Internal Revenue Service, Treasury § 1.1092(B)–4T

Internal Revenue Service, Treasury § 1.1092(b)–4T

taxpayer disposes of the position. In tions of the section 1092(b)(2) identified the case of a taxpayer who is an indi- mixed straddle are acquired, stating vidual, the close of the day is midnight the date the straddle is established and (local time) in the location of the tax- identifying the other positions of the payer’s principal residence. In the case straddle. of all other taxpayers, the close of the (iii) Other methods. Such other meth- day is midnight (local time) in the lo- ods of independent verification as the cation of the taxpayer’s principal place Commissioner may approve at the of business. Only the person or entity Commissioner’s discretion. that directly holds all positions of a (5) Section 1092 (b)(2) identified mixed straddle may make the election under straddles established before February 25, this section. 1985. Notwithstanding the provisions of (2) Presumptions. A taxpayer is pre- paragraph (d)(1) of this section, relat- sumed to have identified a section ing to the time of identification of a 1092(b)(2) identified mixed straddle by section 1092(b)(2) identified mixed the time prescribed in paragraph (d)(1) straddle, a taxpayer may identify of this section if the taxpayer receives straddles that were established before independent verification of the identi- February 25, 1985 as section 1092(b)(2) fication (within the meaning of para- identified mixed straddles after the graph (d)(4) of this section). The pre- time specified in paragraph (d)(1) of sumption referred to in this paragraph this section if the taxpayer adopts a (d)(2) may be rebutted by clear and reasonable and consistent economic convincing evidence to the contrary. basis for identifying the positions of (3) Corroborating evidence. If the pre- such straddles. sumption of paragraph (d)(2) of this (e) Effective date—(1) In general. The section does not apply, the burden provisions of this section shall apply to shall be on the taxpayer to establish straddles established on or after Janu- that an election under paragraph (d)(1) ary 1, 1984. of this section was made by the time (2) Pre-1984 accrued gain. If the last specified in paragraph (d)(1) of this sec- business day referred to in paragraph tion. If the taxpayer has no evidence of (b)(6) of this section is contained in a the time when the identification re- period to which paragraph (b)(6) does quired by paragraph (d)(1) of this sec- not apply, the gains and losses from tion is made, other than the taxpayer’s the deemed sale shall be included in own testimony, the election is invalid the first period to which paragraph unless the taxpayer shows good cause (b)(6) applies. for failure to have evidence other than (Secs. 1092(b)(1), 1092(b)(2) and 7805 of the In- the taxpayer’s own testimony. ternal Revenue Code of 1954 (68A Stat. 917, 98 (4) Independent verification. For pur- Stat. 627; 26 U.S.C. 1092(b)(1), 1092(b)(2), 7805)) poses of this section, the following con- [T.D. 8008, 50 FR 3325, Jan. 24, 1985; 50 FR stitute independent verification: 12243, Mar. 28, 1985; 50 FR 19344, May 8, 1985; (i) Separate account. Placement of one T.D. 9627, 78 FR 46808, Aug. 2, 2013; 78 FR or more positions of a section 1092(b)(2) 64397, Oct. 29, 2013] identified mixed straddle in a separate account designated as a section § 1.1092(b)–4T Mixed straddles; mixed 1092(b)(2) identified mixed straddle ac- straddle account (temporary). count that is maintained by a broker (a) In general. A taxpayer may elect (as defined in § 1.6045–1(a)(1)), futures (in accordance with paragraph (f) of commission merchant (as defined in 7 this section) to establish one or more U.S.C. 2 and 17 CFR 1.3(p)), or similar mixed straddle accounts (as defined in person and in which notations are paragraph (b) of this section). Gains made by such person identifying all po- and losses from positions includible in sitions of the section 1092(b)(2) identi- a mixed straddle account shall be de- fied mixed straddle and stating the termined and treated in accordance date the straddle is established. with the rules set forth in paragraph (ii) Confirmation. A written confirma- (c) of this section. A mixed straddle ac- tion from a person referred to in para- count is treated as established as of the graph (d)(4)(i) of this section, or from first day of the taxable year for which the party from which one or more posi- the taxpayer makes the election or

