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Strategies & Market Trends : Income Taxes and Record Keeping ( tax ) -- Ignore unavailable to you. Want to Upgrade?

To: Box-By-The-Riviera™ who wrote (334)	12/28/1997 12:28:00 PM
From: Colin Cody	Read Replies (1) \| Respond to of 5810

Joel, I just quickly looked up the following regarding wash-sales and mark-to-market: . IRC Sec 1091(a) Covered are shares of stock or securities, which include contracts or options to acquire or sell stock or securities. . IRC Sec 165(c)(2) This is the section that allows a loss to be deducted . IR Reg 1.1233-1(d) Defines substantially identical property. Says preferred is NOT similar to common, therefore not subject to wash-sale rule . IRC Sec 1256 contracts Defined: 1) regulated futures contract 2) foreign currency contract 3) non-equity options 4) dealer equity option 5) also see rev rul 94-63 . All Sec 1256 contracts must be marked-to-market on December 31st and the gain/loss treated 40% as short-term and 60% as long-term. . Exception if contract is used for hedging in the normal course of a trade or business that has ORDINARY (not CAPITAL) income and loss. i.e. "Securities Trader" who makes the new mark-to-market election. . Rev Rul 94-63 Broad-Based INDEX OPTIONS are Sec 1256 contracts if they provide for cash settlement. . Warrants based on Index Options that are economically, substantially identical in ALL MATERIAL respects to options based on a stock index are treated as option based on a stock index. . Rev Rul 77-201 CONVERTIBLE preferred stock is identical to common stock, therefore is subject to wash-sale rule . Rev Rul 77-218 Foreign Currency transactions / hedging with US Dollars are NOT covered under wash-sale rule . Rev Rul 71-568 Commodity futures are NOT covered under wash-sale rule . Marie Hanlin et al Executors v. Commissioner Warrants: If the warrant may be exercised ONLY upon the payment of a substantial consideration, it MAY be true that a stock purchase warrant is not substantially identical with the stock of the issuing corporation. BUT it does not follow that in EVERY INSTANCE a warrant could not be substantially identical with the underlying security to which it relates. A WARRANT may be traded at a price substantially equal to the current value of the underlying common stock and have all the earmarks of a fully convertible security and THUS be considered substantially similar to the stock. . SO IT SEEMS TO ME THAT INDEX OPTIONS ARE NOT SUBJECT TO THE WASH-SALE RULES, BUT THAT THEY ARE SUBJECT TO THE MARK-TO-MARKET RULES.