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Tax Management Portfolio, Taxation of Non-Equity Derivatives, No. 187, reviews the U.S. federal income taxation of derivative transactions other than equity derivatives. The taxation of equity derivatives is reviewed in a separate portfolio. See 188 T.M., Taxation of Equity Derivatives. This Portfolio is divided into eight main parts.
Part I provides a general overview of derivatives as financial instruments under which the return is determined by reference to the value of some underlying property or index. A fundamental issue with respect to the taxation of derivatives is the degree to which the gain or loss on a derivative is taxed symmetrically with the gain or loss that would be earned on an investment in its underlying property. Part II provides a summary of the tax rules that apply to the major classes of underlying property referenced by derivatives.
Parts III through V discuss the tax regimes applicable to the major classes of derivative financial instruments. Part III reviews the tax treatment of securities lending transactions and sales and repurchase (“repo”) transactions. Part IV discusses the tax regimes that apply to forward and futures contracts and Part V discusses the regime applicable to option contracts. A separate portfolio is devoted to the taxation of notional principal contracts. See 189 T.M., U.S. Taxation of Notional Principal Contracts.
Part VI addresses the tax treatment of the most important use of derivatives by nonfinancial taxpayers — to hedge exposures with respect to currency, interest rate and commodity price fluctuations. Part VII discusses the straddle regime of §§1092 and 263(g), which prevents taxpayers from using combinations of offsetting positions to achieve inappropriate timing and character results. Finally, Part VIII summarizes other limitations on the ability of taxpayers to exploit the differing tax treatments of financially equivalent instruments.
This Portfolio may be cited as Harter, III, Lukacs, and Shurberg, 187 T.M., Taxation of Non-Equity Derivatives.
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