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January 1, 1984, whichever is later. See (b)(2) may be illustrated by the fol- § 1.1092(b)–5T relating to definitions. lowing example. It is assumed that the (b) Mixed straddle account defined—(1) positions are the only positions held di- In general. The term mixed straddle ac- rectly or indirectly (through a related count means an account for deter- person or flowthrough entity) during mining gains and losses from all posi- the taxable year, and that gain or loss tions held as capital assets in a des- from the positions is treated as gain or ignated class of activities by the tax- loss from a capital asset. payer at the time the taxpayer elects Example: B holds stock in XYZ Corpora- to establish a mixed straddle account. tion, UVW Corporation, and RST Corpora- A separate mixed straddle account tion, and options on a broad based stock must be established for each separate index future. A reasonable person, on the designated class of activities. basis of all the facts and circumstances, (2) Permissible designations. Except as would expect the stock in XYZ Corporation, otherwise provided in this section, a UVW Corporation, and RST Corporation to taxpayer may designate as a class of be offsetting positions with respect to the activities the types of positions that a options on the broad based stock index future. A reasonable person, on the basis of all reasonable person, on the basis of all the facts and circumstances, would not ex- the facts and circumstances, would or- pect that stock in XYZ Corporation, UVW dinarily expect to be offsetting posi- Corporation, or RST Corporation would be tions. This paragraph (b)(2) may be il- offsetting positions with respect to each lustrated by the following example. It other. If B makes the mixed straddle account is assumed in the example that the po- election under this section for all such posi- sitions are the only positions held di- tions, B must designate three separate class- rectly or indirectly (through a related es of activities: one consisting of stock in XYZ Corporation; one consisting of stock in person or flowthrough entity) during UVW Corporation; and one consisting of the taxable year, and that gain or loss stock in RST Corporation, and maintain from the positions is treated as gain or three separate mixed straddle accounts. Op- loss from a capital asset. tions on the broad based stock index future must be designated as part of all three class- Example: B engages in transactions in deal- es of activities and gains and losses from er equity options on XYZ Corporation stock, such options must be allocated among such stock in XYZ Corporation, dealer equity op- accounts under a reasonable and consistent tions on UVW Corporation stock, and stock method that clearly reflects income, because in UVW Corporation. A reasonable person, on such options are a type of position expected the basis of all the facts and circumstances, to be offsetting with respect to the positions would not expect dealer equity options on in all three mixed straddle accounts. XYZ Corporation stock and stock in XYZ Corporation to offset any dealer equity op- (4) Impermissible designations—(i) tions on UVW Corporation stock or any Types of positions that are not offsetting stock in UVW Corporation. If B makes the included in designated class of activities. mixed straddle account election under this If the Commissioner determines, on the section for all such positions, B must des- basis of all the facts and cir- ignate two separate classes of activities, one consisting of transactions in dealer equity cumstances, that a class of activities options on XYZ Corporation stock and stock designated by a taxpayer includes in XYZ Corporation, and the other con- types of positions that a reasonable sisting of transactions in dealer equity op- person, on the basis of all the facts and tions on UVW Corporation stock and stock circumstances, ordinarily would not in UVW Corporation, and maintain two sepa- expect to be offsetting positions with rate mixed straddle accounts. respect to other types of positions in (3) Positions that offset positions in the account, the Commissioner may— more than one mixed straddle account. (A) Amend the class of activities des- Gains and losses from positions that a ignated by the taxpayer and remove reasonable person, on the basis of all positions from the account that are not the facts and circumstances, ordinarily within the amended designated class of would expect to be offsetting with re- activities; or spect to positions in more than one (B) Amend the class of activities des- mixed straddle account shall be allo- ignated by the taxpayer to establish cated among such accounts under a two or more mixed straddle accounts. reasonable and consistent method that (ii) Types of positions that are offset- clearly reflects income. This paragraph ting not included in designated class of

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activities. If the Commissioner deter- this section for rules concerning the mines, on the basis of all the facts and treatment of such positions. circumstances, that a designated class (6) Positions outside a mixed straddle of activities does not include types of account that are within the designated positions that are offsetting with re- class of activities. If a taxpayer holds spect to types of positions within the types of positions outside of a mixed designated class, the Commissioner straddle account (including positions may— in another mixed straddle account) (A) Amend the class of activities des- that are within the designated class of ignated by the taxpayer to include activities of a mixed straddle account, types of positions that are offsetting the Commissioner may require the tax- with respect to the types of positions payer to include such types of