[Federal Register Volume 64, Number 18 (Thursday, January 28, 1999)]
[Proposed Rules]
[Pages 4374-4379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1787]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-104924-98]
RIN 1545-AW06
Mark-to-Market Accounting for Dealers in Commodities and Traders
in Securities or Commodities
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations for dealers in
commodities and traders in securities or commodities regarding the
election to use the mark-to-market method of accounting for their
businesses. Section 1001(b) of the Taxpayer Relief Act of 1997 amended
the applicable tax law for these taxpayers. This document also contains
proposed regulations providing guidance on statutory changes to section
475 contained in the Internal Revenue Service Restructuring and Reform
Act of 1998 (IRS Restructuring Act). This guidance is necessary because
section 7003 of the IRS Restructuring Act generally prohibited the
application of mark-to-market accounting to nonfinancial customer
paper. Among other things, the proposed regulations provide guidance to
taxpayers who are using mark-to-market accounting for nonfinancial
customer paper. This document also provides notice of a public hearing
on these proposed regulations.
DATES: Written comments and outlines of topics to be discussed at the
public hearing scheduled for June 3, 1999, at 10 a.m. must be received
by May 13, 1999.
ADDRESSES: Send submissions to CC:DOM:CORP:R (REG-104924-98), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday through
Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-
104924-98), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC. Alternatively, taxpayers may submit
comments electronically via the Internet by selecting the ``Tax Regs''
option on the IRS Home Page, or by submitting comments directly to the
IRS Internet site at http://www.irs.ustreas.gov/prod/tax_regs/
comments.html. The public hearing will be held in room 2615, Internal
Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations about
elections by commodities dealers and securities and commodities
traders, Jo Lynn Ricks, 202-622-3920; concerning the regulations about
nonfinancial customer paper, Pamela Lew, 202-622-3950; concerning
submissions and the hearing, Michael L. Slaughter, Jr., 202-622-7190
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collection of information should be
sent to the Office of Management and Budget, Attn: Desk Officer for the
Department of Treasury, Office of Information and Regulatory Affairs,
Washington, DC, 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224.
Comments concerning the collection of information must be received by
March 29, 1999.
The first collection of information in this proposed regulation is
described in the Explanation of Provisions section of this document
(rather than being included in the text of the proposed regulations).
That description indicates that the elections under section 475(e)(1)
and (f)(1) and (2) may be required to be made on a form to be
[[Page 4375]]
developed by the IRS. This burden will be reflected on that new form.
The second collection of information in this proposed regulation is
in Secs. 1.475(e)-1 and 1.475(f)-2. The information required to be
recorded under Secs. 1.475(e)-1 and 1.475(f)-2 is required by the IRS
to determine whether an exemption from mark-to-market accounting is
properly claimed. This information will be used to make that
determination upon audit of taxpayers' books and records. The likely
recordkeepers are businesses or other for-profit institutions.
Estimated total annual recordkeeping burden: 1,000 hours. The estimated
annual burden per recordkeeper varies from 15 minutes to 3 hours,
depending on individual circumstances, with an estimated average of 1
hour. Estimated number of recordkeepers: 1,000.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
Section 475 provides that dealers in securities generally must use
mark-to-market accounting for all securities. Exceptions from the mark-
to-market requirement are generally provided for securities not held
for sale to customers and certain securities held as a hedge, provided
that the securities are identified as exempt in a proper and timely
manner.
For purposes of section 475, a security includes any note, bond,
debenture, or other evidence of indebtedness. Revenue Ruling 97-37
(1997-39 I.R.B. 4), clarified that ``other evidence of indebtedness''
includes customer paper, commonly referred to as trade accounts
receivable. The IRS provided procedures for a taxpayer to change its
method of accounting for customer paper in Revenue Procedure 97-43
(1997-39 I.R.B. 12).
The IRS Restructuring Act modified the definition of security for
purposes of section 475 to exclude nonfinancial customer paper. For
this purpose, nonfinancial customer paper is any receivable arising out
of the sale of nonfinancial goods or services by a person the principal
activity of which is the selling or providing of nonfinancial goods or
services if the receivable is held by that person (or a related person)
at all times since its issuance. Section 475(c)(4), added by the IRS
Restructuring Act, precludes a taxpayer from using mark-to-market
accounting under section 475 for nonfinancial customer paper. In
addition, the legislative history of the IRS Restructuring Act
indicates that taxpayers may not account for nonfinancial customer
paper using a mark-to-market or lower-of-cost-or-market method of
accounting under other sections of the Code. See H.R. Conf. Rep. No.
