IRS Finalizes Identified Mixed Straddle Rules (Fed. Reg.)

The IRS finalized regulations governing "identified mixed straddles" under Section 1092 of the Internal Revenue Code to prevent taxpayers from selectively triggering capital gains and losses by using identified mixed straddles.

A mixed straddle is a straddle (i.e., offsetting positions in personal property) where at least one, but not all positions are Section 1256 contracts subject to mark to market and 60/40 tax rules. In order to avoid character and timing mismatches of mixed straddles, a taxpayer can identify the transaction under Section 1092 and offset gains or losses from positions that are part of the identified mixed straddle. Under prior regulations issued in 1985, the unrealized gain or loss on a position that becomes part of an identified mixed straddle was required to be recognized on the day before the date the straddle was established.

Under the new regulations, the unrealized gain or loss is suspended until the position is actually sold. The holding period for the position is reset when the position becomes part of the mixed straddle. The regulations also clarify that any gain or loss that would have been a long-term gain or loss under the 1985 regulations will, when recognized, be a long-term gain or loss under the new final regulations.

The final regulations apply to straddles established after August 18, 2014.

See: 79 FR 41886.For more information, please contact Daniel Mulcahy and Mark Howe.