Internal Revenue Service, Treasury § 1.1092(b)–3T

this section, the provisions of this sec- Example 4. On January 1, 1985, A enters into tion apply to positions in a es- a and on August tablished after June 23, 1981, in taxable 4, 1985, A enters into an offsetting gold years ending after such date. forward contract. On September 1, 1985, A disposes of the short at a loss. Since (2) Special effective date for mixed an offsetting long position had been held by straddle positions. The provisions of A for more than 6 months prior to the acqui- paragraph (b)(2) of this section shall sition of the offsetting short position, the apply to positions in a mixed straddle loss with respect to the closing of the short established on or after January 1, 1984. position will be treated as long-term capital (f) Examples. Paragraphs (a) through loss. (e) may be illustrated by the following Example 5. On March 1, 1985, A enters into examples. It is assumed in each exam- a long gold forward contract and on July 17, 1985, A enters into an offsetting short gold ple that the following positions are the regulated . A does not make only positions held directly or indi- an election under section 1256(d) or rectly (through a related person or 1092(b)(2)(A). On August 10, 1985, A disposes of flowthrough entity) by an individual the long gold forward contract at a loss. calendar year taxpayer during the - Since the gold forward contract was part of able year and none of the exceptions in a mixed straddle, and the disposition of no paragraph (c) of this section apply. position in the straddle (other than the regu- lated futures contract) would give rise to a Example 1. On October 1, 1984, A acquires long-term capital loss, the loss recognized on gold. On January 1, 1985, A enters into an off- the termination of the gold forward contract setting short gold forward contract. On April will be treated as 40 percent short-term cap- 1, 1985, A disposes of the short gold forward ital loss and 60 percent long-term capital contract at no gain or loss. On April 10, 1985, loss. A sells the gold at a gain. Since the gold had Example 6. Assume the facts are the same not been held for more than 6 months before as in example (5), except that on August 11, the offsetting short position was entered 1985, A disposes of the short gold regulated into, the holding period for the gold begins futures contract at a gain. Under these cir- no earlier than the time the straddle is ter- cumstances, the gain will be treated as 60 minated. Thus, the holding period of the percent long-term capital gain and 40 per- original gold purchased on October 1, 1984, cent short-term capital gain since the hold- and sold on April 10, 1985, begins on April 1, ing period rules of paragraph (a) of this sec- 1985, the date the straddle was terminated. tion are not applicable to section 1256 con- Consequently, gain recognized with respect tracts. to the gold will be treated as short-term cap- Example 7. Assume the facts are the same ital gain. as in example (5), except that A enters into Example 2. On January 1, 1985, A enters into the long gold forward contract on January 1, a long gold forward contract. On May 1, 1985, 1985, and does not dispose of the long gold A enters into an offsetting short gold regu- forward contract but instead on August 10, lated futures contract. A does not make an 1985, disposes of the short gold regulated fu- election under section 1256(d) or 1092(b)(2)(A). tures contract at a loss. Under these cir- On August 1, 1985, A disposes of the gold for- cumstances, the loss will be treated as a ward contract at a gain. Since the forward long-term capital loss since A held an offset- contract had not been held by A for more ting non-section 1256 position for more than than 6 months prior to the establishment of 6 months prior to the establishment of the the straddle, the holding period for the for- straddle. However, such loss may be subject ward contract begins no earlier than the to the rules of § 1.1092(b)–1T. time the straddle is terminated. Thus, the gain recognized on the closing of the gold (Secs. 1092(b) and 7805 of the Internal Rev- forward contract will be treated as short- enue Code of 1954 (68A Stat. 917, 95 Stat. 324, term capital gain. 26 U.S.C. 1092(b), 7805) and sec. 102(h) of the Example 3. Assume the facts are the same Tax Reform Act of 1984 (98 Stat. 625)) as in example (2), except that A disposes of [T.D. 8007, 50 FR 3320, Jan. 24, 1985, as amend- the short gold regulated futures contract on ed by T.D. 8070, 51 FR 1788, Jan. 15, 1986] July 1, 1985, at no gain or loss and the for- ward contract on November 1, 1985. Since the § 1.1092(b)–3T Mixed ; strad- forward contract had not been held for more dle-by-straddle identification under than 6 months before the mixed straddle was section 1092(b)(2)(A)(i)(I) (tem- established, the holding period for the for- porary). ward contract begins July 1, 1985, the date the straddle terminated. Thus, the gain rec- (a) In general. Except as otherwise ognized on the closing of the forward con- provided, a taxpayer shall treat in ac- tract will be treated as short-term capital cordance with paragraph (b) of this sec- gain. tion gains and losses on positions that

