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

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

the party from which one or more posi- first day of the taxable year for which tions of the section 1092(b)(2) identified the taxpayer makes the election or mixed straddle are acquired, stating January 1, 1984, whichever is later. See the date the straddle is established and § 1.1092(b)–5T relating to definitions. identifying the other positions of the (b) Mixed straddle account defined—(1) straddle. In general. The term mixed straddle ac- (iii) Other methods. Such other meth- count means an account for deter- ods of independent verification as the mining gains and losses from all posi- Commissioner may approve at the tions held as capital assets in a des- Commissioner’s discretion. ignated class of activities by the tax- (5) Section 1092 (b)(2) identified mixed payer at the time the taxpayer elects straddles established before February 25, to establish a mixed straddle account. 1985. Notwithstanding the provisions of A separate mixed straddle account paragraph (d)(1) of this section, relat- must be established for each separate ing to the time of identification of a designated class of activities. section 1092(b)(2) identified mixed (2) Permissible designations. Except as straddle, a taxpayer may identify otherwise provided in this section, a straddles that were established before taxpayer may designate as a class of February 25, 1985 as section 1092(b)(2) activities the types of positions that a identified mixed straddles after the reasonable person, on the basis of all time specified in paragraph (d)(1) of the facts and circumstances, would or- this section if the taxpayer adopts a dinarily expect to be offsetting posi- reasonable and consistent economic tions. This paragraph (b)(2) may be il- basis for identifying the positions of lustrated by the following example. It such straddles. is assumed in the example that the po- (e) Effective date—(1) In general. The sitions are the only positions held di- provisions of this section shall apply to rectly or indirectly (through a related straddles established on or after Janu- person or flowthrough entity) during ary 1, 1984. the taxable year, and that gain or loss (2) Pre-1984 accrued gain. If the last from the positions is treated as gain or business day referred to in paragraph loss from a capital asset. (b)(6) of this section is contained in a Example: B engages in transactions in deal- period to which paragraph (b)(6) does er equity options on XYZ Corporation stock, not apply, the gains and losses from stock in XYZ Corporation, dealer equity op- the deemed sale shall be included in tions on UVW Corporation stock, and stock the first period to which paragraph in UVW Corporation. A reasonable person, on the basis of all the facts and circumstances, (b)(6) applies. would not expect dealer equity options on (Secs. 1092(b)(1), 1092(b)(2) and 7805 of the In- XYZ Corporation stock and stock in XYZ ternal Revenue Code of 1954 (68A Stat. 917, 98 Corporation to offset any dealer equity op- Stat. 627; 26 U.S.C. 1092(b)(1), 1092(b)(2), 7805)) tions on UVW Corporation stock or any stock in UVW Corporation. If B makes the [T.D. 8008, 50 FR 3325, Jan. 24, 1985; 50 FR mixed straddle account election under this 12243, Mar. 28, 1985; 50 FR 19344, May 8, 1985; section for all such positions, B must des- T.D. 9627, 78 FR 46808, Aug. 2, 2013; 78 FR ignate two separate classes of activities, one 64397, Oct. 29, 2013; T.D. 9678, 79 FR 41888, consisting of transactions in dealer equity July 18, 2014] options on XYZ Corporation stock and stock in XYZ Corporation, and the other con- § 1.1092(b)–4T Mixed straddles; mixed sisting of transactions in dealer equity op- straddle account (temporary). tions on UVW Corporation stock and stock (a) In general. A taxpayer may elect in UVW Corporation, and maintain two sepa- (in accordance with paragraph (f) of rate mixed straddle accounts. this section) to establish one or more (3) Positions that offset positions in mixed straddle accounts (as defined in more than one mixed straddle account. paragraph (b) of this section). Gains Gains and losses from positions that a and losses from positions includible in reasonable person, on the basis of all a mixed straddle account shall be de- the facts and circumstances, ordinarily termined and treated in accordance would expect to be offsetting with re- with the rules set forth in paragraph spect to positions in more than one (c) of this section. A mixed straddle ac- mixed straddle account shall be allo- count is treated as established as of the cated among such accounts under a

