Sec. 3402. Modification of certain rules related to hedges
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/bill/113/hr/1/ih/section-3402A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
Section 1221(b), as amended by the preceding provisions of this Act, is amended to read as follows: For purposes of this section— The term hedging transaction means any transaction described in paragraph
(2)and identified under paragraph (3). A transaction is described in this paragraph if such transaction is entered into by the taxpayer in the normal course of the taxpayer’s trade or business primarily— to manage risk of price changes or currency fluctuations with respect to ordinary property which is held or to be held by the taxpayer, to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, by the taxpayer, or to manage such other risks as the Secretary may prescribe in regulations. A transaction is identified under this paragraph if— such transaction is clearly identified as a hedging transaction for purposes of this paragraph before the close of the day on which it was acquired, originated, or entered into (or such other time as the Secretary may by regulations prescribe), or such transaction is treated as a hedging transaction (within the meaning of generally accepted accounting principles) for purposes of an audited financial statement of the taxpayer which— is certified as being prepared in accordance with generally accepted accounting principles, and is used for the purposes of a statement or report— to shareholders, partners, or other proprietors, or to beneficiaries, or for credit purposes. The Secretary shall prescribe regulations to properly characterize any income, gain, expense, or loss arising from a transaction— which would be a hedging transaction if identified under paragraph (3), or which is identified under paragraph
(3)but is not a transaction described in paragraph (2). In the case of a transaction identified under paragraph
(3)solely by reason of paragraph (3)(B), subparagraph
(B)of this paragraph shall not apply with respect to such transaction unless the taxpayer treats such transaction as a hedging transaction for purposes of any provision of this title. For purposes of paragraph (2)(A), in the case of an insurance company to which subchapter L applies, any bond, debenture, note, certificate, or other evidence of indebtedness held by the taxpayer shall be treated as ordinary property. The Secretary shall prescribe such regulations as are appropriate to carryout the purposes of this subsection and subsection (a)(7) in the case of transactions involving related parties. . Section 856(c)(5)(G)(i) is amended by striking (as defined in clause
(ii)or
(iii)of section 1221(b)(2)(A)) which is clearly identified pursuant to section 1221(a)(7) and inserting (as defined in section 1221(b) (determined without regard to paragraph (2)(A) thereof) . Section 954(c)(5)(A) is amended to read as follows: For purposes of paragraph (1)(C)(i), the term commodity hedging transaction means any transaction with respect to a commodity if such transaction would be a hedging transaction under section 1221(b) if— the only transactions described in paragraph
(2)thereof were transactions described in clause (ii), and paragraphs
(3)and
(4)thereof were applied by substituting controlled foreign corporation for taxpayer each place it appears. A transaction is described in this clause if such transaction is entered into by the controlled foreign corporation in the normal course of the controlled foreign corporation’s trade or business primarily— to manage risk of price changes or currency fluctuations with respect to ordinary property or property described in section 1231(b) which is held or to be held by the controlled foreign corporation, or to manage such other risks as the Secretary may prescribe in regulations. . Section 1221(a)(7) is amended by striking which is clearly and all that follows through regulations prescribe) . Section 954(c)(5)(A), as amended by subsection (a), is amended by adding at the end the following new clause: In the case of qualified property, clause (ii)(I) shall be applied by substituting the controlled foreign corporation or another controlled foreign corporation which is a related person (within the meaning of subsection (d)(3)) for the controlled foreign corporation . For purposes of this clause, the term qualified property means ordinary property or property described in section 1231(b) (if disposed of at a gain) the income from the disposition of which would be neither subpart F income nor income treated as effectively connected with the conduct of a trade or business in the United States. . The amendments made by this section shall apply to transactions entered into after December 31, 2014.