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are part of a mixed straddle for which section 1256 contract and makes a valid elec- the taxpayer has made an election tion to treat such straddle as a section under paragraph (d) of this section 1092(b)(2) identified mixed straddle. On April (hereinafter referred to as a section 10, 1985, A disposes of the non-section 1256 po- sition at a $600 loss and the section 1256 con- 1092(b)(2) identified mixed straddle). No tract at a $600 gain. Under these cir- election may be made under this sec- cumstances, the $600 loss on the non-section tion for any straddle composed of one 1256 position will be offset against the $600 or more positions that are includible in gain on the section 1256 contract and the net a mixed straddle account (as defined in gain or loss from the straddle will be zero. paragraph (b) of § 1.1092(b)–4T) or for Example 2. Assume the facts are the same any straddle for which an election as in example (1), except that the gain on the under section 1256(d) has been made. section 1256 contract is $800. Under these cir- cumstances, the $600 loss on the non-section See § 1.1092(b)–5T relating to defini- 1256 position will be offset against the $800 tions. gain on the section 1256 contract. The net (b) Treatment of gains and losses from gain of $200 from the straddle will be treated positions included in a section 1092(b)(2) as 60 percent long-term capital gain and 40 identified mixed straddle—(1) In general. percent short-term capital gain because it is Gains and losses from positions that attributable to the section 1256 contract. are part of a section 1092(b)(2) identi- Example 3. Assume the facts are the same as in example (1), except that the loss on the fied mixed straddle shall be determined non-section 1256 position is $800. Under these and treated in accordance with the circumstances, the $600 gain on the section rules of paragraph (b) (2) through (7) of 1256 contract will be offset against the $800 this section. loss on the non-section 1256 position. The net (2) All positions of a section 1092(b)(2) loss of $200 from the straddle will be treated identified mixed straddle are disposed of as short-term capital loss because it is at- on the same day. If all positions of a tributable to the non-section 1256 position. section 1092(b)(2) identified mixed Example 4. On May 1, 1985, A enters into a straddle consisting of two non-section 1256 straddle are disposed of (or deemed dis- positions and two section 1256 contracts and posed of) on the same say, gains and makes a valid election to treat the straddle losses from section 1256 contracts in as a section 1092(b)(2) identified mixed strad- the straddle shall be netted, and gains dle. On May 10, 1985, A disposes of the non- and losses from non-section 1256 posi- section 1256 positions, one at a $700 loss and tions in the straddle shall be netted. the other at a $500 gain, and disposes of the Net gain or loss from the section 1256 section 1256 contracts, one at a $400 gain and the other at a $300 loss. Under these cir- contracts shall then be offset against cumstances, the gain and losses from the net gain or loss from the non-section section 1256 contracts and non-section 1256 1256 positions to determine the net positions will first be netted, resulting in a gain or loss from the straddle. If net net gain of $100 ($400–$300) on the section 1256 gain or loss from the straddle is attrib- contracts and a net loss of $200 ($700–$500) on utable to the positions of the straddle the non-section 1256 positions. The net gain that are section 1256 contracts, such of $100 from the section 1256 contracts will gain or loss shall be treated as 60 per- then be offset against the $200 net loss on the non-section 1256 positions. The net loss of cent long-term capital gain or loss and $100 from the straddle will be treated as 40 percent short-term capital gain or short-term capital loss because it is attrib- loss. If net gain or loss from the strad- utable to the non-section 1256 positions. dle is attributable to the positions of Example 5. On December 30, 1985, A enters the straddle that are non-section 1256 into a section 1256 contract and an offsetting positions, such gain or loss shall be non-section 1256 position and makes a valid treated as short-term capital gain or election to treat such straddle as a section loss. This paragraph (b)(2) may be illus- 1092(b)(2) identified mixed straddle. On De- cember 31, 1985, A disposes of the non-section trated by the following examples. It is 1256 position at a $2,000 gain. A also realizes assumed in each example that the posi- a $2,000 loss on the section 1256 contract be- tions are the only positions held di- cause it is deemed disposed of under section rectly or indirectly (through a related 1256(a)(1). Under these circumstances, the person or flowthrough entity) by an in- $2,000 gain on the non-section 1256 position dividual calendar year taxpayer during will be offset against the $2,000 loss on the the taxable year. section 1256 contract, and the net gain or loss from the straddle will be zero. Example 1. On April 1, 1985, A enters into a Example 6. Assume the facts are the same non-section 1256 position and an offsetting as in example (5), except that the section

