Options Simplification and Clarification Act of 1986

Summary

Options Simplification and Clarification Act of 1986 - Amends the Internal Revenue Code to revise the qualified covered call rules relating to the tax treatment of gains and losses of listed option contracts. Redefines a "deep-in-the-money option" as an option having a strike price which is less than 85 percent of the applicable stock price. Revises the special year-end rule to provide that qualified covered calls cannot be used for straddling purposes. Treats an equity option as a contract marked to market at the end of the taxable year. Repeals provisions denying such treatment to limited partners holding such marked to market contracts. Provides that any gain recognized upon the termination of certain options to sell ("married put") in a closing transaction shall be includible immediately as short-term or long-term capital gain depending on the holding period of the option. Provides that any loss incurred in such a transaction shall not be deducted but shall be reflected by adjusting of the stock with which the option was identified. Authorizes the Secretary of the Treasury to issue regulations to extend similar treatment to covered calls and straddles generally. Allows options dealers to elect to establish an options dealer account as an alternative method of accounting for mixed straddles. Provides that such an account shall: (1) be established for a designated class of activities; (2) consist of positions marked to market upon being placed in the account and at the end of the year; (3) net at the end of each taxable year any gains and losses realized on all positions in the account; and (4) treat net gain or loss as 43 percent long-term capital gain or loss and 57 percent short-term capital gain or loss. Revises the method of computing interest and carrying charges in the case of straddles. Allows any options dealer or commodities dealer to elect to use an alternative method of computing capitalized interest and carrying charges.

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1 official file

• Introduced in Senate

  summary · EN · 20 February 1986

  Open at official source

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