7590 / What is a regulated futures contract?

For income tax purposes, a “regulated futures contract” is a “futures contract” (as described in Q 7588) that is traded on a domestic exchange or on a foreign exchange that employs a cash flow system similar to the “variations margin” system and is designated by the Secretary of the Treasury.¹ Besides calling for the delivery of many types of property (including agricultural commodities, T-bills, foreign currencies, and financial instruments), regulated futures contracts may cover things not generally thought of as property and call for settlement in cash rather than delivery (e.g., stock index or interest rate futures).

For income tax purposes, a regulated futures contract is one of several types of “IRC Section 1256 contracts” (see Q 7592).² Consequently, such a position is excluded from the definition of an appreciated financial position under IRC Section 1259(b)(2)(B) (see Q 7617). Depending on the taxpayer’s other holdings, it appears that a constructive sale could result from entering into a regulated futures contract to deliver property that is the same as or substantially identical to an appreciated financial position held by the taxpayer (see Q 7617 to Q 7621).³

For an explanation of when a foreign currency contract will be considered a regulated futures contract or listed option and, thus, require mark-to-market treatment under IRC Section 1256, see FSA 200041006.

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1.   IRC § 1256(g).

2.   IRC § 1256(b).