
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document affected by Public Law 106-554 Section 1(a)(7)]
[Document affected by Public Law 106-554 Section 1(a)(7)]
[Document affected by Public Law 106-554 Section 1(a)(7)]
[CITE: 26USC1256]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                 Subchapter P--Capital Gains and Losses
 
     PART IV--SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
 
Sec. 1256. Section 1256 contracts marked to market


(a) General rule

    For purposes of this subtitle--
        (1) each section 1256 contract held by the taxpayer at the close 
    of the taxable year shall be treated as sold for its fair market 
    value on the last business day of such taxable year (and any gain or 
    loss shall be taken into account for the taxable year),
        (2) proper adjustment shall be made in the amount of any gain or 
    loss subsequently realized for gain or loss taken into account by 
    reason of paragraph (1),
        (3) any gain or loss with respect to a section 1256 contract 
    shall be treated as--
            (A) short-term capital gain or loss, to the extent of 40 
        percent of such gain or loss, and
            (B) long-term capital gain or loss, to the extent of 60 
        percent of such gain or loss, and

        (4) if all the offsetting positions making up any straddle 
    consist of section 1256 contracts to which this section applies (and 
    such straddle is not part of a larger straddle), sections 1092 and 
    263(g) shall not apply with respect to such straddle.

(b) Section 1256 contract defined

    For purposes of this section, the term ``section 1256 contract'' 
means--
        (1) any regulated futures contract,
        (2) any foreign currency contract,
        (3) any nonequity option,
        (4) any dealer equity option, and
        (5) any dealer securities futures contract.

The term ``section 1256 contract'' shall not include any securities 
futures contract or option on such a contract unless such contract or 
option is a dealer securities futures contract.

(c) Terminations, etc.

                           (1) In general

        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.

        (2) Special rule where taxpayer takes delivery on or 
                         exercises part of straddle

        If--
            (A) 2 or more section 1256 contracts are part of a straddle 
        (as defined in section 1092(c)), and
            (B) the taxpayer takes delivery under or exercises any of 
        such contracts,

    then, for purposes of this section, each of the other such contracts 
    shall be treated as terminated on the day on which the taxpayer took 
    delivery.

              (3) Fair market value taken into account

        For purposes of this subsection, fair market value at the time 
    of the termination (or transfer) shall be taken into account.

(d) Elections with respect to mixed straddles

                            (1) Election

        The taxpayer may elect to have this section not to apply to all 
    section 1256 contracts which are part of a mixed straddle.

                         (2) Time and manner

        An election under paragraph (1) shall be made at such time and 
    in such manner as the Secretary may by regulations prescribe.

              (3) Election revocable only with consent

        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.

                         (4) Mixed straddle

        For purposes of this subsection, the term ``mixed straddle'' 
    means any straddle (as defined in section 1092(c))--
            (A) at least 1 (but not all) of the positions of which are 
        section 1256 contracts, and
            (B) with respect to which each position forming part of such 
        straddle is clearly identified, before the close of the day on 
        which the first section 1256 contract forming part of the 
        straddle is acquired (or such earlier time as the Secretary may 
        prescribe by regulations), as being part of such straddle.

(e) Mark to market not to apply to hedging transactions

                      (1) Section not to apply

        Subsection (a) shall not apply in the case of a hedging 
    transaction.

                (2) Definition of 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.

                   (3) Special rule for syndicates

        (A) In general

            Notwithstanding paragraph (2), the term ``hedging 
        transaction'' shall not include any transaction entered into by 
        or for a syndicate.

        (B) Syndicate defined

            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 464(e)(2)).

        (C) Holdings attributable to active management

            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 464(e)(2))--
                (i) for any period if during such period such interest 
            is held by an individual who actively participates at all 
            times during such period in the management of such entity,
                (ii) for any period if during such period such interest 
            is held by the spouse, children, grandchildren, and parents 
            of an individual who actively participates at all times 
            during such period in the management of such entity,
                (iii) if such interest is held by an individual who 
            actively participated in the management of such entity for a 
            period of not less than 5 years,
                (iv) if such interest is held by the estate of an 
            individual who actively participated in the management of 
            such entity or is held by the estate of an individual if 
            with respect to such individual such interest was at any 
            time described in clause (ii), or
                (v) if the Secretary determines (by regulations or 
            otherwise) that such interest should be treated as held by 
            an individual who actively participates in the management of 
            such entity, and that such entity and such interest are not 
            used (or to be used) for tax-avoidance purposes.

