§ 1259. Constructive sales treatment for appreciated financial positions

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1997

   Pub. L. 105–34 title X § 1001(a) · 111 Stat. 788

   Enacted · 26 U.S.C. § 1259

   Added Pub. L. 105–34, title X, § 1001(a), Aug. 5, 1997, 111 Stat. 903

   Source evidence

   Code source credit
   Added Pub. L. 105–34, title X, § 1001(a), Aug. 5, 1997, 111 Stat. 903

   Enacted provision · exact public law section
   (a) In General.— Part IV of subchapter P of chapter 1 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, 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 “(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.— 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. “(2) Exceptions.— The term ‘appreciated financial position’ shall not include— “(A) any position with respect to debt if— “(i) the debt unconditionally entitles the holder to receive a specified principal amount, “(ii) the interest payments (or other similar amounts) with respect to such debt meet the requirements of clause (i) of section 860G(a)(1)(B), and “(iii) such debt is not convertible (directly or indirectly) into stock of the issuer or any related person, and “(B) any position which is marked to market under any provision of this title or the regulations thereunder. “(3) Position.— The term ‘position’ means an interest, including a futures or forward contract, short sale, or option. “(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 if the taxpayer (or a related person)— “(A) enters into a short sale of the same or substantially identical property, “(B) enters into an offsetting notional principal contract with respect to the same or substantially identical property, “(C) enters into a futures or forward contract to deliver the same or 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, acquires the same or substantially identical property, or “(E) 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. “(2) Exception for sales of nonpublicly traded property.— The term ‘constructive sale’ shall not include any 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. “(3) Exception for certain closed transactions.— “(A) In general.— In applying this section, there shall be disregarded any transaction (which would otherwise be treated as a constructive sale) during the taxable year if— “(i) such transaction is closed before the end of the 30th day after the close of such taxable year, “(ii) the taxpayer holds the appreciated financial position throughout the 60-day period beginning on the date such transaction is closed, and “(iii) 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. “(B) Treatment of positions which are reestablished.— If— “(i) a transaction, which would otherwise be treated as a constructive sale of an appreciated financial position, is closed during the taxable year or during the 30 days thereafter, and “(ii) another substantially similar transaction is entered into during the 60-day period beginning on the date the transaction referred to in clause (i) is closed— “(I) which also would otherwise be treated as a constructive sale of such position, “(II) which is closed before the 30th day after the close of the taxable year in which the transaction referred to in clause (i) occurs, and “(III) which meets the requirements of clauses (ii) and (iii) of subparagraph (A), the transaction referred to in clause (ii) shall be disregarded for purposes of determining whether the requirements of subparagraph (A)(iii) are met with respect to the transaction described in clause (i). “(4) Related person.— A person is related to another person with respect to a transaction if— “(A) the relationship is described in section 267(b) or 707(b), and “(B) such transaction is entered into with a view toward avoiding the purposes of this section. “(d) Other Definitions.— For purposes of this section— “(1) Forward contract.—The term ‘forward contract’ means a contract to deliver a substantially fixed amount of property for a substantially fixed price. “(2) Offsetting notional principal contract.—The term ‘offsetting notional principal contract’ means, with respect to any property, an agreement which includes— “(A) 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 “(B) a right to be reimbursed for (or receive credit for) all or substantially all of any decline in the value of such property. “(e) Special Rules.— “(1) Treatment of subsequent sale of position which was deemed sold.— If— “(A) there is a constructive sale of any appreciated financial position, “(B) such position is subsequently disposed of, and “(C) 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, 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 disposition. For purposes of the preceding sentence, an assignment or other termination shall be treated as a 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 unless substantially all (by value) of the property held by the trust is debt described in subsection (b)(2)(A). “(3) Multiple positions in property.— 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. “(f) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.”.

   Effective date note
   Amendment by Pub. L. 108–311 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 406(h) of Pub. L. 108–311, set out as a note under section 55 of this title.

2. 1998

   Internal Revenue Service Restructuring and Reform Act of 1998

   Pub. L. 105–206 § 6010(a)(1)(A) · 112 Stat. 685

   Substituted · 26 U.S.C. § 1259(b)(2)(A)(i)(iii)

   Pub. L. 105–206, § 6010(a)(1)(A), substituted “position” for “debt”

   Source evidence

   Code amendment note
   Subsec. (b)(2)(A)(i) to (iii). Pub. L. 105–206, § 6010(a)(1)(A), substituted “position” for “debt”.

