Section 1256 contracts marked to market

For purposes of this subtitle— any gain or loss with respect to a section 1256 contract shall be treated as— For purposes of this section, the term “section 1256 contract” means— The term “section 1256 contract” shall not include— The rules of paragraphs (1), (2), and (3) of subsection (a) shall also apply to the termination (or transfer) during the taxable year of the taxpayer’s obligation (or rights) with respect to a section 1256 contract by offsetting, by taking or making delivery, by exercise or being exercised, by assignment or being assigned, by lapse, or otherwise. If— For purposes of this subsection, fair market value at the time of the termination (or transfer) shall be taken into account. The taxpayer may elect to have this section not to apply to all section 1256 contracts which are part of a mixed straddle. An election under paragraph (1) shall be made at such time and in such manner as the Secretary may by regulations prescribe. An election under paragraph (1) shall apply to the taxpayer’s taxable year for which made and to all subsequent taxable years, unless the Secretary consents to a revocation of such election. For purposes of this subsection, the term “mixed straddle” means any straddle (as defined in section 1092(c))— Subsection (a) shall not apply in the case of a hedging transaction. For purposes of this subsection, the term “hedging transaction” means any hedging transaction (as defined in section 1221(b)(2)(A)) if, before the close of the day on which such transaction was entered into (or such earlier time as the Secretary may prescribe by regulations), the taxpayer clearly identifies such transaction as being a hedging transaction. Notwithstanding paragraph (2), the term “hedging transaction” shall not include any transaction entered into by or for a syndicate. For purposes of subparagraph (A), the term “syndicate” means any partnership or other entity (other than a corporation which is not an S corporation) if more than 35 percent of the losses of such entity during the taxable year are allocable to limited partners or limited entrepreneurs (within the meaning of section 461(k)(4)). For purposes of subparagraph (B), an interest in an entity shall not be treated as held by a limited partner or a limited entrepreneur (within the meaning of section 461(k)(4))— Any hedging loss for a taxable year which is allocable to any limited partner or limited entrepreneur (within the meaning of paragraph (3)) shall be allowed only to the extent of the taxable income of such limited partner or entrepreneur for such taxable year attributable to the trade or business in which the hedging transactions were entered into. For purposes of the preceding sentence, taxable income shall be determined by not taking into account items attributable to hedging transactions. Any hedging loss disallowed under clause (i) shall be treated as a deduction attributable to a hedging transaction allowable in the first succeeding taxable year. Subparagraph (A)(i) shall not apply to any hedging loss to the extent that such loss exceeds the aggregate unrecognized gains from hedging transactions as of the close of the taxable year attributable to the trade or business in which the hedging transactions were entered into. In the case of any hedging transaction relating to property other than stock or securities, this paragraph shall apply only in the case of a taxpayer described in section 465(a)(1). The term “hedging loss” means the excess of— The term “unrecognized gain” has the meaning given to such term by section 1092(a)(3). For purposes of this title, gain from any property shall in no event be considered as gain from the sale or exchange of a capital asset if such property was at any time personal property (as defined in section 1092(d)(1)) identified under subsection (e)(2) by the taxpayer as being part of a hedging transaction. Paragraph (3) of subsection (a) shall not apply to any gain or loss which, but for such paragraph, would be ordinary income or loss. For purposes of this title, gain or loss from trading of section 1256 contracts shall be treated as gain or loss from the sale or exchange of a capital asset. Subparagraph (A) shall not apply to any section 1256 contract to the extent such contract is held for purposes of hedging property if any loss with respect to such property in the hands of the taxpayer would be ordinary loss. For purposes of determining whether gain or loss with respect to any property is ordinary income or loss, the fact that the taxpayer is actively engaged in dealing in or trading section 1256 contracts related to such property shall not be taken into account. In the case of any gain or loss with respect to dealer equity options, or dealer securities futures contracts, which are allocable to limited partners or limited entrepreneurs (within the meaning of subsection (e)(3))— Section 1091 (relating to loss from wash sales of stock or securities) shall not apply to any loss taken into account by reason of paragraph (1) of subsection (a). For purposes of this section— The term “regulated futures contract” means a contract— The term “foreign currency contract” means a contract— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of subparagraph (A), including regulations excluding from the application of subparagraph (A) any contract (or type of contract) if its application thereto would be inconsistent with such purposes. The term “nonequity option” means any listed option which is not an equity option. The term “dealer equity option” means, with respect to an options dealer, any listed option which— The term “listed option” means any option (other than a right to acquire stock from the issuer) which is traded on (or subject to the rules of) a qualified board or exchange. The term “equity option” means any option— The term “qualified board or exchange” means— The term “options dealer” means any person registered with an appropriate national securities exchange as a market maker or specialist in listed options. In any case in which the Secretary makes a determination under subparagraph (C) of paragraph (7), the term “options dealer” also includes any person whom the Secretary determines performs functions similar to the persons described in subparagraph (A). Such determinations shall be made to the extent appropriate to carry out the purposes of this section. The term “dealer securities futures contract” means, with respect to any dealer, any securities futures contract, and any option on such a contract, which— For purposes of subparagraph (A), a person shall be treated as a dealer in securities futures contracts or options on such contracts if the Secretary determines that such person performs, with respect to such contracts or options, as the case may be, functions similar to the functions performed by persons described in paragraph (8)(A). Such determination shall be made to the extent appropriate to carry out the purposes of this section. The term “securities futures contract” has the meaning given to such term by section 1234B.