        For purposes of this subparagraph, a legally adopted child of an 
        individual shall be treated as a child of such individual by 
        blood.

         (4) Limitation on losses from hedging transactions

        (A) In general

            (i) Limitation

                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.
            (ii) Carryover of disallowed loss

                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.

        (B) Exception where economic loss

            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.

        (C) Exception for certain hedging transactions

            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).

        (D) Hedging loss

            The term ``hedging loss'' means the excess of--
                (i) the deductions allowable under this chapter for the 
            taxable year attributable to hedging transactions 
            (determined without regard to subparagraph (A)(i)), over
                (ii) income received or accrued by the taxpayer during 
            such taxable year from such transactions.

        (E) Unrecognized gain

            The term ``unrecognized gain'' has the meaning given to such 
        term by section 1092(a)(3).

(f) Special rules

         (1) Denial of capital gains treatment for property 
                 identified as part of a hedging transaction

        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)(C) by the 
    taxpayer as being part of a hedging transaction.

       (2) Subsection (a)(3) not to apply to ordinary income 
                                  property

        Paragraph (3) of subsection (a) shall not apply to any gain or 
    loss which, but for such paragraph, would be ordinary income or 
    loss.

       (3) Capital gain treatment for traders in section 1256 
                                  contracts

        (A) In general

            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.

        (B) Exception for certain hedging transactions

            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.

        (C) Treatment of underlying property

            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.

       (4) Special rule for dealer equity options and dealer 
            securities futures contracts of limited partners or 
                            limited entrepreneurs

        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))--
            (A) paragraph (3) of subsection (a) shall not apply to any 
        such gain or loss, and
            (B) all such gains or losses shall be treated as short-term 
        capital gains or losses, as the case may be.

(g) Definitions

    For purposes of this section--

               (1) Regulated futures contracts defined

        The term ``regulated futures contract'' means a contract--
            (A) with respect to which the amount required to be 
        deposited and the amount which may be withdrawn depends on a 
        system of marking to market, and
            (B) which is traded on or subject to the rules of a 
        qualified board or exchange.

                (2) Foreign currency contract defined

        (A) Foreign currency contract

            The term ``foreign currency contract'' means a contract--
                (i) which requires delivery of, or the settlement of 
            which depends on the value of, a foreign currency which is a 
            currency in which positions are also traded through 
            regulated futures contracts,
                (ii) which is traded in the interbank market, and
                (iii) which is entered into at arm's length at a price 
            determined by reference to the price in the interbank 
            market.

        (B) Regulations

            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.

                        (3) Nonequity option

        The term ``nonequity option'' means any listed option which is 
    not an equity option.

                      (4) Dealer equity option

        The term ``dealer equity option'' means, with respect to an 
    options dealer, any listed option which--
            (A) is an equity option,
            (B) is purchased or granted by such options dealer in the 
        normal course of his activity of dealing in options, and
            (C) is listed on the qualified board or exchange on which 
        such options dealer is registered.

                          (5) Listed option

        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.

                          (6) Equity option

        The term ``equity option'' means any option--
            (A) to buy or sell stock, or
            (B) the value of which is determined directly or indirectly 
        by reference to any stock or any narrow-based security index (as 
        defined in section 3(a)(55) of the Securities Exchange Act of 
        1934, as in effect on the date of the enactment of this 
        paragraph).

    The term ``equity option'' includes such an option on a group of 
    stocks only if such group meets the requirements for a narrow-based 
    security index (as so defined).

                   (7) Qualified board or exchange

        The term ``qualified board or exchange'' means--
            (A) a national securities exchange which is registered with 
        the Securities and Exchange Commission,
            (B) a domestic board of trade designated as a contract 
        market by the Commodity Futures Trading Commission, or
            (C) any other exchange, board of trade, or other market 
        which the Secretary determines has rules adequate to carry out 
        the purposes of this section.

                         (8) Options dealer

        (A) In general

            The term ``options dealer'' means any person registered with 
        an appropriate national securities exchange as a market maker or 
        specialist in listed options.

