Senate Finance Committee ranking member Ron Wyden, D-Ore., released a tax reform proposal on May 18 focused on simplifying how derivatives are taxed. The legislative discussion draft, Modernization of Derivatives Tax Bill, “would prevent sophisticated taxpayers from using derivative contracts to avoid paying taxes on their underlying investments,” Wyden explained.
According to Wyden, there would be a mark-to-market requirement for treatment of derivatives and ordinary tax treatment on resulting gains and losses. This requirement would also apply to combinations of derivatives and their underlying investments, implementing a capital hedging limitation. A single tax regime would apply to derivative contracts.
“The privileged few use expensive accountants and lawyers to shield their wealth so they can pay what they want, when they want,” Wyden said. “Meanwhile hard working Americans have taxes pulled from their salaries every month…. This proposal will help end the “Tale of Two Tax Codes” and create one fair system with simple and straightforward rules that apply to everyone,” he added.
The Joint Committee on Taxation (JCT) reviewed Wyden’s proposal, noting that, under current law, “the tax rules apply differently depending on the form of the derivative, the type of taxpayer entering into it, the purpose of the transaction, and other factors.” The JCT’s revenue estimate reports that, under Wyden’s proposal, $16.5 billion will be raised over 10 years.
By Jessica Watkins, Wolters Kluwer News Staff
SFC Press Release: Wyden Unveils Tax Proposal to Build a Fairer System
Text of the Modernization of Derivatives Tax Act of 2016 Discussion Draft
Summary of the Modernization of Derivatives Tax Act Discussion Draft
Section-by-Section of Discussion Draft: Modernization of Derivatives Tax Act of 2016
JCT Technical Explanation of the Modernization of Derivatives Tax Act Discussion Draft
JCT Revenue Estimate of the Modernization of Derivatives Tax Act Discussion Draft