positions within the designated class and place in the mixed straddle account, move such positions in the account; or positions from one account to another, (B) Amend the class of activities des- or remove from the mixed straddle ac- ignated by the taxpayer to exclude count types of positions that are offset- types of positions that are offsetting ting with respect to the types of posi- with respect to the types of positions tions held outside the account. See that are not in the account. paragraph (b)(4)(iii) of this section for the treatment of such positions. (iii) Treatment of positions removed (c) Treatment of gains and losses from from or included in the account. (A) Posi- positions in a mixed straddle account—(1) tions removed from a mixed straddle Daily account net gain or loss. Except as account will be subject to the rules of provided in paragraphs (d) and (e) of taxation generally applicable to such this section (relating to positions in a positions. Thus, for example, if the po- mixed straddle account before January sitions removed from the account are 1, 1985) as of the close of each business offsetting positions with respect to day of the taxable year, gain or loss other positions outside the account, shall be determined for each position the rules of §§ 1.1092(b)–1T and 1.1092(b)– in a mixed straddle account that is dis- 2T apply. posed of during the day. Positions in a (B) If the taxpayer acted consistently mixed straddle account that have not and in good faith in designating the been disposed of as of the close of the class of activities of the account and in day shall be treated as if sold for their placing positions in the account, the fair market value at the close of each rules of § 1.1092(b)–2T(b)(2) shall not business day. Gains and losses for each apply to any mixed straddles resulting business day from non-section 1256 po- from the removal of such positions sitions in each mixed straddle account from the account and the Commis- shall be netted to determine net non- sioner, at the Commissioner’s discre- section 1256 position gain or loss for the tion, may identify such mixed strad- account, and gains and losses for each dles as section 1092(b)(2) identified business day from section 1256 con- mixed straddles and apply the rules of tracts in each mixed straddle account § 1.1092(b)–3T(b) to such straddles. shall be netted to determine net section (C) If positions are placed in a mixed 1256 contract gain or loss for the ac- straddle account, such positions shall count. Net non-section 1256 position be treated as if they were originally in- gain or loss from the account is then cluded in the mixed straddle account in offset against net section 1256 contract which they are placed. gain or loss from the same mixed strad- (5) Positions included in a mixed straddle account to determine the daily ac- dle account that are not within the des- count net gain or loss for the account. If ignated class of activities. The Commis- daily account net gain or loss is attrib- sioner may remove one or more posi- utable to the net non-section 1256 positions from a mixed straddle account if, tion gain or loss, daily account net on the basis of all the facts and cir- gain or loss for such account shall be cumstances, the Commissioner deter- treated as short-term capital gain or mines that such positions are not with- loss. If daily account net gain or loss is in the designated class of activities of attributable to the net section 1256 the account. See paragraph (b)(4)(iii) of contract gain or loss, daily account net

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gain or loss for such account shall be (A) Interest on indebtedness incurred treated as 60 percent long-term capital or continued during the taxable year to gain or loss and 40 percent short-term purchase or carry any position in the capital gain or loss. If net non-section account; and 1256 position gain or loss and net sec- (B) All other amounts (including tion 1256 contract gain or loss are ei- charges to insure, store or transport ther both gains or both losses, that the personal property) paid or incurred portion of the daily account net gain or to carry any position in the account; loss attributable to net non-section over 1256 position gain or loss shall be treat- (ii) The sum of— ed as short-term capital gain or loss (A) The amount of interest (including and that portion of the daily account original issue discount) includible in net gain or loss attributable to net sec- gross income for the taxable year with tion 1256 contract gain or loss shall be respect to all positions in the account; treated as 60 percent long-term capital (B) Any amount treated as ordinary gain or loss and 40 percent short-term income under section 1271(a)(3)(A), 1278, capital gain or loss. An adjustment or 1281(a) with respect to any position (through an adjustment to basis or oth- in the account for the taxable year; erwise) shall be made to any subse- and quent gain or loss determined under (C) The excess of any dividends in- this paragraph (c)(1) to take into ac- cludible in gross income with respect count any gain or loss determined for to positions in