        (B) Persons trading in other markets

            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.

               (9) Dealer securities futures contract

        (A) In general

            The term ``dealer securities futures contract'' means, with 
        respect to any dealer, any securities futures contract, and any 
        option on such a contract, which--
                (i) is entered into by such dealer (or, in the case of 
            an option, is purchased or granted by such dealer) in the 
            normal course of his activity of dealing in such contracts 
            or options, as the case may be, and
                (ii) is traded on a qualified board or exchange.

        (B) Dealer

            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.

        (C) Securities futures contract

            The term ``securities futures contract'' has the meaning 
        given to such term by section 1234B.

(Added Pub. L. 97-34, title V, Sec. 503(a), Aug. 13, 1981, 95 Stat. 327; 
amended Pub. L. 97-354, Sec. 5(a)(38), Oct. 19, 1982, 96 Stat. 1696; 
Pub. L. 97-448, title I, Sec. 105(c)(1)-(3), (5)(A)-(C), Jan. 12, 1983, 
96 Stat. 2385, 2386; Pub. L. 98-369, div. A, title I, Secs. 102(a), (b), 
(e)(1), (5), 104(a), 107(c), (d), title VII, Sec. 722(a)(2), July 18, 
1984, 98 Stat. 620, 621, 623, 624, 628, 630, 972; Pub. L. 99-514, title 
XII, Sec. 1261(c), Oct. 22, 1986, 100 Stat. 2591; Pub. L. 106-170, title 
V, Sec. 532(b)(4), Dec. 17, 1999, 113 Stat. 1930; Pub. L. 106-554, 
Sec. 1(a)(7) [title IV, Sec. 401(g)(1)-(3)], Dec. 21, 2000, 114 Stat. 
2763, 2763A-649, 2763A-650.)

                       References in Text

    Section 3(a)(55) of the Securities Exchange Act of 1934, referred to 
in subsec. (g)(6)(B), is classified to section 78c(a)(55) of Title 15, 
Commerce and Trade.
    The date of the enactment of this paragraph, referred to in subsec. 
(g)(6)(B), probably means the date of enactment of Pub. L. 106-554, 
which amended subsec. (g)(6) generally and which was approved Dec. 21, 
2000.