599, 105th Cong., 2d Sess. 353-54 (1998). Congress, however, authorized
the Secretary to issue regulations describing situations where
taxpayers must use mark-to-market accounting for nonfinancial customer
paper in order to prevent taxpayers from using the exclusion in section
475(c)(4) to avoid marking to market receivables that are inventory in
the hands of the taxpayer or a related person.
Section 475(e) and (f), added by section 1001(b) of the Taxpayer
Relief Act of 1997, allows securities traders and commodities traders
and dealers to elect mark-to-market accounting similar to that
currently required for securities dealers. These provisions are
effective for all taxable years ending after August 5, 1997, the date
of enactment of the Taxpayer Relief Act. The proposed regulations
clarify several issues relating to these elections, including the
identification of securities and commodities as exempt from mark-to-
market accounting, the character of marked securities and commodities,
and the time and manner for making the elections.
Explanation of Provisions
Nonfinancial Customer Paper
Sections 1.446-1(c)(2)(iii), 1.471-12, and 1.475(c)-2(d) of the
proposed regulations provide that taxpayers may not use mark-to-market
or lower-of-cost-or-market accounting for any nonfinancial customer
paper unless a regulation affirmatively provides that the nonfinancial
customer paper is to be marked to market as inventory.
The remaining proposed regulations pertaining to section 475(c)(4)
are cross references or minor technical changes required by the
addition of Sec. 1.475(c)-2(d).
Dealers in Commodities
The proposed regulations generally provide that, except as provided
in guidance prescribed by the Commissioner, the rules for mark-to-
market accounting for securities dealers apply to commodities dealers
that make an election under section 475(e)(1) (electing commodities
dealers). Comments are requested whether there are circumstances where
the specific rules applicable to securities dealers should not be
applied to electing commodities dealers.
Under the proposed regulations, unless the Commissioner otherwise
provides in a revenue ruling, revenue procedure, or letter ruling, the
exemption from mark-to-market accounting for assets held for investment
does not apply to a commodity derivative held by an electing dealer in
commodities. If the rule described in the preceding sentence applies
(and consequently requires a commodity derivative to be marked to
market), the gain or loss is ordinary. The IRS and the Treasury
Department believe that it would be extremely rare for a commodity
derivative held by a commodities derivative dealer to be acquired other
than in a dealer capacity. See Sec. 1.475(c)-1(a)(2). Moreover, the IRS
and the Treasury Department believe that a dealer in physical
commodities generally engages in derivatives activities that are
virtually indistinguishable from its dealings in physical commodities.
This situation invokes many of the practical concerns that led Congress
to enact section 475(b)(4). The IRS and the Treasury Department welcome
comments on whether, and under what circumstances, it may be
appropriate for a dealer in physical commodities to identify commodity
derivatives as held for investment.
The proposed regulations also provide that, in all cases, if a
dealer in commodities identifies a commodity as exempt from mark-to-
market accounting under section 475(b)(2), the identification is
ineffective unless it is made before the close of the day on which the
commodity was acquired, originated, or entered into. Thus, a rule
similar to the 30-day identification rule for certain securities in
Holding 8 of Rev. Rul. 97-39 (1997-39 I.R.B. 4), does not apply to
commodities dealers.
Traders in Securities or Commodities
The proposed regulations provide that the principles underlying the
rules and administrative interpretations applicable to securities
dealers also apply to electing traders, unless the proposed regulations
or the Commissioner provides otherwise. The IRS and the Treasury
Department request comments on whether there are circumstances under
which a specific rule applicable to securities dealers
[[Page 4376]]
should not apply to electing securities traders.
The proposed regulations provide rules for the identification of
investment securities as exempt from mark-to-market accounting. The
proposed regulations clarify that a trader in securities who elects
mark-to-market accounting under section 475(f)(1) for its trading
business (an electing trader) must identify, in accordance with section
475(f)(1)(B)(ii), any security held other than in connection with the
trading business.
If the electing trader is also a dealer in securities, the trader
need only identify under section 475(f)(1)(B)(ii) securities that are
not held in connection with the trading business and that are also
described in section 475(b)(1) (without regard to section 475(b)(2)).
