II 112th CONGRESS 2d Session S. 2033 IN THE SENATE OF THE UNITED STATES January 23, 2012 Mr. Levin 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 end the costly derivatives blended rate loophole, and for other purposes.

1.

Short title

This Act may be cited as the Closing the Derivatives Blended Rate Loophole Act.

2.

Modifications to treatment of section 1256 contracts

(a)

Elimination of blended capital gain or loss treatment in favor of short-Term capital gain or loss

(1)

In general

Paragraph (3) of section 1256(a) of the Internal Revenue Code of 1986 is amended to read as follows: (3)any gain or loss with respect to a section 1256 contract shall be treated as short-term capital gain or loss, and . (2)

Conforming amendments

Subsection (f) of section 1256 of such Code is amended by striking paragraphs (2), (3), and (4) and by redesignating paragraph (5) as paragraph (2). (b)

Conforming amendments

(1)Clause (iv) of section 988(c)(1)(E) of the Internal Revenue Code of 1986 is amended to read as follows: (iv)

Treatment of certain currency contracts

Except as provided in regulations, in the case of a qualified fund, any bank forward contract, any foreign currency futures contract traded on a foreign exchange, or to the extent provided in regulations any similar instrument, which is not otherwise a section 1256 contract shall be treated as a section 1256 contract for purposes of section 1256. . (2)Subparagraph (A) of section 1212(c)(1) of such Code is amended by striking preceding taxable year and all that follows and inserting preceding taxable year, the amount so allowed shall be treated as short-term capital loss from section 1256 contracts.. (3)Subparagraph (A) of section 1212(c)(6) of such Code is amended by striking preceding taxable year and all that follows and inserting preceding taxable year, the amount allowed as a carryback shall be treated as short-term gain for the loss year.. (4)Subparagraph (B) of section 1212(c)(6) of such Code is amended by striking or long-term. (5)Subsection (f) of section 1256 of such Code is amended by striking paragraphs (3) and (4) and by redesignating paragraph (5) as paragraph (3). (c)

Effective dates

(1)

In general

Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. (2)

Conforming amendments

The amendments made by paragraphs (2), (3), and (4) of subsection (b) shall apply to losses for taxable years beginning after the date of the enactment of this Act.

3.

Modifications to treatment of dealers in securities and commodities

(a)

Modification of definition of security

Paragraph (2) of section 475(c) of the Internal Revenue Code of 1986 is amended by striking the second sentence. (b)

Required mark to market for dealers in commodities

Subsection (e) of section 475 of the Internal Revenue Code of 1986 is amended— (1)by striking In the case of a dealer in commodities who elects the application of this subsection, this section shall apply to commodities held by such dealer in paragraph (1) and inserting This section shall apply to commodities held by a dealer in commodities, and (2)by striking paragraph (3). (c)

Commodities derivatives dealers

Clause (i) of section 1221(b)(1)(B) of the Internal Revenue Code of 1986 is amended by striking a note, bond, or other evidence of indebtedness, or a section 1256 contract (as defined in section 1256(b)) and inserting or a note, bond, or other evidence of indebtedness). (d)

Technical amendment

Paragraph (1) of section 1402(i) of the Internal Revenue Code of 1986 is amended by striking subsection (a)(3)(A) and inserting subsection (a)(3). (e)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.