                               Amendments

    2000--Subsec. (b). Pub. L. 106-554, Sec. 1(a)(7) [title IV, 
Sec. 401(g)(1)(A)], added par. (5) and concluding provisions.
    Subsec. (f)(4). Pub. L. 106-554, Sec. 1(a)(7) [title IV, 
Sec. 401(g)(2)], inserted ``and dealer securities futures contracts'' 
after ``dealer equity options'' in heading and ``, or dealer securities 
futures contracts,'' after ``dealer equity options'' in introductory 
provisions.
    Subsec. (g)(6). Pub. L. 106-554, Sec. 1(a)(7) [title IV, 
Sec. 401(g)(3)], amended heading and text of par. (6) generally. Prior 
to amendment, text read as follows:
    ``(A) In general.--Except as provided in subparagraph (B), the term 
`equity option' means any option--
        ``(i) to buy or sell stock, or
        ``(ii) the value of which is determined directly or indirectly 
    by reference to any stock (or group of stocks) or stock index.
    ``(B) Exception for certain options regulated by commodities futures 
trading commission.--The term `equity option' does not include any 
option with respect to any group of stocks or stock index if--
        ``(i) there is in effect a designation by the Commodities 
    Futures Trading Commission of a contract market for a contract based 
    on such group of stocks or index, or
        ``(ii) the Secretary determines that such option meets the 
    requirements of law for such a designation.''
    Subsec. (g)(9). Pub. L. 106-554, Sec. 1(a)(7) [title IV, 
Sec. 401(g)(1)(B)], added par. (9).
    1999--Subsec. (e)(2). Pub. L. 106-170 reenacted heading without 
change and amended text generally. Prior to amendment, text read as 
follows: ``For purposes of this subsection, the term `hedging 
transaction' means any transaction if--
        ``(A) such transaction is entered into by the taxpayer in the 
    normal course of the taxpayer's trade or business primarily--
            ``(i) to reduce risk of price change or currency 
        fluctuations with respect to property which is held or to be 
        held by the taxpayer, or
            ``(ii) to reduce risk of interest rate or price changes or 
        currency fluctuations with respect to borrowings made or to be 
        made, or obligations incurred or to be incurred, by the 
        taxpayer,
        ``(B) the gain or loss on such transactions is treated as 
    ordinary income or loss, and
        ``(C) 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.''
    1986--Subsec. (e)(4), (5). Pub. L. 99-514 redesignated par. (5) as 
(4) and struck out former par. (4), special rule for banks, which read 
as follows: ``In the case of a bank (as defined in section 581), 
subparagraph (A) of paragraph (2) shall be applied without regard to 
clause (i) or (ii) thereof.''
    1984--Pub. L. 98-369, Sec. 102(e)(5), substituted ``Section 1256 
contracts'' for ``Regulated futures contracts'' in section catchline.
    Subsec. (a)(1), (3), (4). Pub. L. 98-369, Sec. 102(a)(1), 
substituted ``section 1256 contract'' for ``regulated futures contract'' 
and ``section 1256 contracts'' for ``regulated futures contracts'' 
wherever appearing.
    Subsec. (b). Pub. L. 98-369, Sec. 102(a)(2), in par. (1), 
substituted ``any regulated futures contract'' for ``with respect to 
which the amount required to be deposited and the amount which may be 
withdrawn depends on the system of marking to market; and'', in par. 
(2), substituted ``any foreign currency contract,'' for ``which is 
traded on or subject to the rules of a domestic board of trade 