That is, the trader need not identify securities that could not
properly be identified as being exempt from section 475(a).
The IRS and the Treasury Department believe that in making the
section 475 election available to securities traders, Congress did not
want taxpayers selectively to mark to market some securities but
selectively to identify other securities as exempt from this treatment.
Congress addressed this concern by establishing a higher burden of
proof for electing securities traders to identify securities as not
subject to section 475 than is applicable to securities dealers. The
IRS and the Treasury Department share this concern, particularly
because it traditionally has been easier to distinguish investment
securities from dealer securities than to distinguish investment
securities from trading securities. Accordingly, the proposed
regulations provide that in no event is the requirement of section
475(f)(1)(B)(i) satisfied unless the electing trader demonstrates by
clear and convincing evidence that a security has no connection to its
trading activities. The IRS and Treasury Department request comments on
whether any trader of securities could meet this burden and under what
circumstances.
In addition, the IRS and the Treasury Department seek comments on
the manner in which securities are identified as not held in connection
with trading activities and, in particular, comments that focus on the
administrability of rules in this area.
Because of the fungible nature of certain securities, the proposed
regulations provide a special rule for identifying securities held
other than in connection with the electing trader's trading business
when the electing trader also trades other of the same or substantially
similar securities. In this circumstance, the electing trader does not
satisfy section 475(f)(1)(B)(i) unless the security is held in a
separate, nontrading account maintained with a third party. The IRS and
the Treasury Department are considering extending this special
identification rule to all securities, rather than solely to those that
are fungible, and request comments on the advisability of doing so.
Under the proposed regulations, all identifications under section
475(f)(1)(B)(ii) must be made on the same day the electing trader
acquires, originates, or enters into the security. Thus, a rule similar
to the 30-day identification rule for certain securities in Holding 8
of Rev. Rul. 97-39 does not apply to electing traders.
Because the principles of the rules and administrative
interpretations applicable to securities dealers apply to electing
traders, if an electing trader improperly identifies as exempt a
security that is actually held in connection with that business, the
gain or loss with respect to the security is ordinary, and the
consequences described in section 475(d)(2) apply to the security
(i.e., the security is marked to market and any losses realized with
respect to the security prior to its disposition are recognized only to
the extent of gain previously recognized with respect to the security).
Similarly, under the proposed regulations, if an electing trader fails
to identify a security that is not held in connection with its trading
business, the consequences of section 475(d)(2) apply to the security,
and the gain or loss with respect to the security is ordinary.
Moreover, in the event of this failure, the Commissioner may
nevertheless treat the security as if the requirements for exemption
from mark-to-market accounting were satisfied.
The proposed regulations further provide that the gain or loss with
respect to a security that is marked to market under section
475(f)(1)(A) is ordinary. Under this rule, if an electing trader
disposes of a security before the close of the taxable year, proposed
Sec. 1.475(a)-2 applies, and the gain or loss is ordinary income or
loss. See sections 475(f)(1)(D) and 475(d)(3) and the legislative
history to section 475(f). H.R. Rep. No. 148, 105th Cong., 1st Sess.
445 (1997).
Under the proposed regulations, the above rules for electing
securities traders also apply to electing commodities traders. In
addition, the proposed regulations provide a special character rule for
traders in section 1256 commodity contracts who elect mark-to-market
accounting for their businesses. For these traders, the proposed
regulations clarify that the capital character rule of section 1256
does not apply to these contracts and, thus, the gain or loss with
respect to such contracts is ordinary.
Making the Elections
The proposed regulations clarify that if a dealer in securities
also has a securities or commodities trading business or a commodities
dealing business, the dealer may make an election for that business.
The proposed regulations also provide that the mark-to-market
elections for dealers in commodities and for traders in securities or
commodities must be made in the time and manner prescribed by the
Commissioner. The IRS and the Treasury Department anticipate requiring
taxpayers to make the election by filing a form, to be developed by the
IRS, not later than 2\1/2\ months after the beginning of the taxable
year for which the election is made. (See the Paperwork Reduction Act
section of this preamble, which requests comments on the burden that
may be imposed by this requirement.) Interim procedures are being
provided in a revenue procedure.
Proposed Effective Dates
The proposed regulations in Sec. 1.475(c)-2(d)(1) apply to every
taxpayer who is required by section 475(c)(4) to cease using mark-to-
market accounting for nonfinancial customer paper. These regulations
are applicable for all taxable years ending after July 22, 1998.
