The IRS today released an advance version of Notice 2015-73, clarifying the types of transactions that are “basket options” and that are to be treated as “listed transactions” that must be disclosed, and an advance version of Notice 2015-74, clarifying the types of transactions that are “basket contracts” and that are to be treated as “transactions of interest” that must be disclosed. [NOTE: The IRS on November 2, 2015, re-issued these two notices, with the amended notices providing clarifications concerning effective date provisions. The hyperlinks, below, are to the text of the amended versions of these two notices.]
Each notice provides more details than the respective earlier notice about transactions within the scope of each notice, and further clarifies that a taxpayer must have reflected on a tax return a tax benefit described in the applicable notice. Also, each of today’s notices describe when a person is treated as the taxpayer’s designee and when the taxpayer or its designee would be treated as having discretion to change the assets in the reference basket or the trading algorithm and lists certain contracts that are excluded from each notice, including when a counterparty would not have to disclose a transaction.
There are special rules for method of accounting changes for transactions within the scope of either notice. Each notice provides rules for a taxpayer that wishes to changes its method of accounting for a transaction within the scope of the notice. Notice 2015-73 provides the exclusive procedures that a taxpayer must follow to change its method of accounting for transactions within the scope of the notice. In general, a taxpayer must file amended returns to retroactively change its method accounting.
Similarly, Notice 2015-74 provides the exclusive procedures for transactions it defines as “conversion transactions” (a transaction that involves the conversion of ordinary income or short-term capital gain or loss into long-term capital gain or loss), and generally requires a taxpayer to retroactively change its method of accounting by filing amended returns. For transactions that are defined by Notice 2015-74 as “deferral transactions” (a transaction whose only tax benefit was a deferral of income into a later tax year), a taxpayer may change its method of accounting by following the notice’s retroactive change procedures, or if eligible, by complying with the non-automatic procedures of Rev. Proc. 2015-13, as modified by certain requirements in the notice.
Under Notice 2015-73, transactions in effect on or after January 1, 2011, and that are the same as, or substantially similar to, the transaction described in Notice 2015-73 are identified as listed transactions for purposes of Reg. section 1.6011-4(b)(2) and sections 6111 and 6112. In general, disclosure of such transactions must be done by January 19, 2016.
Under Notice 2015-74, transactions entered into on or after November 2, 2006, that are the same as, or substantially similar to, transactions described in Notice 2015-74, and in effect on or after January 1, 2011 are identified as transactions of interest for purposes of Reg. section 1.6011-4(b)(6) and sections 6111 and 6112. In general, disclosure of such transactions must be done by January 19, 2016.
In general, these IRS notices provide special rules for taxpayers that want to change their method of accounting for transactions within the scope of either notice and generally require that transactions be disclosed by January 19, 2016.
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.