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United States Code (Last Updated: May 24, 2014) |
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Title 26. INTERNAL REVENUE CODE |
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SubTitle A. Income Taxes |
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Chapter 1. NORMAL TAXES AND SURTAXES |
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SubChapter O. Gain or Loss on Disposition of Property |
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Part VII. WASH SALES; STRADDLES |
§ 1092. Straddles
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(a) Recognition of loss in case of straddles, etc. (1) Limitation on recognition of loss (A) In general 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.
(B) Carryover of loss 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.
(2) Special rule for identified straddles (A) In general In the case of any straddle which is an identified straddle— (i) paragraph (1) shall not apply with respect to positions comprising the identified straddle, (ii) if there is any loss with respect to any position of the identified straddle, the basis of each of the offsetting positions in the identified straddle shall be increased by an amount which bears the same ratio to the loss as the unrecognized gain with respect to such offsetting position bears to the aggregate unrecognized gain with respect to all such offsetting positions, (iii) if the application of clause (ii) does not result in an increase in the basis of any offsetting position in the identified straddle, the basis of each of the offsetting positions in the identified straddle shall be increased in a manner which— (I) is reasonable, consistent with the purposes of this paragraph, and consistently applied by the taxpayer, and (II) results in an aggregate increase in the basis of such offsetting positions which is equal to the loss described in clause (ii), and (iv) any loss described in clause (ii) shall not otherwise be taken into account for purposes of this title. (B) Identified straddle The term “identified straddle” means any straddle— (i) which is clearly identified on the taxpayer’s records as an identified straddle before the earlier of— (I) the close of the day on which the straddle is acquired, or (II) such time as the Secretary may prescribe by regulations. (ii) to the extent provided by regulations, the value of each position of which (in the hands of the taxpayer immediately before the creation of the straddle) is not less than the basis of such position in the hands of the taxpayer at the time the straddle is created, and (iii) which is not part of a larger straddle. A straddle shall be treated as clearly identified for purposes of clause (i) only if such identification includes an identification of the positions in the straddle which are offsetting with respect thereof) and (4) of section 246(c) shall apply in determining the period for which the taxpayer holds the stock. (F) Strike price For purposes of this paragraph, the term “strike price” means the price at which the option is exercisable.
(G) Applicable stock price For purposes of subparagraph (D), the term “applicable stock price” means, with respect to any stock for which an option has been granted— (i) the closing price of such stock on the most recent day on which such stock was traded before the date on which such option was granted, or (ii) the opening price of such stock on the day on which such option was granted, but only if such price is greater than 110 percent of the price determined under clause (i). (H) Regulations 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.
(d) Definitions and special rules For purposes of this section— (1) Personal property The term “personal property” means any personal property of a type which is actively traded.
(2) Position The term “position” means an interest (including a futures or forward contract or option) in personal property.
(3) Special rules for stock For purposes of paragraph (1)— (A) In general In the case of stock, the term “personal property” includes stock only if— (i) such stock is of a type which is actively traded and at least 1 of the positions offsetting such stock is a position with respect to such stock or substantially similar or related property, or (ii) such stock is of a corporation formed or availed of to take positions in personal property which offset positions taken by any shareholder. (B) Rule for application For purposes of determining whether subsection (e) applies to any transaction with respect to stock described in subparagraph (A)(ii), all includible corporations of an affiliated group (within the meaning of section 1504(a)) shall be treated as 1 taxpayer.
(4) Positions held by related persons, etc. (A) In general In determining whether 2 or more positions are offsetting, the taxpayer shall be treated as holding any position held by a related person.
(B) 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— (i) is the spouse of the taxpayer, or (ii) files a consolidated return (within the meaning of section 1501) with the taxpayer for any taxable year which includes a portion of such period. (C) Certain flowthrough entities 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.
(5) Special rule for section 1256 contracts (A) General rule 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.