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1092(b)(2) identified mixed straddle was en- that day. This paragraph (b)(3) may be tered into on November 12, 1985, A realizes a illustrated by the following examples. $2,200 loss on the section 1256 contract, and It is assumed in each example that the on December 15, 1985, A enters into a non- positions are the only positions held di- section 1256 position that is offsetting to the non-section 1256 gain position of the section rectly or indirectly (through a related 1092(b)(2) identified mixed straddle. At year- person or flowthrough entity) by an in- end there is $200 of unrecognized gain in the dividual calendar year taxpayer during non-section 1256 position that was entered the taxable year. into on December 15. Under these cir- Example 1. On July 20, 1985, A enters into a cumstances, the $2,200 loss on the section section 1256 contract and an offsetting non- 1256 contract will be offset against the $2,000 section 1256 position and makes a valid elec- gain on the non-section 1256 position. The tion to treat such straddle as a section net $200 loss from the straddle will be treated 1092(b)(2) identified mixed straddle. On July as 60 percent long-term capital loss and 40 27, 1985, A disposes of the non-section 1256 po- percent short-term capital loss because it is sition at a $1,500 loss, at which time there is attributable to the section 1256 contract. The $1,500 of unrealized gain in the section 1256 net loss of $200 from the straddle will be dis- contract. A holds the section 1256 contract at allowed in 1985 under the loss deferral rules year-end at which time there is $1,800 of of section 1092(a) because there is $200 of un- gain. Under these circumstances, on July 27, recognized gain in a successor position (as 1985, A offsets the $1,500 loss on the non-sec- defined in paragraph (n) of § 1.1092(b)–5T) at tion 1256 position against the $1,500 gain on year-end. See paragraph (c) of this section. the section 1256 contract and realizes no gain (3) All of the non-section 1256 positions or loss. On December 31, 1985, A realizes a of a section 1092(b)(2) identified mixed $300 gain on the section 1256 contract be- cause the position is deemed disposed of straddle disposed of on the same day. under section 1256(a)(1). The $300 gain is This paragraph (b)(3) applies if all of equal to $1,800 of gain less a $1,500 adjust- the non-section 1256 positions of a sec- ment for unrealized gain offset against the tion 1092(b)(2) identified mixed straddle loss realized on the non-section 1256 position are disposed of on the same day or if on July 27, 1985, and the gain will be treated this paragraph (b)(3) is made applicable as 60 percent long-term capital gain and 40 by paragraph (b)(5) of this section. In percent short-term capital gain. the case to which this paragraph (b)(3) Example 2. Assume the facts are the same as in example (1), except that on July 27, applies, gain and loss realized from 1985, A realized a $1,700 loss on the non-sec- non-section 1256 positions shall be net- tion 1256 position. Under these cir- ted. Realized and unrealized gain and cumstances, on July 27, 1985, A offsets the loss with respect to the section 1256 $1,700 loss on the non-section 1256 position contracts of the straddle also shall be against the $1,500 gain on the section 1256 netted on that day. Realized net gain contract. A realizes a $200 loss from the or loss from the non-section 1256 posi- straddle on July 27, 1985, which will be treat- tions shall then be offset against net ed as short-term capital loss because it is at- tributable to the non-section 1256 position. gain or loss from the section 1256 con- On December 31, 1985, A realizes a $300 gain tracts to determine the net gain or loss on the section 1256 contract, computed as in from the straddle on that day. Net gain example (1), which will be treated as 60 per- or loss from the straddle that is attrib- cent long-term capital gain and 40 percent utable to the non-section 1256 positions short-term capital gain. shall be realized and treated as short- Example 3. On March 1, 1985, A enters into term capital gain or loss on that day. a straddle consisting of two non-section 1256 Net gain or loss from the straddle that positions and two section 1256 contracts and makes a valid election to treat such straddle is attributable to realized gain or loss as a section 1092(b)(2) identified mixed strad- with respect to section 1256 contracts dle. On March 11, 1985, A disposes of the non- shall be realized and treated as 60 per- section 1256 positions, one at a $100 loss and cent long-term capital gain or loss and the other at a $150 loss, and disposes of one 40 percent short-term capital gain or section 1256 contract at a $100 loss. On that loss. Any gain or loss subsequently re- day there is $100 of unrealized gain on the alized on the section 1256 contracts section 1256 contract retained by A. A holds shall be adjusted (through an adjust- the remaining section 1256 contract at year- end, at which time there is $150 of gain. ment to basis or otherwise) to take Under these circumstances, on March 11, into account the extent to which gain 1985, A will first net the gains and losses or loss was offset by unrealized gain or from the section 1256 contracts and net the loss on the section 1256 contracts on gains and losses from the non-section 1256