Proposed Secs. 1.446-1(c)(2)(iii), 1.471-12, and 1.475(c)-2(d)(2) are
applicable for all taxable years ending on or after January 28, 1999.
The proposed regulations in Secs. 1.475(e)-1 and 1.475(f)-2
generally apply to securities or commodities acquired on or after March
1, 1999. The rules concerning the time and manner for making the mark-
to-market elections for commodities dealers and securities and
commodities traders are generally applicable for taxable years ending
on or after January 28, 1999.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory impact analysis is not required. It is hereby certified
that the collection of information in these regulations will not have a
significant economic impact on a substantial number of small entities.
As previously noted, in those instances where a small entity elects to
apply the rules in these regulations, the burden of the collection of
information is not
[[Page 4377]]
significant. Accordingly, a Regulatory Flexibility Analysis is not
required. Pursuant to section 7805(f), this notice of proposed
rulemaking will be submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) that are submitted timely to the IRS. The IRS and
the Treasury Department specifically request comments on the clarity of
the proposed regulations and how they can be made easier to understand.
All comments will be available for public inspection and copying.
A public hearing has been scheduled for June 3, 1999, beginning at
10 a.m. in room 2615 of the Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Due to building security
procedures, visitors must enter at the 10th Street entrance, located
between Constitution and Pennsylvania Avenues, NW. In addition, all
visitors must present photo identification to enter the building.
Because of access restrictions, visitors will not be admitted beyond
the immediate entrance area more than 15 minutes before the hearing
starts. For information about having your name placed on the building
access list to attend the hearing, see the FOR FURTHER INFORMATION
CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit written
comments and an outline of the topics to be discussed and the time to
be devoted to each topic (signed original and eight (8) copies) by May
13, 1999. A period of 10 minutes will be allotted to each person for
making comments. An agenda showing the scheduling of the speakers will
be prepared after the deadline for receiving outlines has passed.
Copies of the agenda will be available free of charge at the hearing.
Drafting information. The principal authors of these regulations
are Jo Lynn Ricks and Pamela Lew of the Office of Assistant Chief
Counsel (Financial Institutions & Products). However, other personnel
from the IRS and the Treasury Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by
removing the entries for Secs. 1.475(a)-3 through 1.475(e)-1 and adding
the following entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.475(a)-3 also issued under 26 U.S.C. 475(g).
Section 1.475(b)-1 also issued under 26 U.S.C. 475(b)(4) and 26
U.S.C. 475(g).
Section 1.475(b)-2 also issued under 26 U.S.C. 475(b)(2) and 26
U.S.C. 475(g).
Section 1.475(b)-4 also issued under 26 U.S.C. 475(b)(2), 26
U.S.C. 475(g), and 26 U.S.C. 6001.
Section 1.475(c)-1 also issued under 26 U.S.C. 475(g).
Section 1.475(c)-2 also issued under 26 U.S.C. 475(g) and 26
U.S.C. 860G(e).
Section 1.475(d)-1 also issued under 26 U.S.C. 475(g).
Section 1.475(e)-1 also issued under 26 U.S.C. 475(g).
Section 1.475(f)-1 also issued under 26 U.S.C. 475(g).
Section 1.475(f)-2 also issued under 26 U.S.C. 475(g).* * *
Par. 2. In Sec. 1.446-1, paragraph (c)(2)(iii) is added to read as
follows:
Sec. 1.446-1 General rule for methods of accounting.
* * * * *
(c) * * *
(2) * * *
(iii) Section 475 is the exclusive authority on which a taxpayer
may rely to use the mark-to-market method of accounting for
nonfinancial customer paper, as defined in section 475(c)(4)(B). Thus,
except to the extent provided in Sec. 1.475(c)-2(d), the mark-to-market
method of accounting is not a permissible method of accounting for
nonfinancial customer paper. In addition, the lower-of-cost-or-market
method of accounting is not a permissible method of accounting for
these assets. See Sec. 1.471-12. This paragraph (c)(2)(iii) applies to
all tax years ending on or after January 28, 1999.
* * * * *
Par. 3. Section 1.471-12 is added as follows:
Sec. 1.471-12 Nonfinancial customer paper.
Nonfinancial customer paper, as defined in section 475(c)(4)(B),
may not be treated as inventory except as provided in Sec. 1.475(c)-
2(d). This section applies to taxable years ending on or after January
28, 1999.
