Regulations Clarify Treatment of a Debt Instrument Under Straddle Rules

On Wednesday, the IRS issued identical temporary (T.D. 9635) and proposed regulations (REG-111753-12) to clarify the treatment of debt instruments that are part of a straddle. The regulations provide guidance for when an issuer’s obligation under a debt instrument may be a position in actively traded personal property, in which case it can be part of a straddle.

A straddle is defined in Sec. 1092 as offsetting positions with respect to personal property. Under the temporary regulations, if a taxpayer is an obligor under a debt instrument, one or more payments on which are linked to the value of personal property or a position with respect to personal property, then the taxpayer’s obligation under the debt instrument is a position with respect to personal property and may be part of a straddle.

The regulations adopt without change proposed regulations issued in 2001 (REG-105801-00). The temporary regulations issued today apply to straddles established on or after Jan. 17, 2001, the date the original proposed regulations were published in the Federal Register. Taxpayers can submit written comments on the regulations for 60 days after Sept. 5. A public hearing on the new rules is scheduled for Jan. 15 in Washington.