the account for the tax- prior business days under this para- able year over the amount of any de- graph (c)(1). duction allowable with respect to such (2) Annual account net gain or loss; dividends under section 243, 244, or 245. total annual account net gain or loss. On For purposes of paragraph (c)(3)(i) of the last business day of the taxable this section, the term interest includes year, the annual account net gain or loss any amount paid or incurred in connec- for each mixed straddle account estab- tion with positions in the account used lished by the taxpayer shall be deter- in a short sale. Any interest and car- mined by netting the daily account net rying charges disallowed under this gain or loss for each business day in paragraph (c)(3) shall be capitalized by the taxable year for each account. An- treating such charges as an adjustment nual account net gain or loss for each to the annual account net gain or loss mixed straddle account shall be ad- and shall be allocated pro rata between justed pursuant to paragraph (c)(3) of net short-term capital gain or loss and this section. The total annual account net long-term capital gain or loss. net gain or loss shall be determined by (4) Limitation on total annual account netting the annual account net gain or net gain or loss. No more than 50 per- loss for all mixed straddle accounts es- cent of total annual account net gain tablished by the taxpayer, as adjusted for the taxable year shall be treated as pursuant to paragraph (c)(3) of this sec- long-term capital gain. Any long-term tion. Total annual account net gain or capital gain in excess of the 50 percent loss is subject to the limitations of limit shall be treated as short-term paragraph (c)(4) of this section. See capital gain. No more than 40 percent paragraphs (d) and (e) of this section of total annual account net loss for the for determining the annual account net taxable year shall be treated as short- gain or loss for mixed straddle ac- term capital loss. Any short-term cap- counts established for taxable years be- ital loss in excess of the 40 percent ginning before January 1, 1985. limit shall be treated as long-term cap- (3) Application of section 263(g) to ital loss. mixed straddle accounts. No deduction (5) Accrued gain and loss with respect shall be allowed for interest and car- to positions includible in a mixed straddle rying charges (as defined in section account. Positions includable in a 263(g)(2)) properly allocable to a mixed mixed straddle account that are held straddle account. Interest and carrying by a taxpayer on the day prior to the charges properly allocable to a mixed day the mixed straddle account is es- straddle account means the excess of— tablished shall be deemed sold for their (i) The sum of— fair market value as of the close of the

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last business day preceding the day Example 1. A establishes a mixed straddle such mixed straddle account is estab- account for a class of activities consisting of lished. See §§ 1.1092(b)–1T and 1.1092(b)– transactions in stock of XYZ Corporation 2T for application of the loss deferral and dealer equity options on XYZ Corpora- and wash sale rules and for treatment tion stock. Assume that A enters into no transactions in XYZ Corporation stock or of holding periods and losses with re- dealer equity options on XYZ Corporation spect to such positions. An adjustment stock prior to December 26, 1985. Thus, the (through an adjustment to basis or oth- net non-section 1256 position gain or loss and erwise) shall be made to any subse- the net section 1256 contract gain or loss for quent gain or loss realized with respect the account are zero for each business day to such positions for any gain or loss except the following days: recognized under this paragraph (c)(5). Net section (6) Examples. This paragraph (c) may Net non-section 1256 contract be illustrated by the following exam- 1256 position gain or loss gain or loss (XYZ corpora- ples. It is assumed in each example (XYZ corporation dealer eq- that the positions are the only position stock) uity options) tions held directly or indirectly (through a related person or December 26, 1985 ...... $1,000 $20,000 December 27, 1985 ...... (9,000 ) 3,000 flowthrough entity) by an individual December 30, 1985 ...... (5,000 ) 15,000 calendar year taxpayer during the tax- December 31, 1985 ...... 7,000 (2,000) able year, and that gain or loss from the positions is treated as gain or loss The daily account net gain or loss is as fol- from a capital asset. lows:

Daily account Long- Short- net gain or loss Treatment of daily account net gain or loss term term

December 26, 1985 .. $21,000 $1,000 short-term capital gain, $20,000 60 percent long-term $12,000 $9,000 capital gain and 40 percent short-term capital gain. December 27, 1985 .. (6,000 ) Short-term capital loss ...... (6,000) December 30, 1985 .. 10,000 60 percent long-term capital gain and 40 percent short-term 6,000 4,000 capital gain. December 31, 1985 .. 5,000 Short-term capital gain ...... 5,000

