or otherwise terminated at its fair market
value on the date of such constructive sale (and any gain shall
be taken into account for the taxable year which includes such
date), and
`(2) for purposes of applying this title for periods after
the constructive sale--
`(A) proper adjustment shall be made in the amount of any
gain or loss subsequently realized with respect to such
position for any gain taken into account by reason of
paragraph (1), and
`(B) the holding period of such position shall be
determined as if such position were originally acquired on
the date of such constructive sale.
`(b) APPRECIATED FINANCIAL POSITION- For purposes of this section--
`(1) IN GENERAL- Except as provided in paragraph (2), the
term `appreciated financial position' means any position with
respect to any stock, debt instrument, or partnership interest
if there would be gain were such position sold, assigned, or
otherwise terminated at its fair market value.
`(2) EXCEPTIONS- The term `appreciated financial position'
shall not include--
`(A) any position with respect to debt if--
`(i) the debt unconditionally entitles the holder to
receive a specified principal amount,
`(ii) the interest payments (or other similar
amounts) with respect to such debt meet the
requirements of clause (i) of section 860G(a)(1)(B), and
`(iii) such debt is not convertible (directly or
indirectly) into stock of the issuer or any related
person, and
`(B) any position which is marked to market under any
provision of this title or the regulations thereunder.
`(3) POSITION- The term `position' means an interest,
including a futures or forward contract, short sale, or option.
`(c) CONSTRUCTIVE SALE- For purposes of this section--
`(1) IN GENERAL- A taxpayer shall be treated as having made a
constructive sale of an appreciated financial position if the
taxpayer (or a related person)--
`(A) enters into a short sale of the same or
substantially identical property,
`(B) enters into an offsetting notional principal
contract with respect to the same or substantially
identical property,
`(C) enters into a futures or forward contract to deliver
the same or substantially identical property,
`(D) in the case of an appreciated financial position
that is a short sale or a contract described in
subparagraph (B) or (C) with respect to any property,
acquires the same or substantially identical property, or
`(E) to the extent prescribed by the Secretary in
regulations, enters into 1 or more other transactions (or
acquires 1 or more positions) that have substantially the
same effect as a transaction described in any of the
preceding subparagraphs.
`(2) EXCEPTION FOR SALES OF NONPUBLICLY TRADED PROPERTY- The
term `constructive sale' shall not include any contract for
sale of any stock, debt instrument, or partnership interest
which is not a marketable security (as defined in section
453(f)) if the contract settles within 1 year after the date
such contract is entered into.
`(3) EXCEPTION FOR CERTAIN CLOSED TRANSACTIONS-
`(A) IN GENERAL- In applying this section, there shall be
disregarded any transaction (which would otherwise be
treated as a constructive sale) during the taxable year if--
`(i) such transaction is closed before the end of the
30th day after the close of such taxable year,
`(ii) the taxpayer holds the appreciated financial
position throughout the 60-day period beginning on the
date such transaction is closed, and
`(iii) at no time during such 60-day period is the
taxpayer's risk of loss with respect to such position
reduced by reason of a circumstance which would be
described in section 246(c)(4) if references to stock
included references to such position.
`(B) TREATMENT OF POSITIONS WHICH ARE REESTABLISHED- If--
`(i) a transaction, which would otherwise be treated
as a constructive sale of an appreciated financial
position, is closed during the taxable year or during
the 30 days thereafter, and
`(ii) another substantially similar transaction is
entered into during the 60-day period beginning on the
date the transaction referred to in clause (i) is
closed--
`(I) which also would otherwise be treated as a constructive sale
of such position,
`(II) which is closed before the 30th day after the close of the
taxable year in which the transaction referred to in clause (i)
occurs, and
`(III) which meets the requirements of clauses (ii) and (iii) of
subparagraph (A),
the transaction referred to in clause (ii) shall be
disregarded for purposes of determining whether the
requirements of subparagraph (A)(iii) are met with respect
to the transaction described in clause (i).
`(4) RELATED PERSON- A person is related to another person
with respect to a transaction if--
`(A) the relationship is described in section 267(b) or
707(b), and
`(B) such transaction is entered into with a view toward
avoiding the purposes of this section.
`(d) OTHER DEFINITIONS- For purposes of this section--
`(1) FORWARD CONTRACT- The term `forward contract' means a
contract to deliver a substantially fixed amount of property
for a substantially fixed price.
