26 U.S.C. § 1259: Constructive sales treatment for appreciated financial positions

the taxpayer shall recognize gain as if such position were sold, assigned, or otherwise terminated at 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 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 the holding period of such position shall be determined as if such position were originally acquired on the date of such constructive sale. Except as provided in paragraph (2), 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, assigned, or otherwise terminated at its fair market value. the position unconditionally entitles the holder to receive a specified principal amount, the interest payments (or other similar amounts) with respect to such position meet the requirements of clause (i) of section 860G(a)(1)(B), and such position is not convertible (directly or indirectly) into stock of the issuer or any related person, any hedge with respect to a position described in subparagraph (A), and any position which is marked to market under any provision of this title or the regulations thereunder. The term “position” means an interest, including a futures or forward contract, short sale, or option. enters into a short sale of the same or substantially identical property, enters into an offsetting notional principal contract with respect to the same or substantially identical property, enters into a futures or forward contract to deliver the same or substantially identical property, 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, acquires the same or substantially identical property, or to the extent prescribed by the Secretary in regulations, enters into 1 or more other transactions (or acquires 1 or more positions) that have substantially the same effect as a transaction described in any of the preceding subparagraphs. A taxpayer shall not be treated as having made a constructive sale solely because the taxpayer enters into a contract for sale of any stock, debt instrument, or partnership interest which is not a marketable security (as defined in section 453(f)) if the contract settles within 1 year after the date such contract is entered into. such transaction is closed on or before the 30th day after the close of such taxable year, the taxpayer holds the appreciated financial position throughout the 60-day period beginning on the date such transaction is closed, and at no time during such 60-day period is the taxpayer’s risk of loss with respect to such position reduced by reason of a circumstance which would be described in section 246(c)(4) if references to stock included references to such position. a transaction, which would otherwise cause a constructive sale of an appreciated financial position, is closed during the taxable year or during the 30 days thereafter, and which would (but for this subparagraph) cause the requirement of subparagraph (A)(iii) not to be met with respect to the transaction described in clause (i) of this subparagraph, which is closed on or before the 30th day after the close of the taxable year in which the transaction referred to in clause (i) occurs, and which meets the requirements of clauses (ii) and (iii) of subparagraph (A), the relationship is described in section 267(b) or 707(b), and such transaction is entered into with a view toward avoiding the purposes of this section. The term “forward contract” means a contract to deliver a substantially fixed amount of property (including cash) for a substantially fixed price. a requirement to pay (or provide credit for) all or substantially all of the investment yield (including appreciation) on such property for a specified period, and a right to be reimbursed for (or receive credit for) all or substantially all of any decline in the value of such property. there is a constructive sale of any appreciated financial position, such position is subsequently disposed of, and at the time of such disposition, the transaction resulting in the constructive sale of such position is open with respect to the taxpayer or any related person, 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 unless substantially all (by value) of the property held by the trust is debt described in subsection (b)(2)(A). If a taxpayer holds multiple positions in property, the determination of whether a specific transaction is a constructive sale and, if so, which appreciated financial position is deemed sold shall be made in the same manner as actual sales. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.