designated as a contract market by the Commodity Futures Trading 
Commission or of any board of trade or exchange which the Secretary 
determines has rules adequate to carry out the purposes of this section. 
Such term includes any foreign currency contract.'', and added pars. (3) 
and (4).
    Subsec. (c)(1). Pub. L. 98-369, Sec. 102(a)(1)(A), (e)(1)(A), 
substituted ``section 1256 contracts'' for ``regulated futures 
contracts'', and ``by taking or making delivery, by exercise or being 
exercised, by assignment or being assigned, by lapse,'' for ``by taking 
or making delivery,''.
    Subsec. (c)(2). Pub. L. 98-369, Sec. 102(e)(1)(C), substituted 
``takes delivery on or exercises'' for ``takes delivery on'' in heading.
    Subsec. (c)(2)(A). Pub. L. 98-369, Sec. 102(a)(1)(B), substituted 
``section 1256 contracts'' for ``regulated futures contracts''.
    Subsec. (c)(2)(B). Pub. L. 98-369, Sec. 102(e)(1)(B), substituted 
``takes delivery under or exercises'' for ``takes delivery under''.
    Subsec. (d)(1), (4)(A). Pub. L. 98-369, Sec. 102(a)(1)(B), 
substituted ``section 1256 contracts'' for ``regulated futures 
contracts''.
    Subsec. (d)(4)(B). Pub. L. 98-369, Sec. 102(a)(1)(A), substituted 
``section 1256 contract'' for ``regulated futures contract''.
    Pub. L. 98-369, Sec. 107(c), inserted ``(or such earlier time as the 
Secretary may prescribe by regulations)''.
    Subsec. (e)(2)(C). Pub. L. 98-369, Sec. 107(d), inserted ``(or such 
earlier time as the Secretary may prescribe by regulations''.
    Subsec. (e)(5). Pub. L. 98-369, Sec. 104(a), added par. (5).
    Subsec. (f)(3), (4). Pub. L. 98-369, Sec. 102(b), added pars. (3) 
and (4).
    Subsec. (g). Pub. L. 98-369, Sec. 102(a)(3), in amending subsec. (g) 
generally, inserted provisions relating to regulated futures contracts 
as par. (1), redesignated former pars. (1) and (2) as subpars. (A) and 
(B), respectively, of par. (2), and added pars. (3) to (8).
    Subsec. (g)(1)(A). Pub. L. 98-369, Sec. 722(a)(2), inserted ``, or 
the settlement of which depends on the value of,'' after ``delivery 
of''.
    1983--Subsec. (b). Pub. L. 97-448, Sec. 105(c)(5)(A), (B), struck 
out par. (1) which related to contracts requiring delivery of personal 
property (as defined in section 1092(d)(1)) or an interest in such 
property, redesignated pars. (2) and (3) as (1) and (2), respectively, 
and inserted last sentence providing that such term includes any foreign 
currency contract.
    Subsec. (c). Pub. L. 97-448, Sec. 105(c)(1), inserted ``, etc.'' 
after ``Terminations'' in heading and, in text, designated existing 
first and second sentences as pars. (1) and (3), respectively, added 
par. (2), inserted ``(or transfer)'' after ``termination'' and ``(or 
rights)'' after ``obligation'' in par. (1) as so designated, and 
substituted ``this subsection'' for ``the preceding sentence'' and 
inserted ``(or transfer)'' after ``termination'' in par. (3) as so 
designated.
    Subsec. (d)(4)(B). Pub. L. 97-448, Sec. 105(c)(2), substituted ``day 
on which the first regulated futures contract forming part of the 
straddle is acquired'' for ``day on which such position is acquired''.
    Subsec. (e)(3)(C)(v). Pub. L. 97-448, Sec. 105(c)(3), inserted ``(by 
regulations or otherwise)'' after ``determines''.
    Subsec. (g). Pub. L. 97-448, Sec. 105(c)(5)(C), added subsec. (g).
    1982--Subsec. (e)(3)(B). Pub. L. 97-354 substituted ``an S 
corporation'' for ``an electing small business corporation within the 
meaning of section 1371(b)''.


