QQQ options and 1256

Discussion in 'Professional Trading' started by TempusFugit, Jan 8, 2004.

  1. Interesting perspective on this question on the Green Trader Tax site


    Did anyone treat QQQ options under 1256 for 2002? (I did not )

    Anyone challenged on it by the IRS?

    I had a decent year last year (2003) and while I believe in paying my fair share of taxes, well, enough is enough.

    (This is a duplicate of a thread on the ET options boards for those of you who don't stray that far.)
  2. Just for the record, I believe that QQQs are deemed to be "securities" for tax purposes. Accordingly they are not treated as Section 1256 contracts.
  3. Yes, but what about options on QQQs? While I know it might seem obvious that if the underlying is not 1256 then neither are the options, there are opinions to the contrary. Does your statement refer to the options too?
  4. Thanks for the follow-up question. I realize there is some uncertainty on the taxation of options for QQQs. It would sure help if we had sufficient guidance from the IRS on this. They could clear it up but have not done so up to this point.

    My view is based on the logic you mentioned: If the underlying interest is a security (and I think most practitioners advise that QQQs are taxed as securities), I think it is a stretch to hold that options on those securities somehow become 1256 contracts.

    I would love to be proven wrong on this, since I instinctively support the proposition of traders paying as little tax as is legally possible. If we could tax options on QQQs as 1256 contracts (which would mean that our clients would have to pay less tax), I'd love it. But I'm not comfortable in offering such an opinion absent further guidance from the IRS or a court decision.