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positions resulting in no gain or loss on the gain or loss and 40 percent short-term section 1256 contracts and a net loss of $250 capital gain or loss. See paragraph on the non-section 1256 positions. Since there (b)(7) of this section relating to the is no gain or loss to offset against the non- section 1256 positions, the net loss of $250 gain or loss on such non-section 1256 will be treated as short-term capital loss be- positions. This paragraph (b)(4) may be cause it is attributable to the non-section illustrated by the following examples. 1256 positions. On December 31, 1985, A real- It is assumed in each example that the izes a $50 gain on the remaining section 1256 positions are the only positions held di- contract because the position is deemed dis- rectly or indirectly (through a related posed of under section 1256(a)(1). The $50 gain person or flowthrough entity) by an in- is equal to $150 gain less a $100 adjustment to dividual calendar year taxpayer during take into account the $100 unrealized gain that was offset against the $100 loss realized the taxable year. on the section 1256 contract on March 11, Example 1. On December 30, 1985, A enters 1985. into a section 1256 contract and an offsetting Example 4. Assume the facts are the same non-section 1256 position and makes a valid as in example (3), except that A disposes of election to treat such straddle as a section the section 1256 contract at a $500 gain. As in 1092(b)(2) identified mixed straddle. On De- example (3), A has a net loss of $250 on the cember 31, 1985, A disposes of the section 1256 non-section 1256 positions disposed of. In this contract at a $1,000 gain, at which time there example, however, A has net gain of $600 is $1,000 of unrealized loss in the non-section ($500+$100) on the section 1256 contracts on 1256 position. Under these circumstances, the March 11, 1985. Therefore, of the net gain $1,000 gain realized on the section 1256 con- from the straddle of $350 ($600–$250), $250 tract will be treated as short-term capital ($500–$250) is treated as 60 percent long-term gain because there is a $1,000 loss on the non- capital gain and 40 percent short-term cap- section 1256 position. ital gain because only $250 is attributable to the realized gain from the section 1256 con- Example 2. Assume the facts are the same tract. In addition, because none of the $100 as in example (1), except that A realized a unrealized gain from the remaining section $1,500 gain on the disposition of the section 1256 contract was offset against gain or loss 1256 contract. Under these circumstances, on the non-section 1256 positions, no adjust- $1,000 of the gain realized on the section 1256 ment is made under paragraph (b)(3) of this contract will be treated as short-term cap- section and the entire $150 gain on December ital gain because there is a $1,000 loss on the 31 with respect to that contract is realized non-section 1256 position. The net gain of on that date. $500 from the straddle will be treated as 60 percent long-term capital gain and 40 per- (4) All of the section 1256 contracts of a cent short-term capital gain because it is at- section 1092(b)(2) identified mixed straddle tributable to the section 1256 contract. disposed of on the same day. This para- Example 3. Assume the facts are the same graph (b)(4) applies if all of the section as in example (1), except that A realized a 1256 contracts of a section 1092(b)(2) $1,000 loss on the section 1256 contract and there is $1,000 of unrecognized gain on the identified mixed straddle are disposed non-section 1256 position. Under these cir- of (or deemed disposed of) on the same cumstances, the $1,000 loss on the section day or if this paragraph (b)(4) is made 1256 contract will be treated as short-term applicable by paragraph (b)(5) of this capital loss because there is a $1,000 gain on section. In the case to which this para- the non-section 1256 position. Such loss, how- graph (b)(4) applies, gain and loss real- ever, will be disallowed in 1985 under the loss ized from section 1256 contracts shall deferral rules of section 1092(a) because there be netted. Realized and unrealized gain is $1,000 of unrecognized gain in an offsetting position at year-end. See paragraph (c) of and loss with respect to the non-sec- this section. tion 1256 positions of the straddle also Example 4. Assume the facts are the same shall be netted on that day. Realized as in example (1), except that the section net gain or loss from the section 1256 1256 contract and non-section 1256 position contracts shall be treated as short- were entered into on December 1, 1985, and term capital gain or loss to the extent the section 1256 contract is disposed of on of net gain or loss on the non-section December 19, 1985, for a $1,000 gain, at which 1256 positions on that day. Net gain or time there is $1,000 of unrealized loss on the loss with respect to the section 1256 non-section 1256 position. At year-end there is only $800 of unrealized loss in the non-sec- contracts that exceeds the net gain or tion 1256 position. Under these cir- loss with respect to the non-section cumstances, the result is the same as in ex- 1256 positions of the straddle shall be ample (1) because there was $1,000 of unreal- treated as 60 percent long-term capital ized loss on the non-section 1256 position at

