Wednesday, June 08, 2011

Investment Company Institute Urges IRS to Clarify Effect of Dodd-Frank Changes to IRC Sec. 1256 Derivatives Contracts

The Investment Company Institute has asked the IRS to issue guidance on the Dodd-Frank amendments to Section 1256 of the Internal Revenue Code on certain types of derivatives contracts. Section 1601 of Dodd-Frank excluded from the purview of IRC Section 1256 nine specific derivatives contracts and any similar agreement. In a letter to the IRS, the Institute said that the legislative history suggests that the Dodd-Frank changes were intended to clarify the application of Section 1256.

However, the ICI said that, despite the legislative clarification effort, considerable concern remains that economically comparable financial instruments that were considered Section 1256 contracts prior to Dodd-Frank may no longer be considered Section 1256 contracts. The ICI urged the IRS to issue prospective guidance clarifying more precisely which derivatives contracts constitute Section 1256 contracts following the Dodd-Frank amendments.

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