Par. 4. In Sec. 1.475(c)-1, paragraphs (b)(3)(i) and (b)(4)(ii) are
revised to read as follows:
Sec. 1.475(c)-1 Definitions--dealer in securities.
* * * * *
(b) * * *
(3) * * *
(i) For purposes of section 471, the taxpayer accounts for any
security (as defined in section 475(c)) as inventory;
* * * * *
(4) * * *
(ii) Continued applicability of an election.--(A) In general.
Except as provided in paragraph (b)(4)(ii)(B) of this section, an
election under this paragraph (b)(4) continues in effect for subsequent
taxable years until revoked. The election may be revoked only with the
consent of the Commissioner.
(B) Taxable years ending after July 22, 1998. An election under
this paragraph (b)(4) is ineffective for taxable years ending after
July 22, 1998.
* * * * *
Par. 5. In Sec. 1.475(c)-2, paragraph (d) is added to read as
follows:
Sec. 1.475(c)-2 Definitions--security.
* * * * *
(d) Inventory--(1) Nonfinancial customer paper is generally not
marked to market under section 475. Except as provided in paragraph
(d)(3) of this section, nonfinancial customer paper (as defined in
section 475(c)(4)(B)) is not a security even if it is inventory.
(2) Treatment of nonfinancial customer paper under other sections
of the Internal Revenue Code. For nonfinancial customer paper that is
not a security, the mark-to-market method of accounting and the lower-
of-cost-or-market method of accounting are not permissible methods of
accounting. See Secs. 1.446-1(c)(2)(iii) and 1.471-12.
(3) Nonfinancial customer paper treated as inventory. [Reserved]
Sec. 1.475(e)-1 [Redesignated as Sec. 1.475(g)-1]
Par. 6. Section 1.475(e)-1 is redesignated as Sec. 1.475(g)-1.
Par. 7. New Sec. 1.475(e)-1 and Secs. 1.475(f)-1 and 1.475(f)-2 are
added to read as follows:
Sec. 1.475(e)-1 Election of mark-to-market accounting for dealers in
commodities.
(a) Time and manner of making election. An election under section
475(e)(1) must be made in the time and manner prescribed by the
Commissioner.
(b) Application of securities dealer rules to electing commodities
dealers. Except as otherwise provided in this
[[Page 4378]]
section or in other guidance prescribed by the Commissioner, the rules
and administrative interpretations under section 475 for dealers in
securities apply to dealers in commodities that make an election under
section 475(e)(1).
(c) Commodity derivatives deemed not held for investment--(1) In
general. Except as otherwise determined by the Commissioner in a
revenue ruling, revenue procedure, or letter ruling, if a dealer in
commodities that made an election under section 475(e)(1) holds a
commodity described in section 475(e)(2)(B) or (C) (describing certain
notional principal contracts and commodity derivatives), section
475(b)(1)(A) (exempting from mark-to-market accounting certain
positions that are held for investment) does not apply to that
commodity.
(2) Character of commodity derivatives required to be marked to
market. If a commodity is required to be marked to market because of
the application of paragraph (c)(1) of this section, the gain or loss
with respect to that commodity is ordinary.
(d) Same day identification. An identification of a commodity as
exempt from mark-to-market accounting under section 475(b)(2) is not
effective unless it is made before the close of the day on which the
commodity was acquired, originated, or entered into.
Sec. 1.475(f)-1 Procedures for electing mark-to-market accounting for
traders.
(a) Time and manner of making election. An election under section
475(f)(1) or (2) must be made in the time and manner prescribed by the
Commissioner.
(b) Coordination with section 475(a). If a dealer in securities
also has a securities or commodities trading business or a commodities
dealing business, the dealer may make an election under section
475(e)(1), (f)(1), or (f)(2) for that business.
Sec. 1.475(f)-2 Election of mark-to-market accounting for traders in
securities or commodities.
(a) Securities not held in connection with trading activities--(1)
Taxpayer identification of investment securities. If a trader in
securities makes an election under section 475(f)(1)(A) (electing
trader) and holds a security other than in connection with that trading
business, the electing trader must identify that security in accordance
with section 475(f)(1)(B)(ii). If the electing trader is also a dealer
in securities, however, the preceding sentence applies only to
securities described in section 475(b)(1) (without regard to section
475(b)(2)).
