[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1092(b)-4T]

[Page 218-226]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
GAIN OR LOSS ON DISPOSITION OF PROPERTY--Table of Contents
 
Sec. 1.1092(b)-4T  Mixed straddles; mixed straddle account (temporary).

    (a) In general. A taxpayer may elect (in accordance with paragraph 
(f) of this section) to establish one or more mixed straddle accounts 
(as defined in paragraph (b) of this section). Gains and losses from 
positions includible in a mixed straddle account shall be determined and 
treated in accordance with the rules set forth in paragraph (c) of this 
section. A mixed straddle account is treated as established as of the 
first day of the taxable year for which the taxpayer makes the election 
or January 1, 1984, whichever is later. See Sec. 1.1092(b)-5T relating 
to definitions.
    (b) Mixed straddle account defined--(1) In general. The term mixed 
straddle account means an account for determining gains and losses from 
all positions held as capital assets in a designated class of activities 
by the taxpayer at the time the taxpayer elects to establish a mixed 
straddle account. A separate mixed straddle account must be established 
for each separate designated class of activities.
    (2) Permissible designations. Except as otherwise provided in this 
section, a taxpayer may designate as a class of activities the types of 
positions that a reasonable person, on the basis of all the facts and 
circumstances, would ordinarily expect to be offsetting positions. This 
paragraph (b)(2) may be illustrated by the following example. It is 
assumed in the example that the positions are the only positions held 
directly or indirectly (through a related person or flowthrough entity) 
during the taxable year, and that gain or loss from the positions is 
treated as gain or loss from a capital asset.

    Example: B engages in transactions in dealer equity options on XYZ 
Corporation stock, stock in XYZ Corporation, dealer equity options on 
UVW Corporation stock, and stock in UVW Corporation. A reasonable 
person, on the basis of all the facts and circumstances, would not 
expect dealer equity options on XYZ Corporation stock and stock in XYZ 
Corporation to offset any dealer equity options on UVW Corporation stock 
or any stock in UVW Corporation. If B makes the mixed straddle account 
election under this section for all such positions, B must designate two 
separate classes of activities, one consisting of transactions in dealer 
equity options on XYZ Corporation stock and stock in XYZ Corporation, 
and the other consisting of transactions in dealer equity options on UVW 
Corporation stock and stock in UVW Corporation, and maintain two 
separate mixed straddle accounts.

    (3) Positions that offset positions in more than one mixed straddle 
account. Gains and losses from positions that a

[[Page 219]]

reasonable person, on the basis of all the facts and circumstances, 
ordinarily would expect to be offsetting with respect to positions in 
more than one mixed straddle account shall be allocated among such 
accounts under a reasonable and consistent method that clearly reflects 
income. This paragraph (b)(2) may be illustrated by the following 
example. It is assumed that the positions are the only positions held 
directly or indirectly (through a related person or flowthrough entity) 
during the taxable year, and that gain or loss from the positions is 
treated as gain or loss from a capital asset.

    Example: B holds stock in XYZ Corporation, UVW Corporation, and RST 
Corporation, and options on a broad based stock index future. A 
reasonable person, on the basis of all the facts and circumstances, 
would expect the stock in XYZ Corporation, UVW Corporation, and RST 
Corporation to be offsetting positions with respect to the options on 
the broad based stock index future. A reasonable person, on the basis of 
all the facts and circumstances, would not expect that stock in XYZ 
Corporation, UVW Corporation, or RST Corporation would be offsetting 
positions with respect to each other. If B makes the mixed straddle 
account election under this section for all such positions, B must 
designate three separate classes of activities: one consisting of stock 
in XYZ Corporation; one consisting of stock in UVW Corporation; and one 
consisting of stock in RST Corporation, and maintain three separate 
mixed straddle accounts. Options on the broad based stock index future 
must be designated as part of all three classes of activities and gains 
and losses from such options must be allocated among such accounts under 
a reasonable and consistent method that clearly reflects income, because 
such options are a type of position expected to be offsetting with 
respect to the positions in all three mixed straddle accounts.