The annual account net gain or loss is $18,000 Example 3. Assume the facts are the same of long-term capital gain and $12,000 of short- as in example (1), except that A has a second term capital gain. Because A has no other mixed straddle account, which has an annual mixed straddle accounts, total annual ac- account net loss of $14,000 of long-term cap- count net gain or loss is also $18,000 long- ital loss and $6,000 of short-term capital loss. term capital gain and $12,000 short-term cap- Under these circumstances, the total annual ital gain. Because more than 50 percent of account net gain is $4,000 ($18,000¥$14,000) of the total annual account net gain is long- long-term capital gain and $6,000 term capital gain, $3,000 of the $18,000 long- ($12,000¥$6,000) of short-term capital gain. term capital gain will be treated as short- Because not more than 50 percent of the term capital gain. total annual account net gain is long-term Example 2. Assume the facts are the same capital gain, none of the long-term capital as in example (1), except that interest and gain will be treated as short-term capital gain. carrying charges in the amount of $6,000 are allocable to the mixed straddle account and Example 4. Assume the facts are the same as in example (3), except that interest and are capitalized under paragraph (c)(3) of this carrying charges in the amount of $4,000 are section. Under these circumstances, $3,600 allocable to the second mixed straddle ac- (($18,000/$30,000)×$6,000) of the interest and count and are capitalized under paragraph carrying charges will reduce the $18,000 long- (c)(3) of this section. Under these cir- term capital gain to $14,400 long-term capital cumstances, $2,800 (($14,000/$20,000)×$4,000)) of × gain and $2,400 (($12,000/$30,000) $6,000) of the the interest and carrying charges will in- interest and carrying charges will reduce the crease the $14,000 long-term capital loss to $12,000 short-term capital gain to $9,600 $16,800 of long-term capital loss and $1,200 short-term capital gain. Because more than (($6,000/$20,000)×$4,000)) of the interest and 50 percent of the total annual account net carrying charges will increase the $6,000 gain is long-term capital gain, $2,400 of the short-term capital loss to $7,200 short-term $14,400 long-term capital gain will be treated capital loss. The total annual account net as short-term capital gain. gain is $1,200 of long-term capital gain

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($18,000 $16,800) and $4,800 ($12,000¥$7,200) of count shall be netted to determine pre- short-term capital gain. Because not more 1985 net section 1256 contract gain or loss. than 50 percent of the total annual account Pre-1985 net non-section 1256 position net gain is long-term capital gain, none of the $1,200 long-term capital gain will be gain or loss is then offset against pre- treated as short-term capital gain. 1985 net section 1256 contract gain or Example 5. Assume the facts are the same loss from the same mixed straddle ac- as in example (1), except that A has a second count to determine the pre-1985 account mixed straddle account, which has an annual net gain or loss for the period. If the account net loss of $20,000 of long-term cap- pre-1985 account net gain or loss is at- ital loss and $15,000 of short-term capital loss. Under these circumstances, the total tributable to pre-1985 net non-section annual account net loss is $2,000 1256 position gain or loss, the pre-1985 ($20,000¥$18,000) of long-term capital loss and account net gain or loss from such ac- $3,000 ($15,000¥$12,000) of short-term capital count shall be treated as short-term loss. Because more than 40 percent of the capital gain or loss. If the pre-1985 ac- total annual account net loss is short-term count net gain or loss is attributable to capital loss, $1,000 of the short-term capital loss will be treated as long-term capital loss. pre-1985 net section 1256 contract gain Example 6. A establishes two mixed strad- or loss, the pre-1985 account net gain or dle accounts. Account 1 has an annual ac- loss from such account shall be treated count net gain of $5,000 short-term capital as 60 percent long-term capital gain or gain, which results from netting $5,000 of loss and 40 percent short-term capital long-term capital loss and $10,000 of short- gain or loss. If pre-1985 net non-section term capital gain. Account 2 has an annual account net loss of $2,000 long-term capital 1256 position gain or loss and pre-1985 loss, which results from netting $3,000 of net section 1256 contract gain or loss long-term capital loss against $1,000 of short- are either both gains or losses, that term capital gain. The total annual account portion of the pre-1985 account net gain net gain is $3,000 short-term capital gain, or loss attributable to pre-1985 net non- which results from netting the annual ac- section 1256 position gain or loss shall count net gain of $5,000 short-term capital gain from Account 1 against the annual ac- be treated as short-term capital gain or count net loss of $2,000 long-term capital loss loss and that portion of the pre-1985 ac- from Account 2. count net gain or loss attributable to pre-1985 net section 1256 contract gain (d) Treatment of gains and losses