   Enacted provision · exact public law section
   (A) by striking “debt” each place it appears in clauses (i), (ii), and (iii) of subparagraph (A) and inserting “position”;

3. 1998

   Internal Revenue Service Restructuring and Reform Act of 1998

   Pub. L. 105–206 § 6010(a)(1)(B) · 112 Stat. 685

   1. Added · 26 U.S.C. § 1259(b)(2)(B); 26 U.S.C. § 1259(b)(2)(C)

      Pub. L. 105–206, § 6010(a)(1)(B), (C), added subpar. (B)

   2. Redesignated · 26 U.S.C. § 1259(b)(2)(B); 26 U.S.C. § 1259(b)(2)(C)

      Pub. L. 105–206, § 6010(a)(1)(B), (C), redesignated former subpar. (B) as (C)

   Source evidence

   Code amendment note
   Subsec. (b)(2)(B), (C). Pub. L. 105–206, § 6010(a)(1)(B), (C), added subpar. (B) and redesignated former subpar. (B) as (C).

   Enacted provision · exact public law section
   (B) by striking “and” at the end of subparagraph (A); and

4. 1998

   Internal Revenue Service Restructuring and Reform Act of 1998

   Pub. L. 105–206 § 6010(a)(2) · 112 Stat. 685

   Inserted · 26 U.S.C. § 1259(d)(1)

   Pub. L. 105–206, § 6010(a)(2), inserted “(including cash)” after “property”

   Source evidence

   Code amendment note
   Subsec. (d)(1). Pub. L. 105–206, § 6010(a)(2), inserted “(including cash)” after “property”.

   Enacted provision · exact public law section
   (2) Section 1259(d)(1) of the 1986 Code is amended by inserting “(including cash)” after “property”.

5. 2004

   Working Families Tax Relief Act of 2004

   Pub. L. 108–311 § 406(e)(1) · 118 Stat. 1166

   Substituted · 26 U.S.C. § 1259(c)(2)

   Pub. L. 108–311, § 406(e)(1), substituted “A taxpayer shall not be treated as having made a constructive sale solely because the taxpayer enters into a contract” for “The term ‘constructive sale’ shall not include any contract”

   Source evidence

   Code amendment note
   Subsec. (c)(2). Pub. L. 108–311, § 406(e)(1), substituted “A taxpayer shall not be treated as having made a constructive sale solely because the taxpayer enters into a contract” for “The term ‘constructive sale’ shall not include any contract”.

   Enacted provision · exact public law section
   (1) Paragraph (2) of section 1259(c) 26 USC 1259. is amended by striking “The term ‘constructive sale’ shall not include any contract” and inserting “A taxpayer shall not be treated as having made a constructive sale solely because the taxpayer enters into a contract”.

   Effective date note
   Amendment by Pub. L. 108–311 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 406(h) of Pub. L. 108–311, set out as a note under section 55 of this title.

6. 2004

   Working Families Tax Relief Act of 2004

   Pub. L. 108–311 § 406(e)(2) · 118 Stat. 1166

   Substituted · 26 U.S.C. § 1259(c)(3)(A)

   Pub. L. 108–311, § 406(e)(2), substituted “cause a constructive sale” for “be treated as a constructive sale” in introductory provisions

   Source evidence

   Code amendment note
   Subsec. (c)(3)(A). Pub. L. 108–311, § 406(e)(2), substituted “cause a constructive sale” for “be treated as a constructive sale” in introductory provisions.

   Enacted provision · exact public law section
   (2) Subparagraphs (A) and (B)(i) of section 1259(c)(3) are each amended by striking “be treated as a constructive sale” and inserting “cause a constructive sale”.

   Effective date note
   Amendment by Pub. L. 108–311 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 406(h) of Pub. L. 108–311, set out as a note under section 55 of this title.

7. 2004

   Working Families Tax Relief Act of 2004

   Pub. L. 108–311 § 406(e)(3) · 118 Stat. 1166

   Substituted · 26 U.S.C. § 1259(c)(3)(A)(i)

   Pub. L. 108–311, § 406(e)(3), substituted “on or before” for “before the end of”

   Source evidence

   Code amendment note
   Subsec. (c)(3)(A)(i). Pub. L. 108–311, § 406(e)(3), substituted “on or before” for “before the end of”.

   Enacted provision · exact public law section
   (3) Clause (i) of section 1259(c)(3)(A) is amended by striking “before the end of” and inserting “on or before”.

   Effective date note
   Amendment by Pub. L. 108–311 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 406(h) of Pub. L. 108–311, set out as a note under section 55 of this title.

