Marking Most Derivatives to Market for Tax Reasons May Produce Pitfalls

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As lawmakers continue to consider plans to tax most derivatives on a mark-to-market basis, with a hearing scheduled for today, outside observers say some exceptions appear warranted. A near-universal approach could capture too much activity and create unnecessary problems as a result, they warn, despite the best of congressional intentions to make the tax treatment of such financial products more simple and uniform, and more difficult to game. House Ways and Means Committee Chairman Camp earlier this year released a proposal including exceptions for derivatives that qualify as hedges for tax purposes and options on real property, but more exemptions and clearer definitions are needed, both opponents and advocates say.