                    Effective Date of 1999 Amendment

    Amendment by Pub. L. 106-170 applicable to any instrument held, 
acquired, or entered into, any transaction entered into, and supplies 
held or acquired on or after Dec. 17, 1999, see section 532(d) of Pub. 
L. 106-170, set out as a note under section 170 of this title.


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-514 applicable to taxable years beginning 
after Dec. 31, 1986, with certain exceptions and qualifications, see 
section 1261(e) of Pub. L. 99-514, set out as an Effective Date note 
under section 985 of this title.


                    Effective Date of 1984 Amendment

    Section 102(f)-(j) of Pub. L. 98-369, as amended by Pub. L. 99-514, 
Sec. 2, title XVIII, Sec. 1808(a)(1), Oct. 22, 1986, 100 Stat. 2095, 
2817, provided that:
    ``(f) Effective Dates.--
        ``(1) In general.--Except as otherwise provided in this 
    subsection or subsection (g), the amendments made by this section 
    [amending this section, sections 263, 1092, 1212, 1234A, 1362, 1374, 
    and 1402 of this title, and section 411 of Title 42, The Public 
    Health and Welfare, and enacting provisions set out as a note under 
    section 1362 of this title] shall apply to positions established 
    after the date of the enactment of this Act [July 18, 1984], in 
    taxable years ending after such date.
        ``(2) Special rule for options on regulated futures contracts.--
    In the case of any option with respect to a regulated futures 
    contract (within the meaning of section 1256 of the Internal Revenue 
    Code of 1986 [formerly I.R.C. 1954]), the amendments made by this 
    section shall apply to positions established after October 31, 1983, 
    in taxable years ending after such date.
        ``(3) Special rule for self-employment tax.--Except as provided 
    in subsection (g)(2), the amendments made by subsection (c) 
    [amending section 1402 of this title and section 411 of Title 42] 
    shall apply to taxable years beginning after the date of the 
    enactment of this Act [July 18, 1984].
        ``(4) Gains or losses from certain terminations.--The amendment 
    made by subsection (d)(9) [probably means subsec. (e)(9), which 
    amended section 1234A of this title] shall apply as if included in 
    the amendment made by section 505(a) [probably means section 507(a)] 
    of the Economic Recovery Tax Act of 1981 [Pub. L. 97-34], as amended 
    by section 105(e) of the Technical Corrections Act of 1982 [Pub. L. 
    97-448].
    ``(g) Elections With Respect to Property Held on or Before the Date 
of the Enactment of This Act.--At the election of the taxpayer--
        ``(1) the amendments made by this section [amending this 
    section, sections 263, 1092, 1212, 1234A, 1362, 1374, and 1402 of 
    this title, and section 411 of Title 42, The Public Health and 
    Welfare, and enacting provisions set out as a note under section 
    1362 of this title] shall apply to all section 1256 contracts held 
    by the taxpayer on the date of the enactment of this Act [July 18, 
    1984], effective for periods after such date in taxable years ending 
    after such date, or
        ``(2) in lieu of an election under paragraph (1), the amendments 
    made by this section shall apply to all section 1256 contracts held 
    by the taxpayer at any time during the taxable year of the taxpayer 
    which includes the date of the enactment of this Act.
    ``(h) Elections for Installment Payment of Tax Attributable to Stock 
Options.--
        ``(1) In general.--If the taxpayer makes an election under 
    subsection (g)(2) and under this subsection--
            ``(A) the taxpayer may pay part or all the tax for the 
        taxable year referred to in subsection (g)(2) in 2 or more (but 
        not exceeding 5) equal installments, and
            ``(B) the maximum amount of tax which may be paid in 
        installments under this subsection shall be the excess of--
                ``(i) the tax for such taxable year determined by taking 
            into account subsection (g)(2), over
                ``(ii) the tax for such taxable year determined by 
            taking into account subsection (g)(2) and by treating--
          ``(I) all section 1256 contracts which are stock options, and
          ``(II) any stock which was a part of a straddle including any 
                such stock options,
          as having been acquired for a purchase price equal to their 
            fair market value on the last business day of the preceding 
            taxable year. Stock options and stock shall be taken into 
            account under subparagraph (B)(ii) only if such options or 
            stock were held on the last day of the preceding taxable 
            year and only if income on such options or stock would have 
            been ordinary income if such options or stock were sold at a 
            gain on such last day.
        ``(2) Date for payment of installment.--
            ``(A) If an election is made under this subsection, the 
        first installment under paragraph (1) shall be paid on or before 
        the due date for filing the return for the taxable year 
        described in paragraph (1), and each succeeding installment 
        shall be paid on or before the date which is 1 year after the 
        date prescribed for payment of the preceding installment.
            ``(B) If a bankruptcy case or insolvency proceeding 
        involving the taxpayer is commenced before the final installment 
        is paid, the total amount of any unpaid installments shall be 
        treated as due and payable on the day preceding the day on which 
        such case or proceeding is commenced.
        ``(3) Interest imposed.--For purposes of section 6601 of the 
    Internal Revenue Code of 1986, the time for payment of any tax with 
    respect to which an election is made under this subsection shall be 
    determined without regard to this subsection.
        ``(4) Form of election.--An election under this subsection shall 
    be made not later than the time for filing the return for the 
    taxable year described in paragraph (1) and shall be made in the 
    manner and form required by regulations prescribed by Secretary of 
    the Treasury or his delegate. The election shall set forth--
            ``(A) the amount determined under paragraph (1)(B) and the 
        number of installments elected by the taxpayer,
            ``(B) the property described in paragraph (1)(B)(ii), and 
        the date on which such property was acquired,
            ``(C) the fair market value of the property described in 
        paragraph (1)(B)(ii) on the last business day of the taxable 
        year preceding the taxable year described in paragraph (1), and
            ``(D) such other information for purposes of carrying out 
        the provisions of this subsection as may be required by such 
        regulations.
        ``(5) Delay of identification requirement.--Section 
    1256(e)(2)(C) of the Internal Revenue Code of 1986 shall not apply 
    to any stock option or stock acquired on or before the 60th day 
    after the date of the enactment of this Act [July 18, 1984].
    ``(i) Definitions.--For purposes of subsections (g) and (h)--
        ``(1) Section 1256 contract.--The term `section 1256 contract' 
    has the meaning given to such term by section 1256(b) of the 
    Internal Revenue Code of 1986 (as amended by this section).
        ``(2) Stock option.--The term `stock option' means any option to 
    buy or sell stock.
    ``(j) Coordination of Election Under Subsection (d)(3) With 
Elections Under Subsections (g) and (h).--The Secretary of the Treasury 
or his delegate shall prescribe such regulations as may be necessary to 
coordinate the election provided by subsection (d)(3) with the elections 
provided by subsections (g) and (h).''
    Section 104(b) of Pub. L. 98-369 provided that: ``The amendment made 
by subsection (a) [amending this section] shall apply to taxable years 
beginning after December 31, 1984.''
    Amendment by section 107(c), (d) of Pub. L. 98-369 applicable to 
positions entered into after July 18, 1984, in taxable years ending 
after that date, see section 107(e) of Pub. L. 98-369 set out as a note 
under section 1092 of this title.
    Amendment by section 722(a)(2) of Pub. L. 98-369 effective as if 
included in the provisions of the Technical Corrections Act of 1984, 
Pub. L. 97-448, to which such amendment relates, see section 722(a)(6) 
of Pub. L. 98-369, set out as a note under section 172 of this title.