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the time of the disposition of the section 1256 scribed in paragraph (b)(3) of this sec- contract. tion shall apply to net gain or loss Example 5. On July 15, 1985, A enters into a from such non-section 1256 positions, straddle consisting of two non-section 1256 and the rules prescribed in paragraph positions and two section 1256 contracts and makes a valid election to treat such straddle (b)(4) of this section shall apply to net as a section 1092(b)(2) identified mixed strad- gain or loss from such section 1256 con- dle. On July 20, 1985, A disposes of one non- tracts. However, for purposes of deter- section 1256 position at a gain of $1,000 and mining the treatment of gain or loss both section 1256 contracts at a net loss of subsequently realized on a position of $1,000. On the same day there is $200 of unre- such straddle, to the extent that unre- alized loss on the non-section 1256 position alized gain or loss on other positions retained by A. Under these circumstances, was used to offset realized gain or loss realized and unrealized gain and loss with re- spect to the non-section 1256 positions is net- on a non-section 1256 position under ted, resulting in a net gain of $800. Thus, $800 paragraph (b)(3) of this section, or was of the net loss on the section 1256 contracts used to treat realized gain or loss on a disposed of will be treated as short-term cap- section 1256 contract as short-term ital loss because there is $800 of net gain on capital gain or loss under paragraph the non-section 1256 positions. In addition, (b)(4) of this section, such amount shall the net loss of $200 from the straddle will be not be used for such purposes again. treated as 60 percent long-term capital loss and 40 percent short-term capital loss be- This paragraph (b)(5) may be illus- cause it is attributable to the section 1256 trated by the following examples. It is contract. assumed that the positions are the only positions held directly or indi- (5) Disposition of one or more, but not rectly (through a related person or all, positions of a section 1092(b)(2) identi- flowthrough entity) by an individual fied mixed straddle on the same day. If calendar year taxpayer during the tax- one or more, but not all, of the posi- able year. tions of a section 1092(b)(2) identified mixed straddle are disposed of on the Example 1. On July 15, 1985, A enters into a same day, and paragraphs (b) (3) and (4) straddle consisting of four non-section 1256 of this section are not applicable (with- positions and four section 1256 contracts and makes a valid election to treat such straddle out regard to this paragraph (b)(5)), the as a section 1092(b)(2) identified mixed strad- gain and loss from the non-section 1256 dle. On July 20, 1985, A disposes of one non- positions that are disposed of on that section 1256 position at a gain of $800 and one day shall be netted, and the gain and section 1256 contract at a loss of $300. On the loss from the section 1256 contracts same day there is $400 of unrealized net loss that are disposed of on that day shall on the section 1256 contracts retained by A be netted. In order to determine wheth- and $100 of unrealized net loss on the non- er the rules of paragraph (b)(3) or (b)(4) section 1256 positions retained by A. Under these circumstances, the loss of $300 on the of this section apply, net gain or loss section 1256 contract disposed of will be off- from the section 1256 contracts dis- set against the gain of $800 on the non-sec- posed of shall then be offset against net tion 1256 position disposed of. The net gain of gain or loss from the non-section 1256 $500 is attributable to the non-section 1256 positions disposed of to determine net position. Therefore, the rules of paragraph gain or loss from such positions of the (b)(3) of this section apply. Under the rules of straddle. If net gain or loss from the paragraph (b)(3) of this section, the net loss disposition of such positions of the of $700 on the section 1256 contracts is offset against the net gain of $800 attributable to straddle is attributable to the non-sec- the non-section 1256 position disposed of. The tion 1256 positions disposed of, the net gain of $100 will be treated as short-term rules prescribed in paragraph (b)(3) of capital gain because it is attributable to the this section apply. If net gain or loss non-section 1256 position disposed of. Gain or from the disposition of such positions loss subsequently realized on the section 1256 is attributable to the section 1256 con- contracts will be adjusted to take into ac- tracts disposed of, the rules prescribed count the unrealized loss of $400 that was off- in paragraph (b)(4) of this section set against the $800 gain attributable to the apply. If the net gain or loss from the non-section 1256 position disposed of. Example 2. Assume the facts are the same netting of non-section 1256 positions as in Example 1, except that A disposes of disposed of and the netting of section the non-section 1256 position at a gain of $300 1256 contracts disposed of are either and the section 1256 contract at a loss of $800, both gains or losses, the rules pre- and there is $200 of unrealized net gain in the