(2) Satisfaction of Commissioner. In no event is the requirement of
section 475(f)(1)(B)(i) satisfied unless the electing trader
demonstrates by clear and convincing evidence that a security has no
connection to its trading activities.
(3) Substantially similar securities held for trading and
investment. An electing trader that holds a security other than in
connection with its trading business and also trades the same or
substantially similar securities in no event satisfies the requirement
of section 475(f)(1)(B)(i) unless the security is held in a separate,
nontrading account maintained with a third party.
(4) Consequences of failure to identify investment securities. If
an electing trader holds a security that is not held in connection with
its trading business and fails to identify the security in a manner
that satisfies the requirements of section 475(f)(1)(B)(ii)--
(i) The consequences described in section 475(d)(2) apply to the
security; and
(ii) The character of the gain or loss with respect to the security
is ordinary.
(5) Commissioner identification of investment securities.
Notwithstanding paragraph (a)(4) of this section, the Commissioner may
treat a security described in that paragraph as meeting the
requirements of section 475(f)(1)(B)(i) and (ii).
(b) Character of securities marked to market. The gain or loss with
respect to a security that is marked to market under section
475(f)(1)(A) is ordinary.
(c) Application of securities dealer rules to electing traders.
Except as otherwise provided in this section or in other guidance
prescribed by the Commissioner, the principles of the rules and
administrative interpretations under section 475 for dealers in
securities apply to traders in securities that make an election under
section 475(f)(1).
(d) Same day identification. An identification of a security as
exempt from mark-to-market accounting under section 475(f)(1)(B) is not
effective unless it is made before the close of the day on which the
security was acquired, originated, or entered into.
(e) Application to traders in commodities--(1) General rule. If a
trader in commodities makes an election under section 475(f)(2),
paragraphs (a), (b), (c), and (d) of this section apply to the trader
in the same manner that they apply to a trader in securities who makes
an election under section 475(f)(1).
(2) Coordination with section 1256. If a trader in commodities
makes an election under section 475(f)(2) and trades section 1256
contracts that are commodities as defined in section 475(e)(2), then
the rules of section 475(f) and paragraph (e)(1) of this section apply
to those contracts, and not the capital character rules of section
1256.
Par. 8. Newly designated Sec. 1.475(g)-1 is amended by revising
paragraphs (h)(2) and (i) and adding paragraphs (k), (l), and (m) to
read as follows:
Sec. 1.475(g)-1 Effective dates.
* * * * *
(h) * * *
(2) Section 1.475(c)-1(b) (concerning sellers of nonfinancial goods
and services) applies as follows:
(i) Except as otherwise provided in this paragraph (h)(2),
Sec. 1.475(c)-1(b) applies to taxable years ending on or after December
31, 1993.
(ii) Section 1.475(c)-1(b)(4)(ii)(B) applies to taxable years
ending after July 22, 1998.
* * * * *
(i) Section 1.475(c)-2 (concerning the definition of security)
applies as follows:
(1) Section 1.475(c)-2(a), (b), and (c) (concerning the definition
of security) applies to taxable years ending on or after December 31,
1993. By its terms, however, Sec. 1.475(c)-2(a)(3) applies only to
residual interests or to interests or arrangements acquired on or after
January 4, 1995; and the integrated transactions that are referred to
in Sec. 1.475(c)-2(a)(2) and (b) exist only after August 13, 1996 (the
effective date of Sec. 1.1275-6).
(2) Section 1.475(c)-2(d) applies as follows:
(i) Section 1.475(c)-2(d)(1) applies to taxable years ending after
July 22, 1998.
(ii) Section 1.475(c)-2(d)(2) applies to taxable years ending on or
after January 28, 1999.
* * * * *
(k) Section 1.475(e)-1(a) (concerning the time and manner for
making the mark-to-market election for dealers in commodities) applies
to taxable years ending on or after January 28, 1999. Section 1.475(e)-
1(b), (c) and (d) applies to commodities acquired on or after March 1,
1999.
(l) Section 1.475(f)-1 (procedures for electing mark-to-market
accounting for traders in securities or commodities) applies to taxable
years ending on or after January 28, 1999.
(m) Section 1.475(f)-2 (concerning the mark-to-market rules for
traders in securities or commodities) applies to
[[Page 4379]]
securities or commodities acquired on or after March 1, 1999.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 99-1787 Filed 1-27-99; 8:45 am]
Billing Code 4830-01-U