    (4) Impermissible designations--(i) Types of positions that are not 
offsetting included in designated class of activities. If the 
Commissioner determines, on the basis of all the facts and 
circumstances, that a class of activities designated by a taxpayer 
includes types of positions that a reasonable person, on the basis of 
all the facts and circumstances, ordinarily would not expect to be 
offsetting positions with respect to other types of positions in the 
account, the Commissioner may--
    (A) Amend the class of activities designated by the taxpayer and 
remove positions from the account that are not within the amended 
designated class of activities; or
    (B) Amend the class of activities designated by the taxpayer to 
establish two or more mixed straddle accounts.
    (ii) Types of positions that are offsetting not included in 
designated class of activities. If the Commissioner determines, on the 
basis of all the facts and circumstances, that a designated class of 
activities does not include types of positions that are offsetting with 
respect to types of positions within the designated class, the 
Commissioner may--
    (A) Amend the class of activities designated by the taxpayer to 
include types of positions that are offsetting with respect to the types 
of positions within the designated class and place such positions in the 
account; or
    (B) Amend the class of activities designated by the taxpayer to 
exclude types of positions that are offsetting with respect to the types 
of positions that are not in the account.
    (iii) Treatment of positions removed from or included in the 
account. (A) Positions removed from a mixed straddle account will be 
subject to the rules of taxation generally applicable to such positions. 
Thus, for example, if the positions removed from the account are 
offsetting positions with respect to other positions outside the 
account, the rules of Secs. 1.1092(b)-1T and 1.1092(b)-2T apply.
    (B) If the taxpayer acted consistently and in good faith in 
designating the class of activities of the account and in placing 
positions in the account, the rules of Sec. 1.1092(b)-2T(b)(2) shall not 
apply to any mixed straddles resulting from the removal of such 
positions from the account and the Commissioner, at the Commissioner's 
discretion, may identify such mixed straddles as section 1092(b)(2) 
identified mixed straddles and apply the rules of Sec. 1.1092(b)-3T(b) 
to such straddles.
    (C) If positions are placed in a mixed straddle account, such 
positions shall be treated as if they were originally included in the 
mixed straddle account in which they are placed.

[[Page 220]]

