Derivatives Provision May Alter Tax Treatment

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BNA news (subscription) has reported that Alan Fu, of Prudential Financial Services, sent an email to the Treasury Department in which he highlights a possible effect of the Financial Services Reform bill currently before the Senate. Fu wrote that:

“All versions of financial reform newly require a large part of the ‘over the counter’ derivative market to be entered into, traded and cleared through clearinghouses. This requirement potentially forces such contracts into section 1256, requiring contracts which had never been marked to market or produced taxable capital gain/loss to radically change their tax treatment.”

With many amendments left to debate, it will be interesting to see how this issue is ultimately addressed.

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