After weeks of negotiations on a broad package of tax reductions and economic stimulus measures, the Senate on May 15 narrowly approved the Jobs and Growth Tax Relief Reconciliation Act of 2003. During the voting process, the Senate agreed to a manager's amendment containing a number of revenue enhancements designed to limit the overall cost of the legislation. One of these measures repealed section 1256(a)(3) of the Internal Revenue Code and thereby eliminated the current 60/40 tax treatment applied to gains and losses on futures and options transactions.
Responding to an intensive 3-day lobbying campaign from the futures and options industry, the Senate on May 20 approved a "technical corrections" bill that among other things removed the 60/40 repeal from the tax bill. Republican leaders are now negotiating ways to combine the House and Senate versions of the tax bill. The 60/40 repeal is not contained in the House version, and now that it has been struck from the Senate bill, the current tax regime for futures and options is no longer a part of the current tax discussions.
The FIA, together with leading U.S. futures exchanges, played an important role in persuading key members of Congress to reject the hastily approved repeal of 60/40. In letters and conversations with lawmakers, the FIA stressed the damaging repercussions of such a change on the markets and their participants, including investors in commodity pools and hedge funds. In addition, the FIA pointed out that the provision would have eliminated the 60/40 treatment, but leave untouched other sections of the tax code that require the assessment of taxes on unrealized gains and losses at year-end. In effect, the Senate bill would have made it impossible for market participants to record any long-term gains or losses on futures and options transactions.
http://www.futuresindustry.org/downloads/regulatory/5-19-03.doc