    (5) Positions included in a mixed straddle account that are not 
within the designated class of activities. The Commissioner may remove 
one or more positions from a mixed straddle account if, on the basis of 
all the facts and circumstances, the Commissioner determines that such 
positions are not within the designated class of activities of the 
account. See paragraph (b)(4)(iii) of this section for rules concerning 
the treatment of such positions.
    (6) Positions outside a mixed straddle account that are within the 
designated class of activities. If a taxpayer holds types of positions 
outside of a mixed straddle account (including positions in another 
mixed straddle account) that are within the designated class of 
activities of a mixed straddle account, the Commissioner may require the 
taxpayer to include such types of positions in the mixed straddle 
account, move positions from one account to another, or remove from the 
mixed straddle account types of positions that are offsetting with 
respect to the types of positions held outside the account. See 
paragraph (b)(4)(iii) of this section for the treatment of such 
positions.
    (c) Treatment of gains and losses from positions in a mixed straddle 
account--(1) Daily account net gain or loss. Except as provided in 
paragraphs (d) and (e) of this section (relating to positions in a mixed 
straddle account before January 1, 1985) as of the close of each 
business day of the taxable year, gain or loss shall be determined for 
each position in a mixed straddle account that is disposed of during the 
day. Positions in a mixed straddle account that have not been disposed 
of as of the close of the day shall be treated as if sold for their fair 
market value at the close of each business day. Gains and losses for 
each business day from non-section 1256 positions in each mixed straddle 
account shall be netted to determine net non-section 1256 position gain 
or loss for the account, and gains and losses for each business day from 
section 1256 contracts in each mixed straddle account shall be netted to 
determine net section 1256 contract gain or loss for the account. Net 
non-section 1256 position gain or loss from the account is then offset 
against net section 1256 contract gain or loss from the same mixed 
straddle account to determine the daily account net gain or loss for the 
account. If daily account net gain or loss is attributable to the net 
non-section 1256 position gain or loss, daily account net gain or loss 
for such account shall be treated as short-term capital gain or loss. If 
daily account net gain or loss is attributable to the net section 1256 
contract gain or loss, daily account net gain or loss for such account 
shall be treated as 60 percent long-term capital gain or loss and 40 
percent short-term capital gain or loss. If net non-section 1256 
position gain or loss and net section 1256 contract gain or loss are 
either both gains or both losses, that portion of the daily account net 
gain or loss attributable to net non-section 1256 position gain or loss 
shall be treated as short-term capital gain or loss and that portion of 
the daily account net gain or loss attributable to net section 1256 
contract gain or loss shall be treated as 60 percent long-term capital 
gain or loss and 40 percent short-term capital gain or loss. An 
adjustment (through an adjustment to basis or otherwise) shall be made 
to any subsequent gain or loss determined under this paragraph (c)(1) to 
take into account any gain or loss determined for prior business days 
under this paragraph (c)(1).
    (2) Annual account net gain or loss; total annual account net gain 
or loss. On the last business day of the taxable year, the annual 
account net gain or loss for each mixed straddle account established by 
the taxpayer shall be determined by netting the daily account net gain 
or loss for each business day in the taxable year for each account. 
Annual account net gain or loss for each mixed straddle account shall be 
adjusted pursuant to paragraph (c)(3) of this section. The total annual 
account net gain or loss shall be determined by netting the annual 
account net gain or loss for all mixed straddle accounts established by 
the taxpayer, as adjusted pursuant to paragraph (c)(3) of this section. 
Total annual account net gain or loss is subject to the limitations of 
paragraph (c)(4) of this section. See paragraphs (d) and (e) of this 
section for determining the annual account net

[[Page 221]]

gain or loss for mixed straddle accounts established for taxable years 
beginning before January 1, 1985.
    (3) Application of section 263(g) to mixed straddle accounts. No 
deduction shall be allowed for interest and carrying charges (as defined 
in section 263(g)(2)) properly allocable to a mixed straddle account. 
Interest and carrying charges properly allocable to a mixed straddle 
account means the excess of--
    (i) The sum of--
    (A) Interest on indebtedness incurred or continued during the 
taxable year to purchase or carry any position in the account; and
    (B) All other amounts (including charges to insure, store or 
transport the personal property) paid or incurred to carry any position 
in the account; over
    (ii) The sum of--
    (A) The amount of interest (including original issue discount) 
includible in gross income for the taxable year with respect to all 
positions in the account;
    (B) Any amount treated as ordinary income under section 
1271(a)(3)(A), 1278, or 1281(a) with respect to any position in the 
account for the taxable year; and
    (C) The excess of any dividends includible in gross income with 
respect to positions in the account for the taxable year over the amount 
of any deduction allowable with respect to such dividends under section 
243, 244, or 245.

