Amends the Internal Revenue Code to provide that if there is a constructive sale of an appreciated financial position: (1) a taxpayer shall recognize gain as if such position were sold for its fair market value on the date of the constructive sale; and (2) for purposes of the treatment of gains and losses for periods after the constructive sale, proper adjustment shall be made in the amount of any gain or loss subsequently realized with respect to such position for any gain taken into account by reason of the above and the holding period of such position shall be determined as if such position were originally acquired on the date of such constructive sale.
[Congressional Bills 105th Congress]
[From the U.S. Government Printing Office]
[H.R. 1651 Introduced in House (IH)]
105th CONGRESS
1st Session
H. R. 1651
To amend the Internal Revenue Code of 1986 to require gain recognition
in the case of certain transactions that are equivalent to sales of
financial instruments.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
May 16, 1997
Mr. Weller introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to require gain recognition
in the case of certain transactions that are equivalent to sales of
financial instruments.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL
POSITIONS.
(a) In General.--Part IV of subchapter P of chapter 1 of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new section:
``SEC. 1259. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL
POSITIONS.
``(a) In General.--If there is a constructive sale of an
appreciated financial position--
``(1) the taxpayer shall recognize gain as if such position
were sold for its fair market value on the date of such
constructive sale (and any gain shall be taken into account for
the taxable year which includes such date), and
``(2) for purposes of applying this title for periods after
the constructive sale--
``(A) proper adjustment shall be made in the amount
of any gain or loss subsequently realized with respect
to such position for any gain taken into account by
reason of paragraph (1), and
``(B) the holding period of such position shall be
determined as if such position were originally acquired
on the date of such constructive sale.
``(b) Appreciated Financial Position.--For purposes of this
section--
``(1) In general.--The term `appreciated financial
position' means any position with respect to any stock, debt
instrument, or partnership interest if there would be gain were
such position sold.
``(2) Position.--The term `position' means an interest,
including a futures or forward contract, short sale, or option.
``(3) Treatment of limited-term interests.--Except as
provided in regulations, the term position shall not include
any interest that has a term of 3 years of less.
``(4) Positions as to which gain or loss is otherwise
recognized during the taxable year.--The term position does not
include any position that--
``(A) is sold or disposed of during the taxable
year in a transaction in which gain or loss is
recognized, or
``(B) is marked to market under section 475,
section 1256, or any other provision.
``(c) Constructive Sale.--For purposes of this section--
``(1) In general.--A taxpayer shall be treated as having
made a constructive sale of an appreciated financial position
of the taxpayer (or a related person) enters into any of the
following transactions and the transaction has not been closed
or terminated within 1 year of the date it was entered into--
``(A) making a short sale of substantially
identical property,
``(B) entering into an offsetting notional
principal contract with respect to substantially
identical property,
``(C) entering into a futures or forward contract
to deliver substantially identical property,
``(D) in the case of an appreciated financial
position that is a short sale or a contract described
in subparagraph (B) or (C) with respect to any
property, acquiring substantially identical property,
or
``(E) to the extent provided in regulations having
prospective effect, entering into 1 or more other
transactions (or acquiring 1 or more positions) that
have substantially the same effect as a transaction
described in any of the preceding subparagraphs.
A constructive sale shall be deemed to occur on the date that
is 1 year after the date on which the transaction described in
subparagraphs (A) through (E) is entered into.
``(2) Related person.--A person is related to another
person with respect to a transaction if--
``(A) the relationship is described in section 267
or 707(b), and
``(B) such transaction is entered into with a view
toward avoiding the purposes of this section.
``(3) Special rule for debt instruments.--For purposes of
paragraph (1)(A), positions in interest rates shall be treated
as positions in property which are substantially identical to
debt instruments.
``(d) Other Definitions.--For purposes of this section--
``(1) Forward contract.--The term `forward contract'
includes a fully or partially prepaid forward contract.
``(2) Offsetting notional principal contract.--The term
`offsetting notional principal contract' means, with respect to
any property, an agreement to pay the investment yield
(including appreciation) on such property for a specified
period in exchange for the right to be reimbursed for any
decline in the value of such property and for other
consideration.
``(e) Special Rules.--
``(1) Treatment of subsequent sale of position.--If--
``(A) a taxpayer (or a related person) enters into
a transaction described in subsection (c)(1) with
respect to any appreciated financial position,
``(B) such position is subsequently sold or
otherwise disposed of, and
``(C) at the time of such sale or disposition, the
transaction described in subsection (c)(1) remains open
with respect to the taxpayer or any related person,
solely for purposes of determining whether the taxpayer has
entered into a constructive sale of any other appreciated
financial position held by the taxpayer, the taxpayer shall be
treated as entering into such transaction immediately after
such sale or other disposition.
``(2) Certain trust instruments treated as stock.--For
purposes of this section, an interest in a trust which is
actively traded (within the meaning of section 1092(d)(1))
shall be treated as stock.
``(3) Multiple positions in property.--If there is a
constructive sale of a portion of any property held by the
taxpayer, the determination of the specific property which is
deemed sold shall be made in the same manner as if the
constructive sale were an actual sale; except that property
treated as sold by reason of a prior constructive sale that
remains open shall be disregarded.
``(f) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''
(b) Clerical Amendment.--The table of sections for part IV of
subchapter P of chapter 1 of such Code is amended by adding at the end
the following new item:
``Sec. 1259. Constructive sales treatment
for appreciated financial
positions.''
(c) Effective Date.--The amendments made by this section shall
apply to constructive sales after the date of the enactment of this
Act.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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