from or loss shall be treated as 60 percent positions in a mixed straddle account es- long-term capital gain or loss and 40 tablished on or before December 31, 1984, percent short-term capital gain or loss. in taxable years ending after December 31, 1984; pre-1985 account net gain or loss. An adjustment (through an adjustment For mixed straddle accounts estab- to basis or otherwise) shall be made to lished on or before December 31, 1984, any subsequent gain or loss realized in taxable years ending after December with respect to such positions for any 31, 1984, the taxpayer on December 31, gain or loss recognized under this para- 1984, shall determine gain or loss for graph (d). To determine the annual ac- each position in the mixed straddle account net gain or loss for such account, count that has been disposed of on any the pre-1985 account net gain or loss day during the period beginning on the shall be treated as daily account net first day of the taxpayer’s taxable year gain or loss for purposes of paragraph that includes December 31, 1984, and (c)(2) of this section. See paragraph ending on December 31, 1984. Positions (c)(5) of this section for treatment of in the mixed straddle account that accrued gain or loss with respect to po- have not been disposed of as of the sitions includible in a mixed straddle close of December 31, 1984, shall be account. treated as if sold for their fair market (e) Treatment of gains and losses from value as of the close of December 31, positions in a mixed straddle account for 1984. Gains and losses for such period taxable years ending on or before Decem- from non-section 1256 positions in each ber 31, 1984—(1) In general. For mixed mixed straddle account shall be netted straddle accounts established on or be- to determine pre-1985 net non-section fore December 31, 1984, in taxable years 1256 position gain or loss and gains and ending on or before December 31, 1984, losses for such period from section 1256 the taxpayer at the close of the taxable contracts in each mixed straddle ac- year shall determine gain or loss for

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each position in the mixed straddle ac- mixed straddle accounts, the limita- count that has been disposed of on any tion on the total annual account net day during the period beginning on the gain or loss, and treatment of accrued later of the first day of the taxable gain or loss with respect to positions year or January 1, 1984, and ending on includible in a mixed straddle account. the last day of the taxable year. Posi- (2) Pre-1984 accrued gain. If the last tions in the mixed straddle account business day referred to in paragraph that have not been disposed of as of the (c)(5) of this section is contained in a close of the last business day of the period to which such paragraph (c)(5) taxable year shall be treated as if sold does not apply, the gains and losses for their fair market value at the close from the deemed sale shall be included of such day. Gains and losses from non- in the first period to which paragraph section 1256 positions in each mixed (c)(5) applies. straddle account shall be netted to de- (f) Election—(1) Time for making the termine 1984 net non-section 1256 posi- election. Except as otherwise provided, tion gain or loss for the account and the election under this section to es- gains and losses from section 1256 con- tablish one or more mixed straddle ac- tracts shall be netted to determine 1984 counts for a taxable year must be made net section 1256 contract gain or loss for by the due date (without regard to the account. The 1984 net non-section automatic and discretionary exten- 1256 position gain or loss is then offset sions) of the taxpayer’s income tax re- against 1984 net section 1256 contract turn for the immediately preceding gain or loss from the same mixed strad- taxable year (or part thereof). For ex- dle account to determine annual ac- ample, an individual taxpayer on a cal- count net gain or loss for the account. If endar year basis must make the elec- annual account net gain or loss is at- tion by April 15, 1986, to establish one tributable to 1984 net non-section 1256 or more mixed straddle accounts for position gain or loss, annual account taxable year 1986. Similarly, a calendar net gain or loss shall be treated as year corporate taxpayer must make its short-term capital gain or loss. If an- election by March 15, 1986, to establish nual account net gain or loss is attrib- one or more mixed straddle accounts utable to 1984 net section 1256 contract for 1986. If a taxpayer begins trading or gain or loss, annual account net gain investing in positions in a new class of or loss shall be treated as 60 percent activities during a taxable year, the long-term capital gain or loss and 40 election under this section with respect percent short-term capital gain or loss. to the new class of activities must be If 1984 net non-section 1256 position made by the taxpayer by the later of gain or loss and 1984 net section 1256 the due date of the taxpayer’s income contract gain or loss are either both tax return for the immediately pre- gains or both losses, that portion of