For purposes of paragraph (c)(3)(i) of this section, the term interest 
includes any amount paid or incurred in connection with positions in the 
account used in a short sale. Any interest and carrying charges 
disallowed under this paragraph (c)(3) shall be capitalized by treating 
such charges as an adjustment to the annual account net gain or loss and 
shall be allocated pro rata between net short-term capital gain or loss 
and net long-term capital gain or loss.
    (4) Limitation on total annual account net gain or loss. No more 
than 50 percent of total annual account net gain for the taxable year 
shall be treated as long-term capital gain. Any long-term capital gain 
in excess of the 50 percent limit shall be treated as short-term capital 
gain. No more than 40 percent of total annual account net loss for the 
taxable year shall be treated as short-term capital loss. Any short-term 
capital loss in excess of the 40 percent limit shall be treated as long-
term capital loss.
    (5) Accrued gain and loss with respect to positions includible in a 
mixed straddle account. Positions includable in a mixed straddle account 
that are held by a taxpayer on the day prior to the day the mixed 
straddle account is established shall be deemed sold for their fair 
market value as of the close of the last business day preceding the day 
such mixed straddle account is established. See Secs. 1.1092(b)-1T and 
1.1092(b)-2T for application of the loss deferral and wash sale rules 
and for treatment of holding periods and losses with respect to such 
positions. An adjustment (through an adjustment to basis or otherwise) 
shall be made to any subsequent gain or loss realized with respect to 
such positions for any gain or loss recognized under this paragraph 
(c)(5).
    (6) Examples. This paragraph (c) may be illustrated by the following 
examples. It is assumed in each example that the positions are the only 
positions held directly or indirectly (through a related person or 
flowthrough entity) by an individual calendar year taxpayer during the 
taxable year, and that gain or loss from the positions is treated as 
gain or loss from a capital asset.

    Example 1. A establishes a mixed straddle account for a class of 
activities consisting of transactions in stock of XYZ Corporation and 
dealer equity options on XYZ Corporation stock. Assume that A enters 
into no transactions in XYZ Corporation stock or dealer equity options 
on XYZ Corporation stock prior to December 26, 1985. Thus, the net non-
section 1256 position gain or loss and the net section 1256 contract 
gain or loss for the account are zero for each business day except the 
following days:

------------------------------------------------------------------------
                                                           Net section
                                        Net non-section   1256 contract
                                         1256 position     gain or loss
                                          gain or loss         (XYZ
                                              (XYZ         corporation
                                          corporation     dealer equity
                                             stock)          options)
------------------------------------------------------------------------
December 26, 1985.....................         $1,000          $20,000
December 27, 1985.....................         (9,000)           3,000
December 30, 1985.....................         (5,000)          15,000
December 31, 1985.....................          7,000           (2,000)
------------------------------------------------------------------------

    The daily account net gain or loss is as follows:

[[Page 222]]



----------------------------------------------------------------------------------------------------------------
                                        Daily
                                       account     Treatment of daily account net gain or     Long-
                                      net gain                      loss                      term    Short-term
                                       or loss
----------------------------------------------------------------------------------------------------------------
December 26, 1985..................   $21,000    $1,000 short-term capital gain, $20,000     $12,000    $9,000
                                                  60 percent long-term capital gain and 40
                                                  percent short-term capital gain.
December 27, 1985..................    (6,000)   Short-term capital loss..................  ........    (6,000)
December 30, 1985..................    10,000    60 percent long-term capital gain and 40      6,000     4,000
                                                  percent short-term capital gain.
December 31, 1985..................     5,000    Short-term capital gain..................  ........     5,000
----------------------------------------------------------------------------------------------------------------