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reasonable and consistent method that (ii) Types of positions that are offset- clearly reflects income. This paragraph ting not included in designated class of (b)(2) may be illustrated by the fol- activities. If the Commissioner deter- lowing example. It is assumed that the mines, on the basis of all the facts and positions are the only positions held di- circumstances, that a designated class rectly or indirectly (through a related of activities does not include types of person or flowthrough entity) during positions that are offsetting with re- the taxable year, and that gain or loss spect to types of positions within the from the positions is treated as gain or designated class, the Commissioner loss from a capital asset. may— Example: B holds stock in XYZ Corpora- (A) Amend the class of activities des- tion, UVW Corporation, and RST Corpora- ignated by the taxpayer to include tion, and options on a broad based stock types of positions that are offsetting index future. A reasonable person, on the with respect to the types of positions basis of all the facts and circumstances, within the designated class and place would expect the stock in XYZ Corporation, such positions in the account; or UVW Corporation, and RST Corporation to (B) Amend the class of activities des- be offsetting positions with respect to the options on the broad based stock index fu- ignated by the taxpayer to exclude ture. A reasonable person, on the basis of all types of positions that are offsetting the facts and circumstances, would not ex- with respect to the types of positions pect that stock in XYZ Corporation, UVW that are not in the account. Corporation, or RST Corporation would be (iii) Treatment of positions removed offsetting positions with respect to each from or included in the account. (A) Posi- other. If B makes the mixed straddle account tions removed from a mixed straddle election under this section for all such positions, B must designate three separate class- account will be subject to the rules of es of activities: one consisting of stock in taxation generally applicable to such XYZ Corporation; one consisting of stock in positions. Thus, for example, if the po- UVW Corporation; and one consisting of sitions removed from the account are stock in RST Corporation, and maintain offsetting positions with respect to three separate mixed straddle accounts. Op- other positions outside the account, tions on the broad based stock index future the rules of §§ 1.1092(b)–1T and 1.1092(b)– must be designated as part of all three classes of activities and gains and losses from 2T apply. such options must be allocated among such (B) If the taxpayer acted consistently accounts under a reasonable and consistent and in good faith in designating the method that clearly reflects income, because class of activities of the account and in such options are a type of position expected placing positions in the account, the to be offsetting with respect to the positions rules of § 1.1092(b)–2T(b)(2) shall not in all three mixed straddle accounts. apply to any mixed straddles resulting (4) Impermissible designations—(i) from the removal of such positions Types of positions that are not offsetting from the account and the Commis- included in designated class of activities. sioner, at the Commissioner’s discre- If the Commissioner determines, on the tion, may identify such mixed strad- basis of all the facts and cir- dles as section 1092(b)(2) identified cumstances, that a class of activities mixed straddles and apply the rules of designated by a taxpayer includes § 1.1092(b)–3T(b) to such straddles. types of positions that a reasonable (C) If positions are placed in a mixed person, on the basis of all the facts and straddle account, such positions shall circumstances, ordinarily would not be treated as if they were originally in- expect to be offsetting positions with cluded in the mixed straddle account in respect to other types of positions in which they are placed. the account, the Commissioner may— (5) Positions included in a mixed strad- (A) Amend the class of activities des- dle account that are not within the designated by the taxpayer and remove ignated class of activities. The Commis- positions from the account that are not sioner may remove one or more posi- within the amended designated class of tions from a mixed straddle account if, activities; or on the basis of all the facts and cir- (B) Amend the class of activities des- cumstances, the Commissioner deter- ignated by the taxpayer to establish mines that such positions are not with- two or more mixed straddle accounts. in the designated class of activities of

