Credit: 6.0 Total Credit Hours; 3.0 Credit Hours Per Session

Description: This series will provide tax practitioners with a practical introduction to the taxation of financial instruments, including debt instruments, derivatives, and special rules and regimes that apply to the taxation of financial transactions. Using real-world examples and problems, our faculty panelists will help you master the tax treatment of financial instruments, including the timing and character of items of income, gain, deduction, and loss derived from such instruments. The economics of various financial instruments will be explained in a practical manner to help you understand how and why these instruments are used. Finally, the class will focus on special rules and regimes applicable to the taxation of financial transactions.  

Part 1: Fundamentals of Taxation of Debt Instruments and Derivatives (Wednesday, October 10) This session will begin with a brief explanation of the business reasons for using financial instruments and an introduction to the tax rules that govern such instruments and transactions. You will then learn the fundamentals of the taxation of debt instruments, including the accrual and determination of original issue discount (OID), as well as the rules relating to market discount and premium. The application of the rules governing variable rate debt instruments (VRDIs) and contingent payment debt instruments(CPDIs) will be explained and demonstrated.  

The second half of this session will provide you with a practical explanation of the economics and taxation of a variety of derivatives, including options, notional principal contracts (swaps), forward contracts, and futures. Short sales and securities lending transactions also will be addressed. Finally, you will learn about the application of mark-to-market rules of §1256 of the Internal Revenue Code (IRC), as well as the rules governing the settlement of derivatives (e.g., IRC §1234A). Faculty: David Cubeta, Miller & Chevalier Chartered; Craig Gibian, Shearman & Sterling LLP; Eileen Marshall, Wilson, Sonsini, Goodrich & Rosati

Part 2: Special Rules and Regimes Applicable to the Taxation of Financial Transactions (Wednesday, October 17) Part 2 of this series will address a variety of special rules that apply to the taxation of financial transactions. You will learn about the application and consequences of the straddle rules found in IRC §1092. Rules applicable to “constructive sales” of appreciated financial positions under IRC §1259 and the constructive ownership rules of §1260 also will be explained.  

In the second half of this session, you will be introduced with illustrative examples, to three special regimes that apply to the taxation of certain financial transactions:

The application and consequences of mark-to-market rules of IRC §475 for dealers in securities;

The hedging rules designed to match the character and timing of income and deductions for hedging transactions; and

The rules of IRC §988 governing currency transactions.

Faculty: Craig Gibian, Shearman & Sterling LLP; Michael Shulman, Shearman & Sterling LLP; Michael Yaghmour, PricewaterhouseCoopers LLP