The annual account net gain or loss is $18,000 of long-term capital gain 
and $12,000 of short-term capital gain. Because A has no other mixed 
straddle accounts, total annual account net gain or loss is also $18,000 
long-term capital gain and $12,000 short-term capital gain. Because more 
than 50 percent of the total annual account net gain is long-term 
capital gain, $3,000 of the $18,000 long-term capital gain will be 
treated as short-term capital gain.
    Example 2. Assume the facts are the same as in example (1), except 
that interest and carrying charges in the amount of $6,000 are allocable 
to the mixed straddle account and are capitalized under paragraph (c)(3) 
of this section. Under these circumstances, $3,600 (($18,000/
$30,000)x$6,000) of the interest and carrying charges will reduce the 
$18,000 long-term capital gain to $14,400 long-term capital gain and 
$2,400 (($12,000/$30,000)x$6,000) of the interest and carrying charges 
will reduce the $12,000 short-term capital gain to $9,600 short-term 
capital gain. Because more than 50 percent of the total annual account 
net gain is long-term capital gain, $2,400 of the $14,400 long-term 
capital gain will be treated as short-term capital gain.
    Example 3. Assume the facts are the same as in example (1), except 
that A has a second mixed straddle account, which has an annual account 
net loss of $14,000 of long-term capital loss and $6,000 of short-term 
capital loss. Under these circumstances, the total annual account net 
gain is $4,000 ($18,000-$14,000) of long-term capital gain and $6,000 
($12,000-$6,000) of short-term capital gain. Because not more than 50 
percent of the total annual account net gain is long-term capital gain, 
none of the long-term capital gain will be treated as short-term capital 
gain.
    Example 4. Assume the facts are the same as in example (3), except 
that interest and carrying charges in the amount of $4,000 are allocable 
to the second mixed straddle account and are capitalized under paragraph 
(c)(3) of this section. Under these circumstances, $2,800 (($14,000/
$20,000)x$4,000)) of the interest and carrying charges will increase the 
$14,000 long-term capital loss to $16,800 of long-term capital loss and 
$1,200 (($6,000/$20,000)x$4,000)) of the interest and carrying charges 
will increase the $6,000 short-term capital loss to $7,200 short-term 
capital loss. The total annual account net gain is $1,200 of long-term 
capital gain ($18,000 $16,800) and $4,800 ($12,000-$7,200) of short-term 
capital gain. Because not more than 50 percent of the total annual 
account net gain is long-term capital gain, none of the $1,200 long-term 
capital gain will be treated as short-term capital gain.
    Example 5. Assume the facts are the same as in example (1), except 
that A has a second mixed straddle account, which has an annual account 
net loss of $20,000 of long-term capital loss and $15,000 of short-term 
capital loss. Under these circumstances, the total annual account net 
loss is $2,000 ($20,000-$18,000) of long-term capital loss and $3,000 
($15,000-$12,000) of short-term capital loss. Because more than 40 
percent of the total annual account net loss is short-term capital loss, 
$1,000 of the short-term capital loss will be treated as long-term 
capital loss.
    Example 6. A establishes two mixed straddle accounts. Account 1 has 
an annual account net gain of $5,000 short-term capital gain, which 
results from netting $5,000 of long-term capital loss and $10,000 of 
short-term capital gain. Account 2 has an annual account net loss of 
$2,000 long-term capital loss, which results from netting $3,000 of 
long-term capital loss against $1,000 of short-term capital gain. The 
total annual account net gain is $3,000 short-term capital gain, which 
results from netting the annual account net gain of $5,000 short-term 
capital gain from Account 1 against the annual account net loss of 
$2,000 long-term capital loss from Account 2.

    (d) Treatment of gains and losses from positions in a mixed straddle 
account established on or before December 31, 1984, in taxable years 
ending after December 31, 1984; pre-1985 account net gain or loss. For 
mixed straddle accounts established on or before December 31, 1984, in 
taxable years ending after December 31, 1984, the taxpayer on December 
31, 1984, shall determine gain or loss for each position in the mixed 
straddle account that has been disposed of on any day during the period 
beginning on the first day of the taxpayer's taxable year

[[Page 223]]

