Coordination of new rules with existing rules

(a) Coordination with rules for dealers and traders (1) Derivatives not treated as securities Section 475(c)(2) is amended— (A) by adding and at the end of subparagraph (C), (B) by striking subparagraphs (D) and (E) and by redesignating subparagraph (F) as subparagraph (D), (C) by striking subparagraph (A), (B), (C), (D), or (E) in subparagraph (D)(i), as so redesignated, and inserting subparagraph (A), (B), or (C), and (D) by amending the last sentence to read as follows: Such term shall not include any derivative to which section 491(a) applies.. (2) Derivatives not treated as commodities Section 475(e)(2) is amended— (A) by adding and at the end of subparagraph (A), (B) by striking subparagraphs (B) and (C) and by redesignating subparagraph (D) as subparagraph (B), and (C) by striking subparagraph (A), (B) or (C) in subparagraph (B)(i), as so redesignated, and inserting subparagraph (A). (3) Conforming amendments (A) Section 475(b) is amended by striking paragraph (4). (B) Section 475(d)(2)(B) is amended— (i) by striking subsection (c)(2)(F)(iii) and inserting subsection (c)(2)(D)(iii), and (ii) by striking subsection (c)(2)(F) and inserting subsection (c)(2)(D). (C) Section 475(f)(1)(D) is amended by striking subsections (b)(4) and (d) and inserting subsection (d). (b) Coordination with straddle rules (1) In general Section 1092 is amended to read as follows: 1092. Straddles (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) Unrecognized gain For purposes of this subsection— (A) In general The term unrecognized gain means— (i) in the case of any position held by the taxpayer as of the close of the taxable year, the amount of gain which would be taken into account with respect to such position if such position were sold on the last business day of such taxable year at its fair market value, and (ii) in the case of any position with respect to which, as of the close of the taxable year, gain has been realized but not recognized, the amount of gain so realized. (B) Reporting of gain Each taxpayer shall disclose to the Secretary, at such time and in such manner and form as the Secretary may prescribe— (i) each position (whether or not part of a straddle) with respect to which, as of the close of the taxable year, there is unrecognized gain, and (ii) the amount of such unrecognized gain. The Secretary may waive the requirement to report under this subparagraph with respect to any position if such reporting is not required to carry out the purposes of this section. (3) Special rules for physically settled positions For purposes of this subsection, 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. (b) Regulations The Secretary shall prescribe such regulations with respect to gain or loss on positions which are a part of a straddle as may be appropriate to carry out the purposes of this section and section 263(g). To the extent consistent with such purposes, such regulations shall include rules applying the principles of subsections (a) and (d) of section 1091 and of subsections (b) and (d) of section 1233 (as in effect before their repeal). (c) Definitions and rules relating to straddles For purposes of this section— (1) Straddle defined The term straddle means offsetting positions with respect to applicable property. (2) Offsetting positions A taxpayer holds offsetting positions with respect to applicable property if the taxpayer holds any position which by itself, or in combination with 1 or more other positions held by the taxpayer, has a delta (within the meaning of section 492(d)(1)) with respect to any other position held by the taxpayer which is within the range beginning with minus 0.7 and ending with minus 1.0. For purposes of this paragraph, positions shall be taken into account whether or not they are in the same applicable property. (3) Determination of delta For purposes of this section— (A) Method of determination The delta with respect to any position in applicable property with respect to another position in applicable property (or any combination of such positions) shall be determined in the same manner as under section 492(d)(2). (B) Timing of delta determination and other special rules Rules similar to the rules of paragraphs (3) and (4) of section 492(d) shall apply for purposes of this paragraph. (4) Applicable property and position defined (A) Applicable property The term applicable property means any item which is— (i) described in paragraph (1), (2), (3), (5), (6), (7), or (8) of section 493(a) (or any item substantially the same as any such item), and (ii) of a type which is actively traded. (B) Position (i) In general The term position means an interest in applicable property. (ii) Derivatives excluded Such term shall not include a derivative (as defined in section 493). (C) Stock and debt whose value primarily determined by reference to other items Except as provided in regulations, if the taxpayer holds an item described in paragraph (1) or (3) of section 493(a) the value of which, or with respect to which any payment or other transfer, is primarily determined by reference to one or more other items described in paragraphs (1) through (8) of section 493(a), then, solely for purposes of this section, such item described in paragraph (1) or (3) of section 493(a) shall also be treated as if it were such other item. (5) 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 party (within the meaning of section 492(f)). (B) Certain pass-through 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 by the Secretary, such position shall be treated