[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1000 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                S. 1000

  To amend the Internal Revenue Code of 1986 to treat certain dealer 
derivative financial instruments, hedging transactions, and supplies as 
                            ordinary assets.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 11, 1999

Mr. Breaux (for himself and Mr. Nickles) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to treat certain dealer 
derivative financial instruments, hedging transactions, and supplies as 
                            ordinary assets.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. TREATMENT OF CERTAIN DEALER DERIVATIVE FINANCIAL 
              INSTRUMENTS, HEDGING TRANSACTIONS, AND SUPPLIES AS 
              ORDINARY ASSETS.

    (a) In General.--Section 1221 of the Internal Revenue Code of 1986 
(defining capital assets) is amended--
            (1) by striking ``For purposes'' and inserting the 
        following:
    ``(a) In General.--For purposes'',
            (2) by striking the period at the end of paragraph (5) and 
        inserting a semicolon, and
            (3) by adding at the end the following:
            ``(6) any derivative financial instrument held by a 
        derivatives dealer, unless held for investment and clearly 
        identified in the dealer's records as held for investment 
        before the close of the day on which it was acquired, 
        originated, or entered into (or such other time as the 
        Secretary may by regulations prescribe);
            ``(7) any hedging transaction (as defined in section 
        1256(e)(2)); or
            ``(8) supplies of a type regularly used by the taxpayer in 
        the provision of services or the production of property 
        otherwise described in paragraphs (1) through (7).
    ``(b) Definitions and Special Rules.--
            ``(1) Derivative financial instruments.--For purposes of 
        subsection (a)(6)--
                    ``(A) Derivatives dealer.--The term `derivatives 
                dealer' means a person (other than an options and 
                commodities dealer (within the meaning of section 
                1402(i)) which regularly offers to enter into, assume, 
                offset, assign, or terminate positions in derivative 
                financial instruments with customers in the ordinary 
                course of a trade or business.
                    ``(B) Derivative financial instrument.--
                            ``(i) In general.--The term `derivative 
                        financial instrument' means any contract or 
                        financial instrument (other than a share of 
                        stock in a corporation, a beneficial interest 
                        in a partnership or trust, or a note, bond, 
                        debenture, or other evidence of indebtedness) 
                        the value or settlement price of which is 
                        calculated by or determined by reference to a 
                        specified index, including any swap, cap, 
                        collar, floor, option, futures contract, 
                        forward contract, or similar contract or 
                        financial instrument.
                            ``(ii) Specified index.--The term 
                        `specified index' means any one or more or any 
                        combination of--
                                    ``(I) a fixed rate, price, or 
                                amount, or
                                    ``(II) a variable rate, price, or 
                                amount,
                        which is based on any current, objectively 
                        determinable financial or economic information 
                        which is not within the control of any of the 
                        parties to the contract or instrument and is 
                        not unique to any of the parties' 
                        circumstances.
            ``(2) Treatment of losses in case of non identification or 
        improper identification of hedging transactions.--
        Notwithstanding subsection (a)(7) the Secretary shall prescribe 
        regulations for the proper treatment of the character of any 
        gain or loss arising from a transaction--
                    ``(A) which is a hedging transaction under section 
                1256(e)(2) except for the fact it was not identified as 
                such under section 1256(e)(2)(C), or
                    ``(B) which was so identified but is not such a 
                hedging transaction.''
    (b) Management of Risk.--
            (1) Section 475(c)(3) of the Internal Revenue Code of 1986 
        is amended by striking ``reduces'' and inserting ``manages''.
            (2) Section 871(h)(4)(C)(iv) of such Code is amended by 
        striking ``to reduce'' and inserting ``to manage''.
            (3) Clauses (i) and (ii) of section 988(d)(2)(A) of such 
        Code are each amended by striking ``to reduce'' and inserting 
        ``to manage''.
            (4) Section 1202(j)(2)(C) of such Code is amended by 
        striking ``reduces'' and inserting ``manages''.
            (5) Clauses (i) and (ii) of section 1256(e)(2)(A) of such 
        Code are each amended by striking ``to reduce'' and inserting 
        ``to manage''.
    (c) Effective Date.--The amendments made by this section shall 
apply to any instrument held, acquired, or entered into, any 
transaction entered into, and supplies held or acquired on or after the 
date of enactment of this Act.
                                 <all>