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non-section 1256 positions retained by A. sale rules and for treatment of holding Under these circumstances, the gain of $300 periods and losses with respect to such on the non-section 1256 position disposed of positions. An adjustment (through an will be offset against the loss of $800 on the adjustment to basis or otherwise) shall section 1256 contract disposed of. The net loss of $500 is attributable to the section 1256 be made to any subsequent gain or loss contract. Therefore, the rules of paragraph realized with respect to such to such (b)(4) of this section apply. Under the rules of position or positions for any gain or paragraph (b)(4) of this section, $500 of the loss recognized under this paragraph net loss realized on the section 1256 contract (b)(6). This paragraph (b)(6) may be il- will be treated as short-term capital loss be- lustrated by the following examples. It cause there is $500 of realized and unrealized is assumed in each example that the gain in the non-section 1256 positions. The remaining net loss of $300 will be treated as positions are the only positions held di- 60 percent long-term capital loss and 40 per- rectly or indirectly (through a related cent short-term capital loss because it is at- person or flowthrough entity) by an in- tributable to a section 1256 contract disposed dividual calendar year taxpayer during of. In addition, A realizes a $300 short-term the taxable year. capital gain attributable to the disposition of the non-section 1256 position. Example 1. On January 1, 1985, A enters into Example 3. (i) Assume the facts are the a non-section 1256 position. As of the close of same as in example (1), except that the sec- the day on July 9, 1985, there is $500 of unre- tion 1256 contract was disposed of at a $500 alized long-term capital gain in the non-sec- gain. Under these circumstances, there is tion 1256 position. On July 10, 1985, A enters gain of $500 attributable to the section 1256 into an offsetting section 1256 contract and contact disposed of and a gain of $800 attrib- makes a valid election to treat the straddle utable to the non-section 1256 position. as a section 1092(b)(2) identified mixed strad- Therefore, the rules of both paragraphs (b) dle. Under these circumstances, on July 9, (3) and (4) of this § 1.1092(b)–3T apply. 1985, A will recognize $500 of long-term cap- (ii) Under paragraph (b)(3) of this section, ital gain on the non-section 1256 position. the realized and unrealized gains and losses Example 2. On February 1, 1985, A enters on the section 1256 contracts are netted, re- into a section 1256 contract. As of the close sulting in a net gain of $100 ($500–$400). The of the day on February 4, 1985, there is $500 section 1256 contract net gain does not offset of unrealized gain on the section 1256 con- the gain on the non-section 1256 position dis- tract. On February 5, 1985, A enters into an posed of. Therefore, the gain of $800 on the offsetting non-section 1256 position and non-section 1256 position disposed of will be makes a valid election to treat the straddle treated as a short-term capital gain because as a section 1092(b)(2) identified mixed strad- there is no net loss on the section 1256 con- dle. Under these circumstances, on February tracts. 4, 1985, A will recognize a $500 gain on the (iii) Under paragraph (b)(4) of this section, section 1256 contract, which will be treated the realized and unrealized gains and losses as 60 percent long-term capital gain and 40 on the non-section 1256 positions are netted, percent short-term capital gain. resulting in a non-section 1256 position net Example 3. Assume the facts are the same gain of $700 ($800–$100). Because there is no as in example (2) and that on February 10, net loss on the non-section 1256 positions, 1985, there is $2,000 of unrealized gain in the the $500 gain realized on the section 1256 con- section 1256 contract. A disposes of the sec- tract will be treated as 60 percent long-term tion 1256 contract at a $2,000 gain and dis- capital gain and 40 percent short-term cap- poses of the offsetting non-section 1256 posi- ital gain. tion at a $1,000 loss. Under these cir- (6) Accrued gain and loss with respect cumstances, the $2,000 gain on the section 1256 contract will be reduced to $1,500 to take to positions of a section 1092(b)(2) identi- into account the $500 gain recognized when fied mixed straddle. If one or more posi- the section 1092(b)(2) identified mixed strad- tions of a section 1092(b)(2) identified dle was established. The $1,500 gain on