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the account. See paragraph (b)(4)(iii) of contract gain or loss, daily account net this section for rules concerning the gain or loss for such account shall be treatment of such positions. treated as 60 percent long-term capital (6) Positions outside a mixed straddle gain or loss and 40 percent short-term account that are within the designated capital gain or loss. If net non-section class of activities. If a taxpayer holds 1256 position gain or loss and net sec- types of positions outside of a mixed tion 1256 contract gain or loss are ei- straddle account (including positions ther both gains or both losses, that in another mixed straddle account) portion of the daily account net gain or that are within the designated class of loss attributable to net non-section activities of a mixed straddle account, 1256 position gain or loss shall be treat- the Commissioner may require the tax- ed as short-term capital gain or loss payer to include such types of positions and that portion of the daily account in the mixed straddle account, move net gain or loss attributable to net sec- positions from one account to another, tion 1256 contract gain or loss shall be or remove from the mixed straddle ac- treated as 60 percent long-term capital count types of positions that are offset- gain or loss and 40 percent short-term ting with respect to the types of posi- capital gain or loss. An adjustment tions held outside the account. See (through an adjustment to basis or oth- paragraph (b)(4)(iii) of this section for erwise) shall be made to any subse- the treatment of such positions. quent gain or loss determined under (c) Treatment of gains and losses from this paragraph (c)(1) to take into ac- positions in a mixed straddle account—(1) count any gain or loss determined for Daily account net gain or loss. Except as prior business days under this para- provided in paragraphs (d) and (e) of graph (c)(1). this section (relating to positions in a (2) Annual account net gain or loss; mixed straddle account before January total annual account net gain or loss. On 1, 1985) as of the close of each business the last business day of the taxable day of the taxable year, gain or loss year, the annual account net gain or loss shall be determined for each position for each mixed straddle account estab- in a mixed straddle account that is dis- lished by the taxpayer shall be deter- posed of during the day. Positions in a mined by netting the daily account net mixed straddle account that have not gain or loss for each business day in been disposed of as of the close of the the taxable year for each account. An- day shall be treated as if sold for their nual account net gain or loss for each fair market value at the close of each mixed straddle account shall be ad- business day. Gains and losses for each justed pursuant to paragraph (c)(3) of business day from non-section 1256 po- this section. The total annual account sitions in each mixed straddle account net gain or loss shall be determined by shall be netted to determine net non- netting the annual account net gain or section 1256 position gain or loss for the loss for all mixed straddle accounts es- account, and gains and losses for each tablished by the taxpayer, as adjusted business day from section 1256 con- pursuant to paragraph (c)(3) of this sec- tracts in each mixed straddle account tion. Total annual account net gain or shall be netted to determine net section loss is subject to the limitations of 1256 contract gain or loss for the ac- paragraph (c)(4) of this section. See count. Net non-section 1256 position paragraphs (d) and (e) of this section gain or loss from the account is then for determining the annual account net offset against net section 1256 contract gain or loss for mixed straddle ac- gain or loss from the same mixed strad- counts established for taxable years be- dle account to determine the daily ac- ginning before January 1, 1985. count net gain or loss for the account. If (3) Application of section 263(g) to daily account net gain or loss is attrib- mixed straddle accounts. No deduction utable to the net non-section 1256 posi- shall be allowed for interest and car- tion gain or loss, daily account net rying charges (as defined in section gain or loss for such account shall be 263(g)(2)) properly allocable to a mixed treated as short-term capital gain or straddle account. Interest and carrying loss. If daily account net gain or loss is charges properly allocable to a mixed attributable to the net section 1256 straddle account means the excess of—

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(i) The sum of— account. Positions includable in a (A) Interest on indebtedness incurred mixed straddle account that are held or continued during the taxable year to by a taxpayer on the day prior to the purchase or carry any position in the day the mixed straddle account is es- account; and tablished shall be deemed sold for their (B) All other amounts (including fair market value as of the close of the charges to insure, store or transport last business day preceding the day the personal property) paid or incurred such mixed straddle account is estab- to carry any position in the account; lished. See §§ 1.1092(b)–1T and 1.1092(b)– over 2T for application of the loss deferral (ii) The sum of— and wash sale rules and for treatment (A) The amount of interest (including of holding periods and losses with re- original issue discount) includible in gross