8. 2004

   Working Families Tax Relief Act of 2004

   Pub. L. 108–311 § 406(e)(7) · 118 Stat. 1166

   Substituted · 26 U.S.C. § 1259(c)(3)(B)

   Pub. L. 108–311, § 406(e)(7), substituted “certain closed transactions where risk of loss on appreciated financial position diminished” for “positions which are reestablished” in heading

   Source evidence

   Code amendment note
   Subsec. (c)(3)(B). Pub. L. 108–311, § 406(e)(7), substituted “certain closed transactions where risk of loss on appreciated financial position diminished” for “positions which are reestablished” in heading.

   Enacted provision · exact public law section
   (7) The heading for subparagraph (B) of section 1259(c)(3) is amended by striking “positions which are reestablished” and inserting “certain closed transactions where risk of loss on appreciated financial position diminished”.

   Effective date note
   Amendment by Pub. L. 108–311 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 406(h) of Pub. L. 108–311, set out as a note under section 55 of this title.

9. 2004

   Working Families Tax Relief Act of 2004

   Pub. L. 108–311 § 406(e)(2) · 118 Stat. 1166

   Substituted · 26 U.S.C. § 1259(c)(3)(B)(i)

   Pub. L. 108–311, § 406(e)(2), substituted “cause a constructive sale” for “be treated as a constructive sale”

   Source evidence

   Code amendment note
   Subsec. (c)(3)(B)(i). Pub. L. 108–311, § 406(e)(2), substituted “cause a constructive sale” for “be treated as a constructive sale”.

   Enacted provision · exact public law section
   (2) Subparagraphs (A) and (B)(i) of section 1259(c)(3) are each amended by striking “be treated as a constructive sale” and inserting “cause a constructive sale”.

   Effective date note
   Amendment by Pub. L. 108–311 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 406(h) of Pub. L. 108–311, set out as a note under section 55 of this title.

10. 2004

    Working Families Tax Relief Act of 2004

    Pub. L. 108–311 § 406(e)(4) · 118 Stat. 1166

    Struck · 26 U.S.C. § 1259(c)(3)(B)(ii)

    Pub. L. 108–311, § 406(e)(4), struck out “substantially similar” after “another” in introductory provisions

    Source evidence

    Code amendment note
    Subsec. (c)(3)(B)(ii). Pub. L. 108–311, § 406(e)(4), struck out “substantially similar” after “another” in introductory provisions.

    Enacted provision · exact public law section
    (4) Clause (ii) of section 1259(c)(3)(B) is amended by striking “substantially similar”.

    Effective date note
    Amendment by Pub. L. 108–311 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 406(h) of Pub. L. 108–311, set out as a note under section 55 of this title.

11. 2004

    Working Families Tax Relief Act of 2004

    Pub. L. 108–311 § 406(e)(5) · 118 Stat. 1166

    Amended · 26 U.S.C. § 1259(c)(3)(B)(ii)(I)

    Pub. L. 108–311, § 406(e)(5), amended subcl. (I) generally. Prior to amendment, subcl. (I) read as follows: “which also would otherwise be treated as a constructive sale of such position,”

    Source evidence

    Code amendment note
    Subsec. (c)(3)(B)(ii)(I). Pub. L. 108–311, § 406(e)(5), amended subcl. (I) generally. Prior to amendment, subcl. (I) read as follows: “which also would otherwise be treated as a constructive sale of such position,”.

    Enacted provision · exact public law section
    (5) Subclause (I) of section 1259(c)(3)(B)(ii) is amended to read as follows: “(I) 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,” .

    Effective date note
    Amendment by Pub. L. 108–311 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 406(h) of Pub. L. 108–311, set out as a note under section 55 of this title.

12. 2004

    Working Families Tax Relief Act of 2004

    Pub. L. 108–311 § 406(e)(6) · 118 Stat. 1166

    Inserted · 26 U.S.C. § 1259(c)(3)(B)(ii)(II)

    Pub. L. 108–311, § 406(e)(6), inserted “on or” before “before the 30th day”

    Source evidence

    Code amendment note
    Subsec. (c)(3)(B)(ii)(II). Pub. L. 108–311, § 406(e)(6), inserted “on or” before “before the 30th day”.

    Enacted provision · exact public law section
    (6) Subclause (II) of such section is amended by inserting “on or” before “before the 30th day”.

    Effective date note
    Amendment by Pub. L. 108–311 effective as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 406(h) of Pub. L. 108–311, set out as a note under section 55 of this title.

13 of 13 references resolved to an enrolled provision