the mixed straddle were held by the tax- section 1256 contract will be offset against payer on the day prior to the day the the $1,000 loss on the non-section 1256 posi- section 1092(b)(2) identified mixed tion. The net $500 gain from the straddle will straddle is established, such position or be treated as 60 percent long-term capital positions shall be deemed sold for their gain and 40 percent short-term capital gain because it is attributable to the section 1256 fair as of the close of the contract. last business day preceding the day Example 4. On March 1, 1985, A enters into such straddle is established. See a non-section 1256 position. As of the close of §§ 1.1092(b)–1T and 1.1092(b)–2T for appli- the day on March 2, 1985, there is $400 of un- cation of the loss deferral and wash realized short-term capital gain in the non-

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section 1256 position. On March 3, 1985, A en- the post-straddle period. Under these cir- ters into an offsetting section 1256 contract cumstances, $1,000 of the gain on the non- and makes a valid election to treat the section 1256 position will be treated as short- straddle as a section 1092(b)(2) identified term capital gain because that amount of mixed straddle. On March 10, 1985, A disposes the gain is attributable to the period when of the section 1256 contract at a $500 loss and the position was part of a section 1092(b)(2) the non-section 1256 position at a $500 gain. identified mixed straddle. The remaining Under these circumstances, on March 2, 1985, $500 of the gain will be treated as long-term A will recognize $400 of short-term capital capital gain because the position was held gain attributable to the gain accrued on the for more than six months after the straddle non-section 1256 position prior to the day the was terminated. In addition, the $1,000 short- section 1092(b)(2) identified mixed straddle term capital loss disallowed in 1985 will be was established. On March 10, 1985, the gain taken into account at this time. of $500 on the non-section 1256 position will be reduced to $100 to take into account the (c) Coordination with loss deferral and $400 of gain recognized when the section wash sale rules of § 1.1092(b)–1T. This 1092(b)(2) identified mixed straddle was es- section shall apply prior to the applica- tablished. The $100 gain on the non-section tion of the loss deferral and wash sale 1256 position will be offset against the $500 rules of § 1.1092(b)–1T. loss on the section 1256 contract. The net (d) Identification required—(1) In gen- loss of $400 from the straddle will be treated as 60 percent long-term capital loss and 40 eral. To elect the provisions of this sec- percent short-term capital loss because it is tion, a taxpayer must clearly identify attributable to the section 1256 contract. on a reasonable and consistently ap- plied economic basis each position that (7) Treatment of gain and loss from is part of the section 1092(b)(2) identi- non-section 1256 positions after disposi- fied mixed straddle before the close of tion of all section 1256 contracts. Gain or the day on which the section 1092(b)(2) loss on a non-section 1256 position that identified mixed straddle is estab- is part of a section 1092(b)(2) identified lished. If the taxpayer disposes of a po- mixed straddle and that is held after sition that is part of a section 1092(b)(2) all section 1256 contracts in the strad- identified mixed straddle before the dle are disposed of shall be treated as close of the day on which the straddle short-term capital gain or loss to the is established, such identification must extent attributable to the period when be made at or before the time that the the positions were part of such strad- taxpayer disposes of the position. In dle. See § 1.1092(b)–2T for rules con- the case of a taxpayer who is an indi- cerning the holding period of such posi- vidual, the close of the day is midnight tions. This paragraph (b)(7) may be il- (local time) in the location of the tax- lustrated by the following example. It payer’s principal residence. In the case is assumed that the positions are the of all other taxpayers, the close of the only positions held directly or indi- day is midnight (local time) in the lo- rectly (through a related person or cation of the taxpayer’s principal place flowthrough entity) during the taxable of business. Only the person or entity years. that directly holds all positions of a Example: On December 1, 1985, A, an indi- straddle may make the election under vidual calendar year taxpayer, enters into a this section. section 1256 contract and an offsetting non- (2) Presumptions. A taxpayer is pre- section 1256 position and makes a valid elec- sumed to have identified a section tion to treat such straddle as a section 1092(b)(2) identified mixed straddle by 1092(b)(2) identified mixed straddle. On De- cember 31, 1985, A disposes of the section 1256 the time prescribed in paragraph (d)(1) contract at a $1,000 loss. On the same day, of this section if the taxpayer receives there is $1,000 of unrecognized gain in the independent verification of the identi- non-section 1256 position. The $1,000 loss on fication (within the meaning of para- the section 1256 contract is treated as short- graph (d)(4) of this section). The pre- term capital loss because there is a $1,000 sumption referred to in this paragraph gain on the non-section 1256 position, but the (d)(2) may be rebutted by clear and $1,000 loss is disallowed in 1985 because there convincing evidence to the contrary. is $1,000 of unrecognized gain in the offset- ting nonsection 1256 position. See section (3) Corroborating evidence. If the pre- 1092(a) and § 1.1092(b)–1T. On July 10, 1986, A sumption of paragraph (d)(2) of this disposes of the non-section 1256 position at a section does not apply, the burden $1,500 gain, $500 of which is attributable to shall be on the taxpayer to establish

