Comment Letter to the IRS on Proposed Regulation of Swap Exclusions for Section 1256 Contracts.

Managed Funds Association submitted a comment letter to the Internal Revenue Service in response to the Services proposed rules to exclude certain swaps from section 1256 of the Internal Revenue Code, as required by the Dodd-Frank Act. In our letter, we:

1) Expressed support for the Services goals of creating greater certainty and consistency regarding the tax treatment of similar financial instruments and preventing abusive practices designed to evade tax obligations;
2) Encouraged the Service to provide greater certainty and consistency with respect to the definitions of notional principal contract and regulated futures contract;
3) Encouraged the Service to reconsider its proposed definition of payment in the Proposed Rule, which we believe could have adverse, unintended consequences for market participants that use certain types of swap contracts; and
4) Encouraged the Service to focus its swap bifurcation rules on those contracts that present the greatest risk of tax evasion by providing clear guidance that swap contracts traded at on-market pricing will not be subject to the bifurcation rules.