an- ceding taxable year (without regard to nual account net gain or loss attrib- automatic and discretionary exten- utable to 1984 net non-section 1256 posi- sions), or 60 days after the first mixed tion gain or loss shall be treated as straddle in the new class of activities is short-term capital gain or loss and entered into. Similarly, if on or after that portion of annual account net the date the election is made with re- gain or loss attributable to 1984 net spect to an account, the taxpayer be- section 1256 contract gain or loss shall gins trading or investing in positions be treated as 60 percent long-term cap- that are includible in such account but ital gain or loss and 40 percent short- were not specified in the original elec- term capital gain or loss. An adjust- tion, the taxpayer must make an ment (through an adjustment to basis amended election as prescribed in para- or otherwise) shall be made to any sub- graph (f)(2)(ii) of this section by the sequent gain or loss realized with re- later of the due date of the taxpayer’s spect to such positions for any gain or income tax return for the immediately loss recognized under this paragraph preceding taxable year (without regard (e). See paragraph (c) (2) through (5) of to automatic and discretionary exten- this section relating to determining sions), or 60 days after the acquisition the total annual account net gain or of the first of the positions. If an elec- loss, application of section 263(g) to tion is made after the times specified

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in this paragraph (f)(1), the election (iii) Special rule. The Commissioner will be permitted only if the Commis- may disregard a mixed straddle ac- sioner concludes that the taxpayer had count election if the Commissioner de- reasonable cause for failing to make a termines, on the basis of all the facts timely election. For example, if a cal- and circumstances, that the principal endar year taxpayer holds few posi- purpose for making the mixed straddle tions in one class of activities prior to account election with respect to a class April 15 of a taxable year, and the tax- of activities was to avoid the rules of payer greatly increases trading activ- § 1.1092(b)–1T (a). For example, if a tax- ity with respect to positions in the payer holds stock that is not part of a class of activities after April 15, then straddle and that would generate a loss the Commissioner may conclude that if sold or otherwise disposed of, and the the taxpayer had reasonable cause for taxpayer both acquires offsetting op- failing to make a timely election and tion positions with respect to the stock allow the taxpayer to make a mixed and makes a mixed straddle account straddle account election for the tax- election with respect to the stock and able year. See paragraph (f)(2) of this stock options near the end of a taxable section for rules relating to the man- year, the Commissioner may disregard ner for making these elections. the mixed straddle account election. (2) Manner for making the election—(i) (3) Special rule for taxable years ending In general. A taxpayer must make the after 1983 and before September 1, 1986. election on Form 6781 in the manner An election under this section to estab- prescribed by such Form, and by at- lish one or more mixed straddle ac- taching the Form to the taxpayer’s in- counts for any taxable year that income tax return for the immediately cludes July 17, 1984, and any taxable preceding taxable year (or request for year that ends before September 1, 1986 an automatic extension). In addition, (or, in the case of a corporation, Octo- the taxpayer must attach a statement ber 1, 1986), must be made by the later to Form 6781 designating with speci- of— ficity the class of activities for which a (i) December 31, 1985, or mixed straddle account is established. (ii) The due date (without regard to The designation must describe the automatic and discretionary exten- class of activities in sufficient detail so sions) of the return for the taxpayer’s that the Commissioner may determine, taxable year that begins in 1984 if the on the basis of the designation, wheth- due date of the taxpayer’s return for er specific positions are includible in such year (without regard to automatic the mixed straddle account. In the case and discretionary extensions) is after of a taxpayer who elects to establish December 31, 1985. more than one mixed straddle account, The election shall be made by attach- the Commissioner must be able to de- ing Form 6781 together with a state- termine, on the basis of the designa- ment to the taxpayer’s income tax re- tions, that specific positions are placed turn, amended return, or other appro- in the appropriate account. The elec- priate form that is filed on or before tion applies to all positions in the des- the deadline determined in the pre- ignated class of activities held by the ceding sentence. The attached state- taxpayer during the taxable year. ment must designate with specificity, (ii) Elections for new classes of activi- in accordance with paragraph (f)(2)(i) ties and expanded elections. Amended of this section, the class of