                    Effective Date of 1983 Amendment

    Amendment by Pub. L. 97-448 effective, except as otherwise provided, 
as if it had been included in the provision of the Economic Recovery Tax 
Act of 1981, Pub. L. 97-34, to which such amendment relates, see section 
109 of Pub. L. 97-448, set out as a note under section 1 of this title.
    Section 105(c)(5)(D) of Pub. L. 97-448, as amended by Pub. L. 99-
514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(i) In general.--Except as provided in clauses (ii) and (iii), the 
amendments made by subparagraphs (B) and (C) [amending this section] 
shall apply only with respect to contracts entered into after May 11, 
1982.
    ``(ii) Election by taxpayer of retroactive application.--
        ``(I) Retroactive application.--If the taxpayer so elects, the 
    amendments made by subparagraphs (B) and (C) [amending this section] 
    shall apply as if included within the amendments made by title V of 
    the Economic Recovery Tax Act of 1981 [title V of Pub. L. 97-34].
        ``(II) Additional choices with respect to 1981.--If the taxpayer 
    held a foreign currency contract after December 31, 1980, and before 
    June 24, 1981, and such taxpayer makes an election under subclause 
    (I), such taxpayer may revoke any election made under section 508(c) 
    [set out as an Effective Date note under section 1092 of this title] 
    or 509(a) [set out below] of such Act, and may make an election 
    under section 508(c) or 509(a) of such Act.
        ``(III) Additional choices apply to all regulated futures 
    contracts.--Except as provided in subclause (IV), in the case of any 
    taxpayer who makes an election under subclause (I), any election 
    under section 508(c) or 509(a) of such Act or any revocation of such 
    an election shall apply to all regulated futures contracts 
    (including foreign currency contracts).
        ``(IV) Section 509(a)(3) and (4) not to apply to foreign 
    currency contracts.--Paragraphs (3) and (4) of section 509(a) of 
    such Act shall not apply to any foreign currency contract.
        ``(V) Time for making election or revocation.--Any election 
    under subclause (I) and any election or revocation under subclause 
    (II) may be made only within the 90-day period beginning on the date 
    of the enactment of this Act [Jan. 12, 1983]. Any such action, once 
    taken, shall be irrevocable.
        ``(VI) Definitions.--For purposes of this clause, the terms 
    `regulated futures contract' and `foreign currency contract' have 
    the same respective meanings as when used in section 1256 of the 
    Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by 
    this Act).
    ``(iii) Election by taxpayer with respect to positions held during 
taxable years ending after may 11, 1982.--In lieu of the election under 
clause (ii), a taxpayer may elect to have the amendments made by 
subparagraphs (B) and (C) [amending subsec. (b) of this section to 
include foreign currency contracts and enacting subsec. (g) of this 
section, respectively] applied to all positions held in taxable years 
ending after May 11, 1982, except that the provisions of section 
509(a)(3) and (4) of the Economic Recovery Tax Act of 1981 [set out 
below] shall not apply.''


                    Effective Date of 1982 Amendment

    Amendment by Pub. L. 97-354 applicable to taxable years beginning 
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as an 
Effective Date note under section 1361 of this title.


                             Effective Date

    Section (other than subsec. (e)(2)(C)) applicable to property 
acquired and positions established by the taxpayer after June 23, 1981, 
in taxable years ending after such date, subsec. (e)(2)(C) of this 
section applicable to property acquired and positions established by the 
taxpayer after Dec. 31, 1981, in taxable years ending after such date, 
and section applicable when so elected with respect to property held on 
June 23, 1981, see section 508 of Pub. L. 97-34, set out as a note under 
section 1092 of this title.