income for the taxable year with spect to such positions. An adjustment respect to all positions in the account; (through an adjustment to basis or oth- (B) Any amount treated as ordinary erwise) shall be made to any subse- income under section 1271(a)(3)(A), 1278, quent gain or loss realized with respect or 1281(a) with respect to any position to such positions for any gain or loss in the account for the taxable year; recognized under this paragraph (c)(5). and (6) Examples. This paragraph (c) may (C) The excess of any dividends in- be illustrated by the following exam- cludible in gross income with respect ples. It is assumed in each example to positions in the account for the tax- that the positions are the only posi- able year over the amount of any de- tions held directly or indirectly duction allowable with respect to such (through a related person or dividends under section 243, 244, or 245. flowthrough entity) by an individual For purposes of paragraph (c)(3)(i) of calendar year taxpayer during the tax- this section, the term interest includes able year, and that gain or loss from any amount paid or incurred in connec- the positions is treated as gain or loss tion with positions in the account used from a capital asset. in a short sale. Any interest and carrying charges disallowed under this Example 1. A establishes a mixed straddle paragraph (c)(3) shall be capitalized by account for a class of activities consisting of treating such charges as an adjustment transactions in stock of XYZ Corporation to the annual account net gain or loss and dealer equity options on XYZ Corpora- tion stock. Assume that A enters into no and shall be allocated pro rata between transactions in XYZ Corporation stock or net short-term capital gain or loss and dealer equity options on XYZ Corporation net long-term capital gain or loss. stock prior to December 26, 1985. Thus, the (4) Limitation on total annual account net non-section 1256 position gain or loss and net gain or loss. No more than 50 per- the net section 1256 contract gain or loss for cent of total annual account net gain the account are zero for each business day for the taxable year shall be treated as except the following days: long-term capital gain. Any long-term Net section capital gain in excess of the 50 percent Net non-section 1256 contract limit shall be treated as short-term 1256 position gain or loss gain or loss (XYZ corpora- capital gain. No more than 40 percent (XYZ corporation dealer eq- of total annual account net loss for the tion stock) uity options) taxable year shall be treated as short- term capital loss. Any short-term cap- December 26, 1985 ...... $1,000 $20,000 December 27, 1985 ...... (9,000 ) 3,000 ital loss in excess of the 40 percent December 30, 1985 ...... (5,000 ) 15,000 limit shall be treated as long-term cap- December 31, 1985 ...... 7,000 (2,000) ital loss. (5) Accrued gain and loss with respect The daily account net gain or loss is as fol- to positions includible in a mixed straddle 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)

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

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 than 50 percent of the total annual account of long-term capital gain and $12,000 of short- net gain is long-term capital gain, none of term capital gain. Because A has no other the $1,200 long-term capital gain will be mixed straddle accounts, total annual ac- treated as short-term capital gain. count net gain or loss is also $18,000 long- Example 5. Assume the facts are the same term capital gain and $12,000 short-term cap- as in example (1), except that A has a second ital gain. Because more than 50 percent of mixed straddle account, which has an annual the total annual account net gain is long- account net loss of $20,000 of long-term cap- term capital gain, $3,000 of the $18,000 long- ital loss and $15,000 of short-term capital term capital gain will be treated as short- loss. Under these circumstances, the total term capital gain. annual account net loss is $2,000 Example 2. Assume the facts are the same ($20,000¥$18,000) of long-term capital loss and as in example (1), except that interest and $3,000 ($15,000¥$12,000) of short-term capital carrying charges in the amount of $6,000 are loss. Because more than 40 percent of the allocable to the mixed straddle account and total annual account net loss is short-term are capitalized under paragraph (c)(3) of this capital loss, $1,000 of the short-term capital section. Under these circumstances, $3,600 loss will be treated as long-term capital loss. × (($18,000/$30,000) $6,000) of the interest and Example 6. A establishes two mixed strad- carrying charges will reduce the $18,000 long- dle accounts. Account 1 has an annual ac- term capital gain to $14,400 long-term capital count net gain of $5,000 short-term capital × gain and $2,400 (($12,000/$30,000) $6,000) of the gain, which results from netting $5,000 of interest and