that includes December 31, 1984, and ending on December 31, 1984. 
Positions in the mixed straddle account that have not been disposed of 
as of the close of December 31, 1984, shall be treated as if sold for 
their fair market value as of the close of December 31, 1984. Gains and 
losses for such period from non-section 1256 positions in each mixed 
straddle account shall be netted to determine pre-1985 net non-section 
1256 position gain or loss and gains and losses for such period from 
section 1256 contracts in each mixed straddle account shall be netted to 
determine pre-1985 net section 1256 contract gain or loss. Pre-1985 net 
non-section 1256 position gain or loss is then offset against pre-1985 
net section 1256 contract gain or loss from the same mixed straddle 
account to determine the pre-1985 account net gain or loss for the 
period. If the pre-1985 account net gain or loss is attributable to pre-
1985 net non-section 1256 position gain or loss, the pre-1985 account 
net gain or loss from such account shall be treated as short-term 
capital gain or loss. If the pre-1985 account net gain or loss is 
attributable to pre-1985 net section 1256 contract gain or loss, the 
pre-1985 account net gain or loss from such account shall be treated as 
60 percent long-term capital gain or loss and 40 percent short-term 
capital gain or loss. If pre-1985 net non-section 1256 position gain or 
loss and pre-1985 net section 1256 contract gain or loss are either both 
gains or losses, that portion of the pre-1985 account net gain or loss 
attributable to pre-1985 net non-section 1256 position gain or loss 
shall be treated as short-term capital gain or loss and that portion of 
the pre-1985 account net gain or loss attributable to pre-1985 net 
section 1256 contract gain or loss shall be treated as 60 percent long-
term capital gain or loss and 40 percent short-term capital gain or 
loss. An adjustment (through an adjustment to basis or otherwise) shall 
be made to any subsequent gain or loss realized with respect to such 
positions for any gain or loss recognized under this paragraph (d). To 
determine the annual account net gain or loss for such account, the pre-
1985 account net gain or loss shall be treated as daily account net gain 
or loss for purposes of paragraph (c)(2) of this section. See paragraph 
(c)(5) of this section for treatment of accrued gain or loss with 
respect to positions includible in a mixed straddle account.
    (e) Treatment of gains and losses from positions in a mixed straddle 
account for taxable years ending on or before December 31, 1984--(1) In 
general. For mixed straddle accounts established on or before December 
31, 1984, in taxable years ending on or before December 31, 1984, the 
taxpayer at the close of the taxable year shall determine gain or loss 
for each position in the mixed straddle account that has been disposed 
of on any day during the period beginning on the later of the first day 
of the taxable year or January 1, 1984, and ending on the last day of 
the taxable year. Positions in the mixed straddle account that have not 
been disposed of as of the close of the last business day of the taxable 
year shall be treated as if sold for their fair market value at the 
close of such day. Gains and losses from non-section 1256 positions in 
each mixed straddle account shall be netted to determine 1984 net non-
section 1256 position gain or loss for the account and gains and losses 
from section 1256 contracts shall be netted to determine 1984 net 
section 1256 contract gain or loss for the account. The 1984 net non-
section 1256 position gain or loss is then offset against 1984 net 
section 1256 contract gain or loss from the same mixed straddle account 
to determine annual account net gain or loss for the account. If annual 
account net gain or loss is attributable to 1984 net non-section 1256 
position gain or loss, annual account net gain or loss shall be treated 
as short-term capital gain or loss. If annual account net gain or loss 
is attributable to 1984 net section 1256 contract gain or loss, annual 
account net gain or loss shall be treated as 60 percent long-term 
capital gain or loss and 40 percent short-term capital gain or loss. If 
1984 net non-section 1256 position gain or loss and 1984 net section 
1256 contract gain or loss are either both gains or both losses, that 
portion of annual account net gain or loss attributable to 1984 net non-
section 1256 position gain or loss shall be treated as short-term 
capital gain or loss and that portion of annual account net gain or loss 
attributable to 1984 net

[[Page 224]]

