26 USC 1092 - Straddles
Any loss with respect to 1 or more positions shall be taken into account for any taxable year only to the extent that the amount of such loss exceeds the unrecognized gain (if any) with respect to 1 or more positions which were offsetting positions with respect to 1 or more positions from which the loss arose.
Any loss which may not be taken into account under subparagraph (A) for any taxable year shall, subject to the limitations under subparagraph (A), be treated as sustained in the succeeding taxable year.
In the case of any straddle which is an identified straddle
The term identified straddle means any straddle
Except as otherwise provided by the Secretary, rules similar to the rules of clauses (ii) and (iii) of subparagraph (A) shall apply for purposes of this paragraph with respect to any position which is, or has been, a liability or obligation.
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph. Such regulations or other guidance may specify the proper methods for clearly identifying a straddle as an identified straddle (and for identifying the positions comprising such straddle), the rules for the application of this section to a taxpayer which fails to comply with those identification requirements, the rules for the application of this section to a position which is or has been a liability or obligation, methods of loss allocation which satisfy the requirements of subparagraph (A)(iii), and the ordering rules in cases where a taxpayer disposes (or otherwise ceases to be the holder) of any part of any position which is part of an identified straddle.
For purposes of this subsection
The term unrecognized gain means
For purposes of paragraph (2)(A)(ii), the unrecognized gain with respect to any offsetting position shall be the excess of the fair market value of the position at the time of the determination over the fair market value of the position at the time the taxpayer identified the position as a position in an identified straddle.
The Secretary shall prescribe such regulations with respect to gain or loss on positions which are a part of a straddle as may be appropriate to carry out the purposes of this section and section 263 (g). To the extent consistent with such purposes, such regulations shall include rules applying the principles of subsections (a) and (d) of section 1091 and of subsections (b) and (d) of section 1233.
The regulations prescribed under paragraph (1) shall provide that
In the case of any mixed straddle account referred to in subparagraph (A)(i)(II)
The regulations prescribed under paragraph (1) may treat as a mixed straddle positions not described in section 1256 (d)(4).
The regulations prescribed under paragraph (1) shall include regulations relating to the timing and character of gains and losses in case of straddles where at least 1 position is ordinary and at least 1 position is capital.
For purposes of this section
The term straddle means offsetting positions with respect to personal property.
A taxpayer holds offsetting positions with respect to personal property if there is a substantial diminution of the taxpayers risk of loss from holding any position with respect to personal property by reason of his holding 1 or more other positions with respect to personal property (whether or not of the same kind).
In the case of any position which is not part of an identified straddle (within the meaning of subsection (a)(2)(B)), such position shall not be treated as offsetting with respect to any position which is part of an identified straddle.
For purposes of paragraph (2), 2 or more positions shall be presumed to be offsetting if
For purposes of the preceding sentence, 2 or more positions shall be treated as described in clause (i), (ii), (iii), or (vi) only if the value of 1 or more of such positions ordinarily varies inversely with the value of 1 or more other such positions.
Any presumption established pursuant to subparagraph (A) may be rebutted.
For purposes of subparagraph (A), the term qualified covered call option means any option granted by the taxpayer to purchase stock held by the taxpayer (or stock acquired by the taxpayer in connection with the granting of the option) but only if
For purposes of subparagraph (B), the term deep-in-the-money option means an option having a strike price lower than the lowest qualified bench mark.
the lowest qualified bench mark is the second highest available strike price which is less than the applicable stock price.
the lowest qualified bench mark shall be treated as equal to 85 percent of the applicable stock price.
the lowest qualified bench mark shall be treated as equal to the applicable stock price reduced by $10.
Subparagraph (A) shall not apply to any straddle for purposes of section 1092 (a) if
For purposes of this paragraph, the term strike price means the price at which the option is exercisable.
For purposes of subparagraph (D), the term applicable stock price means, with respect to any stock for which an option has been granted
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph. Such regulations may include modifications to the provisions of this paragraph which are appropriate to take account of changes in the practices of option exchanges or to prevent the use of options for tax avoidance purposes.
For purposes of this section
The term personal property means any personal property of a type which is actively traded.
The term position means an interest (including a futures or forward contract or option) in personal property.
For purposes of paragraph (1)
In the case of stock, the term personal property includes stock only if
In determining whether 2 or more positions are offsetting, the taxpayer shall be treated as holding any position held by a related person.
For purposes of subparagraph (A), a person is a related person to the taxpayer if with respect to any period during which a position is held by such person, such person
If part or all of the gain or loss with respect to a position held by a partnership, trust, or other entity would properly be taken into account for purposes of this chapter by a taxpayer, then, except to the extent otherwise provided in regulations, such position shall be treated as held by the taxpayer.
In the case of a straddle at least 1 (but not all) of the positions of which are section 1256 contracts, the provisions of this section shall apply to any section 1256 contract and any other position making up such straddle.
The term section 1256 contract has the meaning given such term by section 1256 (b).
For purposes of paragraph (2), an obligors interest in a nonfunctional currency denominated debt obligation is treated as a position in the nonfunctional currency.
For purposes of paragraph (1), foreign currency for which there is an active interbank market is presumed to be actively traded.
For purposes of subsection (a), if a taxpayer settles a position which is part of a straddle by delivering property to which the position relates (and such position, if terminated, would result in a realization of a loss), then such taxpayer shall be treated as if such taxpayer
This section shall not apply in the case of any hedging transaction (as defined in section 1256 (e)).
If a taxpayer holds any stock and grants a qualified covered call option to purchase such stock with a strike price less than the applicable stock price
Any loss with respect to such option shall be treated as long-term capital loss if, at the time such loss is realized, gain on the sale or exchange of such stock would be treated as long-term capital gain.
The holding period of such stock shall not include any period during which the taxpayer is the grantor of such option.