carrying charges will reduce the long-term capital loss and $10,000 of short- $12,000 short-term capital gain to $9,600 term capital gain. Account 2 has an annual short-term capital gain. Because more than account net loss of $2,000 long-term capital 50 percent of the total annual account net loss, which results from netting $3,000 of gain is long-term capital gain, $2,400 of the long-term capital loss against $1,000 of short- $14,400 long-term capital gain will be treated term capital gain. The total annual account as short-term capital gain. net gain is $3,000 short-term capital gain, Example 3. Assume the facts are the same which results from netting the annual ac- as in example (1), except that A has a second count net gain of $5,000 short-term capital mixed straddle account, which has an annual gain from Account 1 against the annual ac- account net loss of $14,000 of long-term cap- count net loss of $2,000 long-term capital loss ital loss and $6,000 of short-term capital loss. from Account 2. Under these circumstances, the total annual account net gain is $4,000 ($18,000¥$14,000) of (d) Treatment of gains and losses from long-term capital gain and $6,000 positions in a mixed straddle account es- ¥ ($12,000 $6,000) of short-term capital gain. tablished on or before December 31, 1984, Because not more than 50 percent of the total annual account net gain is long-term in taxable years ending after December 31, capital gain, none of the long-term capital 1984; pre-1985 account net gain or loss. gain will be treated as short-term capital For mixed straddle accounts estab- gain. lished on or before December 31, 1984, Example 4. Assume the facts are the same in taxable years ending after December as in example (3), except that interest and 31, 1984, the taxpayer on December 31, carrying charges in the amount of $4,000 are 1984, shall determine gain or loss for allocable to the second mixed straddle account and are capitalized under paragraph each position in the mixed straddle ac- (c)(3) of this section. Under these cir- count that has been disposed of on any cumstances, $2,800 (($14,000/$20,000) × $4,000)) day during the period beginning on the of the interest and carrying charges will in- first day of the taxpayer’s taxable year crease the $14,000 long-term capital loss to that includes December 31, 1984, and $16,800 of long-term capital loss and $1,200 ending on December 31, 1984. Positions (($6,000/$20,000) × $4,000)) of the interest and in the mixed straddle account that carrying charges will increase the $6,000 have not been disposed of as of the short-term capital loss to $7,200 short-term capital loss. The total annual account net close of December 31, 1984, shall be gain is $1,200 of long-term capital gain treated as if sold for their fair market ($18,000 $16,800) and $4,800 ($12,000¥$7,200) of value as of the close of December 31, short-term capital gain. Because not more 1984. Gains and losses for such period

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from non-section 1256 positions in each straddle accounts established on or be- mixed straddle account shall be netted fore December 31, 1984, in taxable years to determine pre-1985 net non-section ending on or before December 31, 1984, 1256 position gain or loss and gains and the taxpayer at the close of the taxable losses for such period from section 1256 year shall determine gain or loss for contracts in each mixed straddle ac- each position in the mixed straddle account shall be netted to determine pre- count that has been disposed of on any 1985 net section 1256 contract gain or loss. day during the period beginning on the Pre-1985 net non-section 1256 position later of the first day of the taxable gain or loss is then offset against pre- year or January 1, 1984, and ending on 1985 net section 1256 contract gain or the last day of the taxable year. Posi- loss from the same mixed straddle ac- tions in the mixed straddle account count to determine the pre-1985 account that have not been disposed of as of the net gain or loss for the period. If the close of the last business day of the pre-1985 account net gain or loss is at- taxable year shall be treated as if sold tributable to pre-1985 net non-section for their fair market value at the close 1256 position gain or loss, the pre-1985 of such day. Gains and losses from non- account net gain or loss from such ac- section 1256 positions in each mixed count shall be treated as short-term straddle account shall be netted to de- capital gain or loss. If the pre-1985 ac- termine 1984 net non-section 1256 posi- count net gain or loss is attributable to tion gain or loss for the account and pre-1985 net section 1256 contract gain gains and losses from section 1256 con- or loss, the pre-1985 account net gain or tracts shall be netted to determine 1984 loss from such account shall be treated net section 1256 contract gain or loss for as 60 percent long-term capital gain or the account. The 