IRS gives guidance on straddles

Final rules clarify the treatment of an issuer’s obligation under a debt instrument.

The IRS provided guidance on when an issuer’s obligation under a debt instrument may be a position in actively traded personal property, in which case it can be part of a straddle. The final regulations adopt without substantive change temporary and proposed regulations on the treatment of debt instruments that may be part of a straddle that were issued in September 2013.

A straddle is defined in Sec. 1092 as offsetting positions with respect to personal property. Under the regulations, if a taxpayer is an obligor under a debt instrument on which one or more payments are linked to the value of personal property (or a position with respect to personal property), then the taxpayer’s obligation under the debt instrument is a position with respect to personal property and may be part of a straddle.

These final regulations apply to straddles established on or after Jan. 17, 2001, the date the first proposed regulations were published in the Federal Register, and may in certain instances apply to straddles established earlier. They remove the temporary regulations issued last year (T.D. 9635).

– T.D. 9691

By Sally P. Schreiber, J.D., a JofA senior editor.