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23 January 2018 Updated 2018 US Section 1256 qualified board or exchange list This Tax Alert updates previously issued lists of Internal Revenue Code1 Section 1256 qualified boards or exchanges. Generally, a taxpayer must mark to market transactions qualifying as Section 1256 contracts at the end of each tax year as if those transactions were sold for fair market value.2 Subject to certain exceptions, any gain or loss on a Section 1256 contract is treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss, regardless of how long the taxpayer actually held the contract.3 Section 1256 contracts include (among other things) regulated futures contracts and non-equity options.4 A regulated futures contract is a contract that: (i) is marked to market on a daily basis to determine the amount that the taxpayer must deposit to its margin account to cover losses, or the amount that it may withdraw from such account as a result of favorable price changes during the day, and (ii) is traded on or subject to the rules of a qualified board or exchange.5 A non-equity option is an option (other than an "equity" option) that is traded on or subject to the rules of a qualified board or exchange.6 A "qualified board or exchange" means: (i) a national securities exchange, (ii) a domestic board of trade, or (iii) any other exchange, board of trade, or other market that the Secretary determines has rules adequate to carry out the purposes of Section 1256.6 Section 1256(g)(7) defines a qualified board or exchange (QBE) as: (1) a national securities exchange that is registered with the Securities and Exchange Commission (SEC), (2) a domestic board of trade designated as a contract market by the Commodities Futures Trading Commission, or (3) any other market that the Secretary determines has rules adequate to carry out the purposes of the section. The following are lists of exchanges and boards that qualify as QBEs under Section 1256(g)(7). A "national securities exchange" is a securities exchange that has registered with the SEC under Section 6 of the Securities Exchange Act of 1934. The following are the securities exchanges registered with the SEC under Section 6(a) of the Exchange Act as national securities exchanges:
Certain exchanges are also registered with the SEC through a notice filing under Section 6(g) of the Exchange Act for the purpose of trading security futures. These exchanges also qualify as qualified boards or exchanges for purposes of Section 1256: The domestic boards of trade designated as contract markets by the Commodity Futures Trading Commission (CFTC) are as follows:
Under Section 1256(g)(7)(C), Treasury has also determined that the following exchanges have rules adequate to carry out the purposes of Section 1256:
On 16 September 2011, the Internal Revenue Service and Treasury Department released proposed regulations addressing the tax treatment of credit default swaps.7 The proposed regulations were issued under Section 1256(b)(2), which was part of the Dodd Frank Wall Street Reform and Consumer Protection Act (herein referred to as the Dodd-Frank Act). The Dodd-Frank Act amended Section 1256 to explicitly exclude (for tax years beginning after 21 July 2010), any interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement from the definition of a Section 1256 contract. This amendment was designed to prevent cleared swaps from becoming subject to Section 1256. It is not clear what the current administration will do in this regard; in the meantime, Section 1256 remains as modified in 2010. Proposed regulations confirm that these types of swaps will not be considered Section 1256 contracts. The preamble to the regulations, however, cross-references the Commodity Exchange Act (CEA), amendments to which may affect qualified boards or exchanges that have already been granted Section 1256 status through the revenue ruling process.8 Under the proposed regulations, it is possible that such boards and exchanges will have to resubmit to the CFTC for status as a designated contract market. If boards and exchanges must reapply to the CFTC for designated contract market status, the previously issued revenue rulings could be null and void. Thus, once a board or exchange receives designated contract market status, it could ask the Internal Revenue Service for a reaffirming revenue ruling to be treated as a Section 1256 qualified board or exchange. In the interim, companies are advised to continue marking contracts traded on the revenue ruling exchanges until final rules are promulgated. This list is subject to change on an ongoing basis as new qualified boards or exchanges are approved or removed. Please note that this list does not immediately reflect changes in the status of such qualified boards or exchanges. 1 All "Section" references are to the Internal Revenue Code of 1986, and the regulations promulgated thereunder. Document ID: 2018-5173 |