1984 net non-section loss and 40 percent short-term capital 1256 position gain or loss is then offset gain or loss. If pre-1985 net non-section against 1984 net section 1256 contract 1256 position gain or loss and pre-1985 gain or loss from the same mixed strad- net section 1256 contract gain or loss dle account to determine annual ac- are either both gains or losses, that count net gain or loss for the account. If portion of the pre-1985 account net gain annual account net gain or loss is at- or loss attributable to pre-1985 net non- tributable to 1984 net non-section 1256 section 1256 position gain or loss shall position gain or loss, annual account be treated as short-term capital gain or net gain or loss shall be treated as loss and that portion of the pre-1985 ac- short-term capital gain or loss. If an- count net gain or loss attributable to nual account net gain or loss is attrib- pre-1985 net section 1256 contract gain utable to 1984 net section 1256 contract or loss shall be treated as 60 percent gain or loss, annual account net gain long-term capital gain or loss and 40 or loss shall be treated as 60 percent percent short-term capital gain or loss. long-term capital gain or loss and 40 An adjustment (through an adjustment percent short-term capital gain or loss. to basis or otherwise) shall be made to If 1984 net non-section 1256 position any subsequent gain or loss realized gain or loss and 1984 net section 1256 with respect to such positions for any contract gain or loss are either both gain or loss recognized under this para- gains or both losses, that portion of an- graph (d). To determine the annual ac- nual account net gain or loss attrib- count net gain or loss for such account, utable to 1984 net non-section 1256 posi- the pre-1985 account net gain or loss tion gain or loss shall be treated as shall be treated as daily account net short-term capital gain or loss and gain or loss for purposes of paragraph that portion of annual account net (c)(2) of this section. See paragraph gain or loss attributable to 1984 net (c)(5) of this section for treatment of section 1256 contract gain or loss shall accrued gain or loss with respect to po- be treated as 60 percent long-term cap- sitions includible in a mixed straddle ital gain or loss and 40 percent short- account. term capital gain or loss. An adjust- (e) Treatment of gains and losses from ment (through an adjustment to basis positions in a mixed straddle account for or otherwise) shall be made to any sub- taxable years ending on or before Decem- sequent gain or loss realized with re- ber 31, 1984—(1) In general. For mixed spect to such positions for any gain or

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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 mixed straddle accounts, the limita- in this paragraph (f)(1), the election tion on the total annual account net will be permitted only if the Commis- gain or loss, and treatment of accrued sioner concludes that the taxpayer had gain or loss with respect to positions reasonable cause for failing to make a includible in a mixed straddle account. timely election. For example, if a cal- (2) Pre-1984 accrued gain. If the last endar year taxpayer holds few posi- business day referred to in paragraph tions in one class of activities prior to (c)(5) of this section is contained in a April 15 of a taxable year, and the tax- period to which such paragraph (c)(5) payer greatly increases trading activ- does not apply, the gains and losses ity with respect to positions in the from the deemed sale shall be included class of activities after April 15, then in the first period to which paragraph the Commissioner may conclude that (c)(5) applies. the taxpayer had reasonable cause for (f) Election—(1) Time for making the failing to make a timely election and election. Except as otherwise provided, allow the taxpayer to make a mixed the election under this section to es- straddle account election for the tax- tablish one or more mixed straddle ac- able year. See paragraph (f)(2) of this counts for a taxable year must be made section for rules relating to the man- by the due date (without regard to ner for making these elections. automatic and discretionary exten- (2) Manner for making the election—(i) sions) of the taxpayer’s income tax re- In general. A taxpayer must make the turn for the immediately preceding election on Form 6781 in the manner taxable year (or part thereof). For ex- prescribed by such Form, and by at- ample, an individual taxpayer on a cal- taching the Form to the taxpayer’s in- endar year basis must make the elec- come tax return for the immediately tion by April 15, 1986, to establish one preceding taxable year (or request for or more mixed straddle accounts for an automatic extension). In addition, taxable year 1986. Similarly, a calendar the taxpayer must attach a statement year corporate taxpayer must make its to Form 6781 designating with speci- election by