activities elections and elections made with re- for which a mixed straddle account is spect to a new class of activities that established. For example, if a fiscal the taxpayer has begun trading or in- year taxpayer’s return (for its taxable vesting in during a taxable year, shall year ending September 30, 1985) is due be made on Form 6781 within the times (without regard to extensions) on Jan- prescribed in paragraph (f)(1) of this uary 15, 1986, and the taxpayer intends section. A statement must be attached to obtain an automatic extension to to the Form containing the informa- file the return, the election under this tion required in paragraph (f)(2)(i) of section for any or all of the fiscal years this section, with respect to the new or ending in 1984, 1985 or 1986 must be expanded designated class of activities. made on or before January 15, 1986,

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with the request for an automatic ex- of activities under paragraph (f)(1) of tension. Similarly, a calendar year tax- this section during the same taxable payer (whether or not such taxpayer year. has obtained an automatic extension of (g) Effective date. The provisions of time to file) who has filed its 1984 in- this section apply to positions held on come tax return before October 15, 1985, or after January 1, 1984. without making a mixed straddle ac- (Secs. 1092(b)(1), 1092(b)(2) and 7805 of the In- count election for either 1984 or 1985, or ternal Revenue Code of 1954 (68A Stat. 917, 98 both, may make the mixed straddle ac- Stat. 627; 26 U.S.C. 1092(b)(1), 1092(b)(2), 7805)) count election under this section for either or for both of such years with an [T.D. 8008, 50 FR 3329, Jan. 24, 1985; 50 FR 12243, Mar. 28, 1985, as amended by T.D. 8058, amended return filed on or before De- 50 FR 42013, Oct. 17, 1985] cember 31, 1985. The mixed straddle account elected on this amended return § 1.1092(b)–5T Definitions (temporary). will be effective for all positions in the The following definitions apply for designated class of activities even if purposes of §§ 1.1092(b)–1T through the taxpayer had elected straddle-by- 1.1092(b)–4T. straddle identification as provided (a) Disposing, disposes, or disposed. The under § 1.1092(b)–3T for purposes of the term disposing, disposes, or disposed in- previously filed 1984 income tax return. cludes the sale, exchange, cancellation, For taxable years beginning in 1984 and lapse, expiration, or other termination 1985, the election under this paragraph of a right or obligation with respect to (f)(3) is effective for the entire taxable personal property (as defined in section year. For taxable years beginning in 1092(d)(1)). 1983, an election shall be effective for (b) Hedging transaction. The term that part of the year beginning after hedging transaction means a hedging December 31, 1983, for which the elec- transaction as defined in section tion under § 1.1256(h)–1T or 1.1256(h)–2T 1256(e). is made. See § 1.6081–1T regarding an (c) Identified straddle. The term identi- extension of time to file certain indi- fied straddle means an identified strad- vidual income tax returns. dle as defined in section 1092(a)(2)(B). (4) Period for which election is effective. (d) Loss. The term loss means a loss For taxable years beginning on or after otherwise allowable under section January 1, 1984, an election under this 165(a) (without regard to the limitation section, including an amendment to contained in section 165(f)) and in- the election pursuant to paragraph cludes a write-down in inventory. (f)(1) of this section, shall be effective (e) Mixed straddle. The term mixed only for the taxable year for which the straddle means a straddle— election is made. This election may be (1) All of the positions of which are revoked during the taxable year for the held as capital assets; remainder of the taxable year only (2) At least one (but not all) of the with the consent of the Commissioner. positions of which is a section 1256 con- An application for consent to revoke tract; the election shall be filed with the (3) For which an election under sec- service center with which the election tion 1256(d) has not been made; and was filed and shall— (4) Which is not part of a larger (i) Contain the name, address, and straddle. taxpayer identification number of the (f) Non-section 1256 position. The term taxpayer; non-section 1256 position means a posi- (ii) Show that the volume or nature tion that is not a section 1256 contract. of the taxpayer’s activities has (g) Offsetting position. The term offset- changed substantially since the elec- ting position means an offsetting position was made, and that the taxpayer’s tion as defined in section 1092(c)(2). activities no longer warrant the use of (h) Position. The term position means such mixed straddle account; and a position as defined in section (iii) Any other relevant information. 1092(d)(2). If a taxpayer’s election for a taxable (i) [Reserved] year is revoked, the taxpayer may not (j) Related person or flowthrough enti- make a new election for the same class ty. The term related person or

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