[Congressional Record Volume 145, Number 67 (Tuesday, May 11, 1999)]
[Senate]
[Page S5043]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BREAUX (for himself and Mr. Nickles):
  S. 1000. A bill to amend the Internal Revenue Code of 1986 to treat 
certain dealer derivative financial instruments, hedging transactions, 
and supplies as ordinary assets; to the Committee on Finance.


COMMODITY DERIVATIVE DEALERS AND ORDINARY BUSINESS HEDGING TRANSACTIONS

 Mr. BREAUX. Mr. President, I, along with my distinguished 
colleague Senator Don Nickles, am introducing legislation today to 
clarify the tax treatment of commodity derivative dealers and of 
ordinary business hedging transactions. This legislation, which was 
proposed by the Administration in its Fiscal Year 2000 budget, is 
necessary to eliminate the existing tax uncertainties with respect to 
dealer derivative transactions and hedging transactions.
  Specifically, Internal Revenue Code section 1221 would be amended to 
include business hedging transaction in the list of ordinary assets and 
clarify that activities that ``manage'' rather than only ``reduce'' 
risk are hedging activities. In addition, derivative contracts held by 
derivative dealers would similarly be treated as ordinary assets. 
Current tax and business practices treat derivative contracts held by 
commodity derivatives dealers as ordinary property. Nevertheless, such 
derivative dealers are faced with uncertainties regarding the proper 
reporting of gains and losses from their dealer activities, unlike 
dealers in other transactions. Finally, supplies used in the provision 
of services for the production of ordinary property would be added to 
the list of ordinary assets in section 1221. Such supplies are so 
closely related to the taxpayer's business that ordinary character 
should apply.
  The Treasury Department has promulgated numerous regulations that 
affect derivatives contracts and our bill merely clarifies current law 
treatment of dealer activities. I urge my colleagues to support this 
important and much needed legislation.
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