March 15, 1986, to establish ficity the class of activities for which a one or more mixed straddle accounts mixed straddle account is established. for 1986. If a taxpayer begins trading or The designation must describe the investing in positions in a new class of class of activities in sufficient detail so activities during a taxable year, the that the Commissioner may determine, election under this section with respect on the basis of the designation, wheth- to the new class of activities must be er specific positions are includible in made by the taxpayer by the later of the mixed straddle account. In the case the due date of the taxpayer’s income of a taxpayer who elects to establish tax return for the immediately pre- more than one mixed straddle account, ceding taxable year (without regard to the Commissioner must be able to de- automatic and discretionary exten- termine, on the basis of the designa- sions), or 60 days after the first mixed tions, that specific positions are placed straddle in the new class of activities is in the appropriate account. The elec- entered into. Similarly, if on or after tion applies to all positions in the des- the date the election is made with re- ignated class of activities held by the spect to an account, the taxpayer be- taxpayer during the taxable year. gins trading or investing in positions (ii) Elections for new classes of activi- that are includible in such account but ties and expanded elections. Amended were not specified in the original elec- elections and elections made with re- tion, the taxpayer must make an spect to a new class of activities that amended election as prescribed in para- the taxpayer has begun trading or in- graph (f)(2)(ii) of this section by the vesting in during a taxable year, shall later of the due date of the taxpayer’s be made on Form 6781 within the times income tax return for the immediately prescribed in paragraph (f)(1) of this

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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, (iii) Special rule. The Commissioner with the request for an automatic ex- may disregard a mixed straddle ac- tension. Similarly, a calendar year tax- count election if the Commissioner de- payer (whether or not such taxpayer termines, on the basis of all the facts has obtained an automatic extension of and circumstances, that the principal time to file) who has filed its 1984 in- purpose for making the mixed straddle come tax return before October 15, 1985, account election with respect to a class without making a mixed straddle ac- of activities was to avoid the rules of count election for either 1984 or 1985, or § 1.1092(b)–1T (a). For example, if a tax- both, may make the mixed straddle ac- payer holds stock that is not part of a count election under this section for ei- straddle and that would generate a loss ther or for both of such years with an if sold or otherwise disposed of, and the amended return filed on or before De- taxpayer both acquires offsetting op- cember 31, 1985. The mixed straddle ac- tion positions with respect to the stock count elected on this amended return and makes a mixed straddle account will be effective for all positions in the election with respect to the stock and designated class of activities even if stock options near the end of a taxable the taxpayer had elected straddle-by- year, the Commissioner may disregard straddle identification as provided the mixed straddle account election. under § 1.1092(b)–3T for purposes of the (3) Special rule for taxable years ending previously filed 1984 income tax return. after 1983 and before September 1, 1986. An election under this section to estab- For taxable years beginning in 1984 and lish one or more mixed straddle ac- 1985, the election under this paragraph counts for any taxable year that in- (f)(3) is effective for the entire taxable cludes July 17, 1984, and any taxable year. For taxable years beginning in year that ends before September 1, 1986 1983, an election shall be effective for (or, in the case of a corporation, Octo- that part of the year beginning after ber 1, 1986), must be made by the later December 31, 1983, for which the elec- of— tion under § 1.1256(h)–1T or 1.1256(h)–2T (i) December 31, 1985, or is made. See § 1.6081–1T regarding an (ii) The due date (without regard to extension of time to file certain indi- automatic and discretionary exten- vidual income tax returns. sions) of the return for the taxpayer’s (4) Period for which election is effective. taxable year that begins in 1984 if the For taxable years beginning on or after due date of the taxpayer’s return for January 1, 1984, an election under this such year (without regard to automatic section, including an amendment to and discretionary extensions) is after the election pursuant to paragraph December 31, 1985. (f)(1) of this section, shall be effective The election shall be made by attach- only for the taxable year for which the