`(2) OFFSETTING NOTIONAL PRINCIPAL CONTRACT- The term
`offsetting notional principal contract' means, with respect to
any property, an agreement which includes--
`(A) a requirement to pay (or provide credit for) all or
substantially all of the investment yield (including
appreciation) on such property for a specified period, and
`(B) a right to be reimbursed for (or receive credit for)
all or substantially all of any decline in the value of
such property.
`(e) SPECIAL RULES-
`(1) TREATMENT OF SUBSEQUENT SALE OF POSITION WHICH WAS
DEEMED SOLD- If--
`(A) there is a constructive sale of any appreciated
financial position,
`(B) such position is subsequently disposed of, and
`(C) at the time of such disposition, the transaction
resulting in the constructive sale of such position is open
with respect to the taxpayer or any related person,
solely for purposes of determining whether the taxpayer has
entered into a constructive sale of any other appreciated
financial position held by the taxpayer, the taxpayer shall be
treated as entering into such transaction immediately after
such disposition. For purposes of the preceding sentence, an
assignment or other termination shall be treated as a
disposition.
`(2) CERTAIN TRUST INSTRUMENTS TREATED AS STOCK- For purposes
of this section, an interest in a trust which is actively
traded (within the meaning of section 1092(d)(1)) shall be
treated as stock unless substantially all (by value) of the
property held by the trust is debt described in subsection
(b)(2)(A).
`(3) MULTIPLE POSITIONS IN PROPERTY- If a taxpayer holds
multiple positions in property, the determination of whether a
specific transaction is a constructive sale and, if so, which
appreciated financial position is deemed sold shall be made in
the same manner as actual sales.
`(f) REGULATIONS- The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of
this section.'.
(b) ELECTION OF MARK TO MARKET FOR DEALERS IN COMMODITIES AND FOR
TRADERS IN SECURITIES OR COMMODITIES- Section 475 (relating to mark
to market accounting method for dealers in securities) is amended
by redesignating subsection (e) as subsection (g) and by inserting
after subsection (d) the following new subsections:
`(e) ELECTION OF MARK TO MARKET FOR DEALERS IN COMMODITIES-
`(1) IN GENERAL- In the case of a dealer in commodities who
elects the application of this subsection, this section shall
apply to commodities held by such dealer in the same manner as
this section applies to securities held by a dealer in
securities.
`(2) COMMODITY- For purposes of this subsection and
subsection (f), the term `commodity' means--
`(A) any commodity which is actively traded (within the
meaning of section 1092(d)(1));
`(B) any notional principal contract with respect to any
commodity described in subparagraph (A);
`(C) any evidence of an interest in, or a derivative
instrument in, any commodity described in subparagraph (A)
or (B), including any option, forward contract, futures
contract, short position, and any similar instrument in
such a commodity; and
`(D) any position which--
`(i) is not a commodity described in subparagraph
(A), (B), or (C),
`(ii) is a hedge with respect to such a commodity, and
`(iii) is clearly identified in the taxpayer's
records as being described in this subparagraph before
the close of the day on which it was acquired or
entered into (or such other time as the Secretary may
by regulations prescribe).
`(3) ELECTION- An election under this subsection may be made
without the consent of the Secretary. Such an election, once
made, shall apply to the taxable year for which made and all
subsequent taxable years unless revoked with the consent of the
Secretary.
`(f) ELECTION OF MARK TO MARKET FOR TRADERS IN SECURITIES OR
COMMODITIES-
`(1) TRADERS IN SECURITIES-
`(A) IN GENERAL- In the case of a person who is engaged
in a trade or business as a trader in securities and who
elects to have this paragraph apply to such trade or
business--
`(i) such person shall recognize gain or loss on any
security held in connection with such trade or business
at the close of any taxable year as if such security
were sold for its fair market value on the last
business day of such taxable year, and
`(ii) any gain or loss shall be taken into account
for such taxable year.
Proper adjustment shall be made in the amount of any gain
or loss subsequently realized for gain or loss taken into
account under the preceding sentence. The Secretary may
provide by regulations for the application of this
subparagraph at times other than the times provided in this
subparagraph.