section 1256 contract gain or loss shall be treated as 60 percent long-
term capital gain or loss and 40 percent short-term capital gain or 
loss. An adjustment (through an adjustment to basis or otherwise) shall 
be made to any subsequent gain or loss realized with respect to such 
positions for any gain or loss recognized under this paragraph (e). See 
paragraph (c) (2) through (5) of this section relating to determining 
the total annual account net gain or loss, application of section 263(g) 
to mixed straddle accounts, the limitation on the total annual account 
net gain or loss, and treatment of accrued gain or loss with respect to 
positions includible in a mixed straddle account.
    (2) Pre-1984 accrued gain. If the last business day referred to in 
paragraph (c)(5) of this section is contained in a period to which such 
paragraph (c)(5) does not apply, the gains and losses from the deemed 
sale shall be included in the first period to which paragraph (c)(5) 
applies.
    (f) Election--(1) Time for making the election. Except as otherwise 
provided, the election under this section to establish one or more mixed 
straddle accounts for a taxable year must be made by the due date 
(without regard to automatic and discretionary extensions) of the 
taxpayer's income tax return for the immediately preceding taxable year 
(or part thereof). For example, an individual taxpayer on a calendar 
year basis must make the election by April 15, 1986, to establish one or 
more mixed straddle accounts for taxable year 1986. Similarly, a 
calendar year corporate taxpayer must make its election by March 15, 
1986, to establish one or more mixed straddle accounts for 1986. If a 
taxpayer begins trading or investing in positions in a new class of 
activities during a taxable year, the election under this section with 
respect to the new class of activities must be made by the taxpayer by 
the later of the due date of the taxpayer's income tax return for the 
immediately preceding taxable year (without regard to automatic and 
discretionary extensions), or 60 days after the first mixed straddle in 
the new class of activities is entered into. Similarly, if on or after 
the date the election is made with respect to an account, the taxpayer 
begins trading or investing in positions that are includible in such 
account but were not specified in the original election, the taxpayer 
must make an amended election as prescribed in paragraph (f)(2)(ii) of 
this section by the later of the due date of the taxpayer's income tax 
return for the immediately preceding taxable year (without regard to 
automatic and discretionary extensions), or 60 days after the 
acquisition of the first of the positions. If an election is made after 
the times specified in this paragraph (f)(1), the election will be 
permitted only if the Commissioner concludes that the taxpayer had 
reasonable cause for failing to make a timely election. For example, if 
a calendar year taxpayer holds few positions in one class of activities 
prior to April 15 of a taxable year, and the taxpayer greatly increases 
trading activity with respect to positions in the class of activities 
after April 15, then the Commissioner may conclude that the taxpayer had 
reasonable cause for failing to make a timely election and allow the 
taxpayer to make a mixed straddle account election for the taxable year. 
See paragraph (f)(2) of this section for rules relating to the manner 
for making these elections.
    (2) Manner for making the election--(i) In general. A taxpayer must 
make the election on Form 6781 in the manner prescribed by such Form, 
and by attaching the Form to the taxpayer's income tax return for the 
immediately preceding taxable year (or request for an automatic 
extension). In addition, the taxpayer must attach a statement to Form 
6781 designating with specificity the class of activities for which a 
mixed straddle account is established. The designation must describe the 
class of activities in sufficient detail so that the Commissioner may 
determine, on the basis of the designation, whether specific positions 
are includible in the mixed straddle account. In the case of a taxpayer 
who elects to establish more than one mixed straddle account, the 
Commissioner must be able to determine, on the basis of the 
designations, that specific positions are placed in the appropriate 
account. The election applies to all positions in the designated class 
of activities held by the taxpayer during the taxable year.

[[Page 225]]

    (ii) Elections for new classes of activities and expanded elections. 
Amended elections and elections made with respect to a new class of 
activities that the taxpayer has begun trading or investing in during a 
taxable year, shall be made on Form 6781 within the times prescribed in 
paragraph (f)(1) of this section. A statement must be attached to the 
Form containing the information required in paragraph (f)(2)(i) of this 
section, with respect to the new or expanded designated class of 
activities.
    (iii) Special rule. The Commissioner may disregard a mixed straddle 
account election if the Commissioner determines, on the basis of all the 
facts and circumstances, that the principal purpose for making the mixed 
straddle account election with respect to a class of activities was to 
avoid the rules of Sec. 1.1092(b)-1T (a). For example, if a taxpayer 
holds stock that is not part of a straddle and that would generate a 
loss if sold or otherwise disposed of, and the taxpayer both acquires 
offsetting option positions with respect to the stock and makes a mixed 
straddle account election with respect to the stock and stock options 
near the end of a taxable year, the Commissioner may disregard the mixed 
straddle account election.
    (3) Special rule for taxable years ending after 1983 and before 
September 1, 1986. An election under this section to establish one or 
more mixed straddle accounts for any taxable year that includes July 17, 
1984, and any taxable year that ends before September 1, 1986 (or, in 
the case of a corporation, October 1, 1986), must be made by the later 
of--
    (i) December 31, 1985, or
    (ii) The due date (without regard to automatic and discretionary 
extensions) of the return for the taxpayer's taxable year that begins in 
1984 if the due date of the taxpayer's return for such year (without 
regard to automatic and discretionary extensions) is after December 31, 
1985.