ing Form 6781 together with a state- election is made. This election may be ment to the taxpayer’s income tax re- revoked during the taxable year for the turn, amended return, or other appro- remainder of the taxable year only priate form that is filed on or before with the consent of the Commissioner. the deadline determined in the pre- An application for consent to revoke ceding sentence. The attached state- the election shall be filed with the ment must designate with specificity, service center with which the election in accordance with paragraph (f)(2)(i) was filed and shall— of this section, the class of activities (i) Contain the name, address, and for which a mixed straddle account is taxpayer identification number of the established. For example, if a fiscal taxpayer; year taxpayer’s return (for its taxable (ii) Show that the volume or nature year ending September 30, 1985) is due of the taxpayer’s activities has (without regard to extensions) on Jan- changed substantially since the elec- uary 15, 1986, and the taxpayer intends tion was made, and that the taxpayer’s

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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 of activities under paragraph (f)(1) of flowthrough entity means a related per- this section during the same taxable son or flowthrough entity as defined in year. sections 1092(d)(4) (B) and (C) respec- (g) Effective date. The provisions of tively. this section apply to positions held on (k) Section 1256 contract. The term sec- or after January 1, 1984. tion 1256 contract means a section 1256 contract as defined in section 1256(b). (Secs. 1092(b)(1), 1092(b)(2) and 7805 of the In- ternal Revenue Code of 1954 (68A Stat. 917, 98 (l) [Reserved] Stat. 627; 26 U.S.C. 1092(b)(1), 1092(b)(2), 7805)) (m) Straddle. The term straddle means a straddle as defined in section [T.D. 8008, 50 FR 3329, Jan. 24, 1985; 50 FR 12243, Mar. 28, 1985, as amended by T.D. 8058, 1092(c)(1). 50 FR 42013, Oct. 17, 1985] (n) Successor position. The term successor position means a position (‘‘P’’) § 1.1092(b)–5T Definitions (temporary). that is or was at any time offsetting to The following definitions apply for a second position if— purposes of §§ 1.1092(b)–1T through (1) The second position was offsetting 1.1092(b)–4T. to any loss position disposed of; and (a) Disposing, disposes, or disposed. The (2) P is entered into during a period term disposing, disposes, or disposed in- commencing 30 days prior to, and end- cludes the sale, exchange, cancellation, ing 30 days after, the disposition of the lapse, expiration, or other termination loss position referred to in paragraph of a right or obligation with respect to (n)(1) of this section. personal property (as defined in section (o) Unrecognized gain. The term un- 1092(d)(1)). recognized gain means unrecognized (b) Hedging transaction. The term gain as defined in section 1092(a)(3)(A). hedging transaction means a hedging (p) Substantially identical. The term transaction as defined in section substantially identical has the same 1256(e). meaning as substantially identical in (c) Identified straddle. The term identi- section 1091(a). fied straddle means an identified strad- (q) Securities. The term security means dle as defined in section 1092(a)(2)(B). a security as defined in section 1236(c). (d) Loss. The term loss means a loss (Secs. 1092(b) and 7805 of the Internal Rev- otherwise allowable under section enue Code of 1954 (68A Stat. 917, 95 Stat. 324, 165(a) (without regard to the limitation 26 U.S.C. 1092(b), 7805) and sec. 102(h) of the contained in section 165(f)) and in- Tax Reform Act of 1984 (98 Stat. 625)) cludes a write-down in inventory. [T.D. 8007, 50 FR 3321, Jan. 24, 1985, as amend- (e) Mixed straddle. The term mixed ed by T.D. 8070, 51 FR 1788, Jan. 15, 1986] straddle means a straddle— (1) All of the positions of which are § 1.1092(b)–6 Mixed straddles; accrued held as capital assets; gain and loss associated with a po- (2) At least one (but not all) of the sition that becomes part of a sec- positions of which is a section 1256 con- tion 1092(b)(2) identified mixed tract; straddle that is established after (3) For which an election under sec- August 18, 2014. tion 1256(d) has not been made; and (a) Treatment of unrealized gain or loss (4) Which is not part of a larger that arose before a position becomes part straddle. of an identified mixed straddle. Except as (f) Non-section 1256 position. The term otherwise provided, if one or more posi- non-section 1256 position means a positions of a straddle that is an identified tion that is not a section 1256 contract. mixed straddle described in section (g) Offsetting position. The term offset- 1092(b)(2)(A)(i)(I) (identified mixed ting position means an offsetting posi- straddle) were held by the taxpayer on tion as defined in section 1092(c)(2). the day prior to the day the identified

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