as held by the taxpayer. (6) Special rules for foreign currency (A) Position to include interest in certain debt For purposes of paragraph (4)(B)(i), 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 (4)(A)(ii), foreign currency for which there is an active interbank market is presumed to be actively traded. (d) Exception for hedging transactions and investment hedging units This section shall not apply in the case of— (1) any hedging transaction (as defined in section 1221(b)), and (2) any investment hedging unit (as defined in section 492). (e) Cross reference For provisions requiring capitalization of certain interest and carrying charges where there is a straddle, see section 263(g).. (2) Conforming amendments The last sentence of section 246(c)(4) is amended— (A) by inserting (as in effect before its repeal) after section 1092(c)(4), and (B) by inserting (as so in effect) after section 1092(f). (c) Debt instruments held by insurance companies (1) In general Subsection (a) of section 1221 is amended by striking or at the end of paragraph (7), by striking the period at the end of paragraph (8) and inserting; or, and by adding at the end the following: (9) any bond, debenture, note, or certificate or other evidence of indebtedness held by an applicable insurance company (as defined in subsection (b)(5)).. (2) Applicable insurance company Section 1221(b), as amended by this Act, is amended by adding at the end the following: (5) Applicable insurance company For purposes of subsection (a)(9)— (A) In general The term applicable insurance company means, with respect to any taxable year, an insurance company (as defined in the last sentence of section 816(a))— (i) which is subject to tax under section 801(a) or section 831(a), (ii) with respect to which sections 831(b), 835, and 842 do not apply, and (iii) which is not treated as a stock insurance company solely by reason of section 833(a)(1). (B) Permanent treatment by company as ordinary asset If an asset is treated as an asset described in subsection (a)(9) with respect to any applicable insurance company for any taxable year, such asset shall be treated as so described during any subsequent taxable year such asset is held by such company.. (3) Regulations Paragraph (4) of section 1221(b) is amended— (A) by striking The Secretary and inserting: (A) Related parties The Secretary, and (B) by adding at the end the following: (B) Assets of insurance companies The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of subsection (a)(9), including such regulations as may be necessary to prevent the avoidance of Federal income tax through the sale or exchange of assets described in such subsection.. (4) Effective date (A) In general The amendments made by this subsection shall apply to any bond, debenture, note, or certificate or other evidence of indebtedness held or acquired after the 90-day period beginning with the date of the enactment of this Act. (B) Transition rule If a taxpayer has a capital loss carryover to any taxable year of the taxpayer beginning after the close of the 90-day period described in subparagraph (A), the taxpayer shall, in addition to other short-term capital gain of the taxpayer (if any), treat as short-term capital gain (rather than as ordinary income) an amount equal to the lesser of— (i) the net gain (if any) from sales or exchanges during such taxable year of assets to which section 1221(a)(9) of such Code (as added by paragraph (1)) applies, or (ii) the capital loss carryovers to such taxable year from taxable years beginning before the close of such period. (d) RICs allowed net operating loss deduction (1) In general Paragraph (2) of section 852(b) is amended by striking subparagraph (B) and by redesignating subparagraphs (C) through (G) as subparagraphs (B) through (F), respectively. (2) Other modifications Paragraph (6) of section 172(d) is amended to read follows: (6) Modifications related to RICs and REITs In the case of any taxable year for which part I or II of subchapter M applies to the taxpayer— (A) the net operating loss for such taxable year shall be computed by taking into account— (i) in the case of a regulated investment company, the adjustments described in section 852(b)(2) (other than the deduction for dividends paid described in subparagraph (C) thereof), and (ii) in the case of a real estate investment trust, the adjustments described in section 857(b)(2) (other than the deduction for dividends paid described in subparagraph (B) thereof), (B) where such taxable year is a prior taxable year referred to in paragraph (2) of subsection (b), references in such paragraph to taxable income shall be treated as references to— (i) in the case of a regulated investment company, regulated investment company taxable income (as defined in section 852(b)(2)), and (ii) in the case of a real estate investment trust, real estate investment taxable income (as defined in section 857(b)(2)), and (C) subsection (a)(2) shall be applied by treating references to taxable income as references to— (i) in the case of a regulated investment company, regulated investment company taxable income (as defined in section 852(b)(2)) but without regard to the deduction for dividends paid (as defined in section 561), and (ii) in the case of a real estate investment trust, real estate investment taxable income (as defined in section 857(b)(2)) but without regard to the deduction for dividends paid (as defined in section 561).. (3) Conforming amendments (A) Section 443(e)(3) is amended by striking section 852(b)(2)(D) and inserting section 852(b)(2)(C). (B) Section 