                       Deadline for Determination

    Pub. L. 106-554, Sec. 1(a)(7) [title IV, Sec. 401(g)(4)], Dec. 21, 
2000, 114 Stat. 2763, 2763A-650, provided that: ``The Secretary of the 
Treasury or his delegate shall make the determinations under section 
1256(g)(9)(B) of the Internal Revenue Code of 1986, as added by this 
Act, not later than July 1, 2001.''


   Election for Extension of Time for Payment and Application of This 
          Section for the Taxable Year Including June 23, 1981

    Section 509 of Pub. L. 97-34, as amended by Pub. L. 97-448, title I, 
Sec. 105(c)(6), Jan. 12, 1983, 96 Stat. 2387; Pub. L. 99-514, Sec. 2, 
Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(a) Election.--
        ``(1) In general.--In the case of any taxable year beginning 
    before June 23, 1981, and ending after June 22, 1981, the taxpayer 
    may elect, in lieu of any election under section 508(c) [set out as 
    an Effective Date note under section 1092 of this title], to have 
    this section apply to all regulated futures contracts held during 
    such taxable year.
        ``(2) Application of section 1256.--If a taxpayer elects to have 
    the provisions of this section apply to the taxable year described 
    in paragraph (1).--
            ``(A) the provisions of section 1256 of the Internal Revenue 
        Code of 1986 [formerly I.R.C. 1954] (other than section 
        1256(e)(2)(C)) shall apply to regulated futures contracts held 
        by the taxpayer at any time during such taxable year, and
            ``(B) for purposes of determining the rate of tax applicable 
        to gains and losses from regulated futures contracts held at any 
        time during such year, such gains and losses shall be treated as 
        gain or loss from a sale or exchange occurring in a taxable year 
        beginning in 1982.
        ``(3) Determination of deferred tax liability.--If the taxpayer 
    makes an election under this subsection.--
            ``(A) the taxpayer may pay part or all of the tax for such 
        year in two or more (but not exceeding five) equal installments;
            ``(B) the maximum amount of tax which may be paid in 
        installments under this section shall be the excess of--
                ``(i) the tax for such year, determined by taking into 
            account paragraph (2), over
                ``(ii) the tax for such year, determined by taking into 
            account paragraph (2) and by treating all regulated futures 
            contracts which were held by the taxpayer on the first day 
            of the taxable year described in paragraph (1), and which 
            were acquired before the first day of such taxable year, as 
            having been acquired for a purchase price equal to their 
            fair market value on the last business day of the preceding 
            taxable year.
        ``(4) Date for payment of installment.--
            ``(A) If an election is made under this subsection, the 
        first installment under subsection (a)(3)(A) shall be paid on or 
        before the due date for filing the return for the taxable year 
        described in paragraph (1), and each succeeding installment 
        shall be paid on or before the date which is one year after the 
        date prescribed for payment of the preceding installment.
            ``(B) If a bankruptcy case or insolvency proceeding 
        involving the taxpayer is commenced before the final installment 
        is paid, the total amount of any unpaid installments shall be 
        treated as due and payable on the day preceding the day on which 
        such case or proceeding is commenced.
        ``(5) Interest imposed.--For purposes of section 6601 of the 
    Internal Revenue Code of 1986, the time for payment of any tax with 
    respect to which an election is made under this subsection shall be 
    determined without regard to this subsection.
    ``(b) Form of Election.--An election under this section shall be 
made not later than the time for filing the return for the taxable year 
described in subsection (a)(1) and shall be made in the manner and form 
required by regulations prescribed by the Secretary. The election shall 
set forth--
        ``(1) the amount determined under subsection (a)(3)(B) and the 
    number of installments elected by the taxpayer,
        ``(2) each regulated futures contract held by the taxpayer on 
    the first day of the taxable year described in subsection (a)(1), 
    and the date such contract was acquired,
        ``(3) the fair market value on the last business day of the 
    preceding taxable year for each regulated futures contract described 
    in paragraph (2), and
        ``(4) such other information for purposes of carrying out the 
    provisions of this section as may be required by such regulations.''

                  Section Referred to in Other Sections

    This section is referred to in sections 263, 461, 475, 988, 1092, 
1212, 1221, 1223, 1234, 1234A, 1258, 1281, 1362, 1402 of this title; 
title 42 section 411.
