Rev. Rul. 87-67

1987-2 C.B. 212, 1987-30 I.R.B. 17.

REGULATED FUTURES CONTRACTS; NONEQUITY OPTION

Published: July 27, 1987

Section 1256.-Section 1256 Contracts Marked to Market

  Regulated futures contracts; nonequity option. An option on the Institutional Index of the American Stock Exchange is a nonequity option for purposes of section 1256 of the Code.

ISSUE

  Whether an option on the Institutional Index of the American Stock Exchange is a nonequity option within the meaning of section 1256(g)(3) of the Internal Revenue Code.

LAW

  Section 1256 of the Code prescribes special rules for reporting gains and losses from 'section 1256 contracts.'

  Section 1256(b) of the Code defines the term 'section 1256 contract' as any regulated futures contract, any foreign currency contract, any nonequity option, and any dealer equity option.

  Section 1256(g)(3) of the Code provides that the term 'nonequity option' means any listed option which is not an equity option.

  Section 1256(g)(5) of the Code provides that the term 'listed option' means any option (other than a right to acquire stock from the issuer) which is traded on (or subject to the rules of) a qualified board or exchange.

  Section 1256(g)(7) of the Code provides that the term 'qualified board or exchange' includes a national securities exchange which is registered with the Securities and Exchange Commission.

  Section 1256(g)(6)(A) of the Code provides that except as provided in section 1256(g)(6)(B), the term 'equity option' means any option (i) to buy or sell stock, or (ii) the value of which is determined directly or indirectly by reference to any stock (or group of stocks) or stock index.

  Section 1256(g)(6)(B) of the Code provides that the term 'equity option' does not include any option with respect to any group of stocks or stock index if (i) there is in effect a designation by the Commodity Futures Trading Commission of a contract market for a contract based on such group of stocks or index, or (ii) the Secretary determines that such option meets the requirements of law for such a designation.

HOLDING

  The Internal Revenue Service has determined that an option on the Institutional Index of the American Stock Exchange is a nonequity option within the meaning of section 1256(g)(3) of the Code. This determination applies to positions established on or after July 27, 1987.

Rev. Rul. 87-67, 1987-2 C.B. 212, 1987-30 I.R.B. 17