852(a)(1)(A) is amended by striking subsection (b)(2)(D) and inserting subsection (b)(2)(C). (C) Section 4982(e)(1)(A) is amended by striking and (D) and inserting and (C). (4) Effective date The amendments made by this subsection shall apply to net operating losses for taxable years ending after the 90th day after the date of the enactment of this Act. (e) Nonrecognition of gain or loss from transactions by a corporation with respect to its stock (1) In general Section 1032 is amended to read as follows: 1032. Transactions by a corporation with respect to its stock (a) Nonrecognition on exchange of stock for property No gain or loss shall be recognized to a corporation on the receipt of money or other property in exchange for stock of such corporation. (b) Derivative transactions by a corporation with respect to its stock (1) In general Except as otherwise provided in this subsection, section 1032 derivative items of a corporation shall not be taken into account in determining such corporation’s liability for tax under this subtitle. (2) Income recognition on certain forward contracts (A) In general If— (i) a corporation acquires its stock, and (ii) such acquisition is part of a plan (or series of related transactions) pursuant to which the corporation enters into a forward contract with respect to its stock, such corporation shall include amounts in income as if the excess of the amount to be received under the forward contract over the fair market value of the stock as of the date the corporation entered into the forward contract were original issue discount on a debt instrument acquired on such date. The preceding sentence shall apply only to the extent that the amount of stock involved in the forward contract does not exceed the amount acquired as described in clause (i). (B) Plan presumed to exist If a corporation enters into a forward contract with respect to its stock within the 60-day period beginning on the date which is 30 days before the date that the corporation acquires its stock, such acquisition shall be treated as pursuant to a plan described in subparagraph (A)(ii) unless it is established that entering into such contract and such acquisition are not pursuant to a plan or series of related transactions. (c) Section 1032 derivative items For purposes of this section, the term section 1032 derivative item means, with respect to any corporation, any item of income, gain, loss, or deduction if— (1) such item arises out of the rights or obligations under any derivative (as defined in section 493) to the extent such derivative relates to the corporation’s stock (or is attributable to any transfer or extinguishment of any such right or obligation), or (2) such item arises under any other contract or position but only to the extent that such item reflects (or is determined by reference to) changes in the value of such stock or distributions thereon. Such term shall not include any deduction with respect to which section 83(h) applies and shall not include any deduction for any item which is in the nature of compensation for services rendered. For purposes of this subparagraph, de minimis relationships, as determined by the Secretary, shall be disregarded. (d) Coordination with derivative and straddle rules In the case of a derivative or other contract or position described in subsection (c) which is held by a corporation with respect to its stock— (1) this section (rather than part IV of subchapter E or section 1092) shall apply in determining the treatment of section 1032 derivative items under this subtitle, and (2) such derivative or other contract or position shall not be taken into account in determining whether the corporation has an investment hedging unit, applicable property interest, or straddle with respect to its stock for purposes of such part or section. (e) Regulations The Secretary shall prescribe such regulations or other guidance as may be appropriate to carry out the purposes of this section, including regulations or other guidance which treat the portion of an instrument which is described in subsection (c)(1) separately from the portion of such instrument which is not so described. (f) Basis For basis of property acquired by a corporation in certain exchanges for its stock, see section 362.. (2) Clerical amendment The item relating to section 1032 in the table of sections for part III of subchapter O of chapter 1 is amended to read as follows: Sec. 1032. Transactions by a corporation with respect to its stock.. (3) Effective date The amendments made by this subsection shall apply to transactions entered into after the date of the enactment of this Act. (f) Coordination with section 856 for investment hedging unit election by real estate investment trusts Section 856(c)(5) is amended by adding at the end the following new subparagraph: (M) Treatment of certain instruments in an investment hedging unit (i) In general Any income of a real estate investment trust from transactions that are entered to manage the risk of interest rate or price changes with respect to real estate assets acquired or to be acquired and held in an investment hedging unit for which the trust has made an election under section 492(b)(4) shall not constitute gross income under paragraphs (2) and (3). (ii) Special rules For purposes of clause (i)— (I) gross income from derivatives and the underlying investment included in such investment hedging unit shall be computed by treating each investment and each derivative as a separate position, and (II) gross gain from each position shall be determined under section 491..