(B) Special rule for identified straddles For purposes of subsection (a)(2) (relating to identified straddles), subparagraph (A) and section 1256(a)(4) shall not apply to a straddle all of the offsetting positions of which consist of section 1256 contracts.
(6) Section 1256 contract The term “section 1256 contract” has the meaning given such term by section 1256(b).
(7) Special rules for foreign currency (A) Position to include interest in certain debt For purposes of paragraph (2), an obligor’s interest in a nonfunctional currency denominated debt obligation is treated as a position in the nonfunctional currency.
(B) Actively traded requirement For purposes of paragraph (1), foreign currency for which there is an active interbank market is presumed to be actively traded.
(8) Special rules for physically settled positions 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— (A) terminated the position for its fair market value immediately before the settlement, and (B) sold the property so delivered by the taxpayer at its fair market value. (e) Exception for hedging transactions This section shall not apply in the case of any hedging transaction (as defined in section 1256(e)).
(f) Treatment of gain or loss and suspension of holding period where taxpayer grantor of qualified covered call option 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— (1) Treatment of loss 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.
(2) Suspension of holding period The holding period of such stock shall not include any period during which the taxpayer is the grantor of such option.
(g) Cross reference For provision requiring capitalization of certain interest and carrying charges where there is a straddle, see section 263(g).
References In Text
Section 246(c)(3) of this title, referred to in subsec. (c)(4)(E), was amended by Pub. L. 105–34, title X, § 1015(b)(2),
Amendments
2007—Subsec. (a)(2)(A)(i). Pub. L. 110–172, § 7(d)(2)(B)(i), substituted “positions” for “identified positions”.
Subsec. (a)(2)(A)(ii). Pub. L. 110–172, § 7(d)(2)(B)(ii), (iii), substituted “any position” for “any identified position” and “the offsetting positions” for “the identified offsetting positions”.
Pub. L. 110–172, § 7(d)(1), struck out “and” at end.
Subsec. (a)(2)(A)(iii), (iv). Pub. L. 110–172, § 7(d)(1), added cl. (iii) and redesignated former cl. (iii) as (iv).
Subsec. (a)(2)(B). Pub. L. 110–172, § 7(d)(2)(A), inserted concluding provisions.
Subsec. (a)(2)(C), (D). Pub. L. 110–172, § 7(d)(3), (4), added subpar. (C), redesignated former subpar. (C) as (D), and inserted “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),” before “and the ordering rules” in subpar. (D).
Subsec. (a)(3)(B). Pub. L. 110–172, § 7(d)(2)(C), substituted “offsetting position” for “identified offsetting position”.
2005—Subsec. (a)(2). Pub. L. 109–135 added subpar. (C) and struck out concluding provisions of subpar. (B) which read as follows: “The Secretary shall prescribe regulations which specify the proper methods for clearly identifying a straddle as an identified straddle (and the positions comprising such straddle), which specify the rules for the application of this section for a taxpayer which fails to properly identify the positions of an identified straddle, and which specify the ordering rules in cases where a taxpayer disposes of less than an entire position which is part of an identified straddle.”
2004—Subsec. (a)(2)(A). Pub. L. 108–357, § 888(a)(1), reenacted heading without change and amended text of subpar. (A) generally. Prior to amendment, text read as follows: “In the case of any straddle which is an identified straddle as of the close of any taxable year—
“(i) paragraph (1) shall not apply for such taxable year, and
“(ii) any loss with respect to such straddle shall be treated as sustained not earlier than the day on which all of the positions making up the straddle are disposed of.”
Subsec. (a)(2)(B). Pub. L. 108–357, § 888(a)(2)(B), inserted concluding provisions.
Subsec. (a)(2)(B)(ii). Pub. L. 108–357, § 888(a)(2)(A), added cl. (ii) and struck out former cl. (ii) which read as follows: “all of the original positions of which (as identified by the taxpayer) are acquired on the same day and with respect to which—
“(I) all of such positions are disposed of on the same day during the taxable year, or
“(II) none of such positions has been disposed of as of the close of the taxable year, and”.