`(B) EXCEPTION- Subparagraph (A) shall not apply to any
security--
`(i) which is established to the satisfaction of the
Secretary as having no connection to the activities of
such person as a trader, and
`(ii) which is clearly identified in such person's
records as being described in clause (i) before the
close of the day on which it was acquired, originated,
or entered into (or such other time as the Secretary
may by regulations prescribe).
If a security ceases to be described in clause (i) at any
time after it was identified as such under clause (ii),
subparagraph (A) shall apply to any changes in value of the
security occurring after the cessation.
`(C) COORDINATION WITH SECTION 1259- Any security to
which subparagraph (A) applies and which was acquired in
the normal course of the taxpayer's activities as a trader
in securities shall not be taken into account in applying
section 1259 to any position to which subparagraph (A) does
not apply.
`(D) OTHER RULES TO APPLY- Rules similar to the rules of
subsections (b)(4) and (d) shall apply to securities held
by a person in any trade or business with respect to which
an election under this paragraph is in effect.
`(2) TRADERS IN COMMODITIES- In the case of a person who is
engaged in a trade or business as a trader in commodities and
who elects to have this paragraph apply to such trade or
business, paragraph (1) shall apply to commodities held by such
trader in connection with such trade or business in the same
manner as paragraph (1) applies to securities held by a trader
in securities.
`(3) ELECTION- The elections under paragraphs (1) and (2) may
be made separately for each trade or business and without the
consent of the Secretary. Such an election, once made, shall
apply to the taxable year for which made and all subsequent
taxable years unless revoked with the consent of the Secretary.'.
(c) CLERICAL AMENDMENT- The table of sections for part IV of
subchapter P of chapter 1 is amended by adding at the end the
following new item:
`SEC. 1259. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL
POSITIONS.'.
(d) EFFECTIVE DATES-
(1) IN GENERAL- Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
any constructive sale after June 8, 1997.
(2) EXCEPTION FOR SALES OF POSITIONS, ETC. HELD BEFORE JUNE
9, 1997- If--
(A) before June 9, 1997, the taxpayer entered into any
transaction which is a constructive sale of any appreciated
financial position, and
(B) before the close of the 30-day period beginning on
the date of the enactment of this Act or before such later
date as may be specified by the Secretary of the Treasury,
such transaction and position are clearly identified in the
taxpayer's records as offsetting,
such transaction and position shall not be taken into account
in determining whether any other constructive sale after June
8, 1997, has occurred. The preceding sentence shall cease to
apply as of the date such transaction is closed or the taxpayer
ceases to hold such position.
(3) SPECIAL RULE- In the case of a decedent dying after June
8, 1997, if--
(A) there was a constructive sale on or before such date
of any appreciated financial position,
(B) the transaction resulting in such constructive sale
of such position remains open (with respect to the decedent
or any related person)--
(i) for not less than 2 years after the date of such
transaction (whether such period is before or after
June 8, 1997), and
(ii) at any time during the 3-year period ending on
the date of the decedent's death, and
(C) such transaction is not closed within the 30-day
period beginning on the date of the enactment of this Act,
then, for purposes of such Code, such position (and the
transaction resulting in such constructive sale) shall be
treated as property constituting rights to receive an item of
income in respect of a decedent under section 691 of such Code.
Section 1014(c) of such Code shall not apply to so much of such
position's or property's value (as included in the decedent's
estate for purposes of chapter 11 of such Code) as exceeds its
fair market value as of the date such transaction is closed.
(4) ELECTION OF MARK TO MARKET BY SECURITIES TRADERS AND
TRADERS AND DEALERS IN COMMODITIES-
(A) IN GENERAL- The amendments made by subsection (b)
shall apply to taxable years ending after the date of the
enactment of this Act.
(B) 4-YEAR SPREAD OF ADJUSTMENTS- In the case of a
taxpayer who elects under subsection (e) or (f) of section
475 of the Internal Revenue Code of 1986 (as added by this
section) to change its method of accounting for the taxable
year which includes the date of the enactment of this Act--
(i) any identification required under such subsection
with respect to securities and commodities held on the
date of the enactment of this Act shall be treated as
timely made if made on or before the 30th day after
such date of enactment, and
(ii) the net amount of the adjustments required to be
taken into account by the taxpayer under section 481 of
such Code shall be taken into account ratably over the
4-taxable year period beginning with such first taxable
year. |