The election shall be made by attaching Form 6781 together with a 
statement to the taxpayer's income tax return, amended return, or other 
appropriate form that is filed on or before the deadline determined in 
the preceding sentence. The attached statement must designate with 
specificity, in accordance with paragraph (f)(2)(i) of this section, the 
class of activities for which a mixed straddle account is established. 
For example, if a fiscal year taxpayer's return (for its taxable year 
ending September 30, 1985) is due (without regard to extensions) on 
January 15, 1986, and the taxpayer intends to obtain an automatic 
extension to file the return, the election under this section for any or 
all of the fiscal years ending in 1984, 1985 or 1986 must be made on or 
before January 15, 1986, with the request for an automatic extension. 
Similarly, a calendar year taxpayer (whether or not such taxpayer has 
obtained an automatic extension of time to file) who has filed its 1984 
income tax return before October 15, 1985, without making a mixed 
straddle account election for either 1984 or 1985, or both, may make the 
mixed straddle account election under this section for either or for 
both of such years with an amended return filed on or before December 
31, 1985. The mixed straddle account elected on this amended return will 
be effective for all positions in the designated class of activities 
even if the taxpayer had elected straddle-by-straddle identification as 
provided under Sec. 1.1092(b)-3T for purposes of the previously filed 
1984 income tax return. For taxable years beginning in 1984 and 1985, 
the election under this paragraph (f)(3) is effective for the entire 
taxable year. For taxable years beginning in 1983, an election shall be 
effective for that part of the year beginning after December 31, 1983, 
for which the election under Sec. 1.1256(h)-1T or 1.1256(h)-2T is made. 
See Sec. 1.6081-1T regarding an extension of time to file certain 
individual income tax returns.
    (4) Period for which election is effective. For taxable years 
beginning on or after January 1, 1984, an election under this section, 
including an amendment to the election pursuant to paragraph (f)(1) of 
this section, shall be effective only for the taxable year for which the 
election is made. This election may be revoked during the taxable year 
for the remainder of the taxable year only with the consent of the 
Commissioner. An application for consent to revoke the election shall be 
filed with the service center with which the election was filed and 
shall--

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    (i) Contain the name, address, and taxpayer identification number of 
the taxpayer;
    (ii) Show that the volume or nature of the taxpayer's activities has 
changed substantially since the election was made, and that the 
taxpayer's activities no longer warrant the use of such mixed straddle 
account; and
    (iii) Any other relevant information.

If a taxpayer's election for a taxable year is revoked, the taxpayer may 
not make a new election for the same class of activities under paragraph 
(f)(1) of this section during the same taxable year.
    (g) Effective date. The provisions of this section apply to 
positions held on or after January 1, 1984.

(Secs. 1092(b)(1), 1092(b)(2) and 7805 of the Internal Revenue Code of 
1954 (68A Stat. 917, 98 Stat. 627; 26 U.S.C. 1092(b)(1), 1092(b)(2), 
7805))

[T.D. 8008, 50 FR 3329, Jan. 24, 1985; 50 FR 12243, Mar. 28, 1985, as 
amended by T.D. 8058, 50 FR 42013, Oct. 17, 1985]