Subsec. (a)(3)(B), (C). Pub. L. 108–357, § 888(a)(3), added subpar. (B) and redesignated former subpar. (B) as (C).
Subsec. (c)(2)(B), (C). Pub. L. 108–357, § 888(a)(4), redesignated subpar. (C) as (B) and struck out heading and text of former subpar. (B). Text read as follows: “If 1 or more positions offset only a portion of 1 or more other positions, the Secretary shall by regulations prescribe the method for determining the portion of such other positions which is to be taken into account for purposes of this section.”
Subsec. (d)(3). Pub. L. 108–357, § 888(c)(1), reenacted heading without change and amended text of par. (3) generally, substituting provisions directing that the term “personal property” includes stock only if it is of a certain type or of a certain type of corporation and setting forth rule for application of subsec. (e), for provisions directing that the term “personal property” includes any stock which is part of a straddle at least 1 of the offsetting positions of which is an option, a securities futures contract, or a position with respect to substantially similar or related property (other than stock), and of a certain type of corporation, and setting forth special rules relating to application of subsecs. (c), (d)(4), and (e).
Subsec. (d)(8). Pub. L. 108–357, § 888(b), added par. (8).
2000—Subsec. (d)(3)(B)(i)(II), (III). Pub. L. 106–554 added subcl. (II) and redesignated former subcl. (II) as (III).
1999—Subsec. (a)(3)(B)(ii)(II). Pub. L. 106–170 substituted “1221(a)” for “1221”.
1997—Subsec. (f)(2). Pub. L. 105–34 substituted “The” for “Except for purposes of section 851(b)(3), the”.
1988—Subsec. (b)(2)(D). Pub. L. 100–647 added subpar. (D).
1986—Subsec. (c)(4)(E). Pub. L. 99–514, § 331(a), in cl. (i), inserted “or the stock is disposed of at a loss”, in cl. (ii), substituted “or gains on such options are” for “is”, and in cl. (iii), inserted “or option” and “or the disposition of such stock”.
Subsec. (d)(3)(A). Pub. L. 99–514, § 1808(c), inserted at end “The preceding sentence shall not apply to any interest in stock.”
Subsec. (d)(5), (6). Pub. L. 99–514, § 1899A(66), amended directory language of section 101(b)(2) of Pub. L. 98–369 to clarify general amendment by sections 101(d) and 102(e) of Pub. L. 98–369. See 1984 Amendment notes below.
Subsec. (d)(7). Pub. L. 99–514, § 1261(b), added par. (7).
1984—Subsec. (a)(2)(B)(i). Pub. L. 98–369, § 107(a), designated existing provisions as subcl. (I) and added subcl. (II).
Subsec. (b). Pub. L. 98–369, § 103(a), amended subsec. (b) generally, substituting provisions dealing with regulations for provisions dealing with character of gain or loss and wash sales.
Subsec. (c)(4). Pub. L. 98–369, § 101(a)(2), added par. (4).
Subsec. (d)(1). Pub. L. 98–369, § 101(b)(1), struck out “(other than stock)” before “of a type”.
Subsec. (d)(2). Pub. L. 98–369, § 101(a)(1), redesignated former subpar. (A) as entire par. (2), and struck out former subpar. (B) which provided that “position” includes any stock option which is a part of a straddle and which is an option to buy or sell stock which is actively traded, but does not include a stock option which (i) is traded on a domestic exchange or on a similar foreign exchange designated by the Secretary, and (ii) is of a type with respect to which the maximum period during which such option may be exercised is less than the minimum period for which a capital asset must be held for gain to be treated as long-term capital gain under section 1222(3).