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that an election under paragraph (d)(1) straddles established on or after Janu- of this section was made by the time ary 1, 1984. specified in paragraph (d)(1) of this sec- (2) Pre-1984 accrued gain. If the last tion. If the taxpayer has no evidence of business day referred to in paragraph the time when the identification re- (b)(6) of this section is contained in a quired by paragraph (d)(1) of this sec- period to which paragraph (b)(6) does tion is made, other than the taxpayer’s not apply, the gains and losses from own testimony, the election is invalid the deemed sale shall be included in unless the taxpayer shows good cause the first period to which paragraph for failure to have evidence other than (b)(6) applies. the taxpayer’s own testimony. (Secs. 1092(b)(1), 1092(b)(2) and 7805 of the In- (4) Independent verification. For pur- ternal Revenue Code of 1954 (68A Stat. 917, 98 poses of this section, the following con- Stat. 627; 26 U.S.C. 1092(b)(1), 1092(b)(2), 7805)) stitute independent verification: [T.D. 8008, 50 FR 3325, Jan. 24, 1985; 50 FR (i) Separate account. Placement of one 12243, Mar. 28, 1985; 50 FR 19344, May 8, 1985] or more positions of a section 1092(b)(2) identified mixed straddle in a separate § 1.1092(b)–4T Mixed straddles; mixed account designated as a section straddle account (temporary). 1092(b)(2) identified mixed straddle ac- (a) In general. A taxpayer may elect count that is maintained by a broker (in accordance with paragraph (f) of (as defined in § 1.6045–1(a)(1)), futures this section) to establish one or more commission merchant (as defined in 7 mixed straddle accounts (as defined in U.S.C. 2 and 17 CFR 1.3(p)), or similar paragraph (b) of this section). Gains person and in which notations are and losses from positions includible in made by such person identifying all po- a mixed straddle account shall be de- sitions of the section 1092(b)(2) identi- termined and treated in accordance fied mixed straddle and stating the with the rules set forth in paragraph date the straddle is established. (c) of this section. A mixed straddle ac- (ii) Confirmation. A written confirma- count is treated as established as of the tion from a person referred to in para- first day of the taxable year for which graph (d)(4)(i) of this section, or from the taxpayer makes the election or the party from which one or more posi- January 1, 1984, whichever is later. See tions of the section 1092(b)(2) identified § 1.1092(b)–5T relating to definitions. mixed straddle are acquired, stating (b) Mixed straddle account defined—(1) the date the straddle is established and In general. The term mixed straddle ac- identifying the other positions of the count means an account for deter- straddle. mining gains and losses from all posi- (iii) Other methods. Such other meth- tions held as capital in a des- ods of independent verification as the ignated class of activities by the tax- Commissioner may approve at the payer at the time the taxpayer elects Commissioner’s discretion. to establish a mixed straddle account. (5) Section 1092 (b)(2) identified mixed A separate mixed straddle account straddles established before February 25, must be established for each separate 1985. Notwithstanding the provisions of designated class of activities. paragraph (d)(1) of this section, relat- (2) Permissible designations. Except as ing to the time of identification of a otherwise provided in this section, a section 1092(b)(2) identified mixed taxpayer may designate as a class of straddle, a taxpayer may identify activities the types of positions that a straddles that were established before reasonable person, on the basis of all February 25, 1985 as section 1092(b)(2) the facts and circumstances, would or- identified mixed straddles after the dinarily expect to be offsetting posi- time specified in paragraph (d)(1) of tions. This paragraph (b)(2) may be il- this section if the taxpayer adopts a lustrated by the following example. It reasonable and consistent economic is assumed in the example that the po- basis for identifying the positions of sitions are the only positions held di- such straddles. rectly or indirectly (through a related (e) Effective date—(1) In general. The person or flowthrough entity) during provisions of this section shall apply to the taxable year, and that gain or loss

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