Subsec. (d)(3), (4). Pub. L. 98–369, § 101(b)(2), as amended by Pub. L. 99–514, § 1899A(66), added par. (3) and redesignated former pars. (3) and (4) as (4) and (5), respectively.
Subsec. (d)(5). Pub. L. 98–369, § 101(d), amended par. (4) generally, substituting provisions relating to special rules for section 1256 contracts for provisions relating to special rules for regulated futures contracts.
Pub. L. 98–369, § 101(b)(2), as amended by Pub. L. 99–514, § 1899A(66), redesignated former par. (4) as (5). Former par. (5) redesignated (6).
Subsec. (d)(6). Pub. L. 98–369, § 102(e)(2), amended par. (5) generally, substituting references to section 1256 contracts for references to regulated futures contracts wherever appearing in heading and text.
Pub. L. 98–369, § 101(b)(2), as amended by Pub. L. 99–514, § 1899A(66), redesignated former par. (5) as (6).
Subsecs. (f), (g). Pub. L. 98–369, § 101(c), added subsec. (f) and redesignated former subsec. (f) as (g).
1983—Subsec. (a)(1)(A). Pub. L. 97–448, § 105(a)(1)(A), (2), substituted “unrecognized gain” for “unrealized gain” and “which were offsetting positions with respect to 1 or more positions from which the loss arose” for “which— (i) were acquired by the taxpayer before the disposition giving rise to such loss, (ii) were offsetting positions with respect to the 1 or more positions from which the loss arose, and (iii) were not part of an identified straddle as of the close of the taxable year”.
Subsec. (a)(3). Pub. L. 97–448, § 105(a)(1)(B), substituted “Unrecognized gain” for “Unrealized gain” in heading.
Subsec. (a)(3)(A). Pub. L. 97–448, § 105(a)(1)(B), substituted “unrecognized gain” for “unrealized gain” as term defined, designated existing definition as cl. (i), and added cl. (ii).
Subsec. (a)(3)(B)(i)(I). Pub. L. 97–448, § 105(a)(1)(C), substituted “with respect to which, as of the close of the taxable year, there is unrecognized gain, and” for “which is held by such taxpayer as of the close of the taxable year and with respect to which there is unrealized gain, and”.
Subsec. (a)(3)(B)(i)(II). Pub. L. 97–448, § 105(a)(1)(C), substituted “unrecognized gain” for “unrealized gain”.
Subsec. (c)(2)(C). Pub. L. 97–448, § 105(a)(4), substituted “subsection (a)(2)(B)” for “subsection (a)(3)(B)”.
Subsec. (d)(4). Pub. L. 97–448, § 105(a)(3), substituted “a straddle at least 1 (but not all) of the positions of which are regulated futures contracts, the provisions of this section shall apply” for “a straddle— (A) at lease 1 (but not all) of the positions of which are regulated futures contracts, and (B) with respect to which the taxpayer has elected not to have the provisions of section 1256 apply, the provisions of this section shall apply”.
Effective Date Of Amendment
Pub. L. 110–172, § 7(e),
Amendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.
Amendment by Pub. L. 108–357 applicable to positions established on or after
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
Amendment by Pub. L. 105–34 applicable to taxable years beginning after
Amendment by Pub. L. 100–647 applicable with respect to forward contracts, future contracts, options, and similar instruments entered into or acquired after
Pub. L. 99–514, title III, § 331(b),
Amendment by section 1261(b) of Pub. L. 99–514 applicable to taxable years beginning after
Amendment by section 1808(c) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.
Pub. L. 98–369, div. A, title I, § 101(e),
Amendment by section 102(e)(2) of Pub. L. 98–369 applicable to positions established after
Pub. L. 98–369, div. A, title I, § 103(b), (c),
Pub. L. 98–369, div. A, title I, § 107(e),
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.
Effective Date
Pub. L. 97–34, title V, § 508,
Miscellaneous
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after
Pub. L. 98–369, div. A, title I, § 108,