Form 6781 (2019)
Page 2
Section references are to the Internal
Revenue Code unless otherwise noted.
Future Developments
For the latest information about
developments related to Form 6781 and
its instructions, such as legislation
enacted after they were published, go to
www.irs.gov/Form6781.
General Instructions
Purpose of Form
Use Form 6781 to report:
• Any capital gain or loss on section
1256 contracts under the mark-to-
market rules, and
• Gains and losses under section 1092
from straddle positions.
For details on section 1256 contracts
and straddles, see Pub. 550, Investment
Income and Expenses.
Section 1256 Contract
A section 1256 contract is any:
• Regulated futures contract,
• Foreign currency contract,
• Nonequity option,
• Dealer equity option, or
• Dealer securities futures contract.
For definitions of these terms and
more details, see section 1256(g) and
Pub. 550.
A section 1256 contract doesn’t
include any securities future contract,
option on a securities future contract,
interest rate swap, currency swap, basis
swap, commodity swap, equity swap,
equity index swap, credit default swap,
interest rate cap, interest rate floor, or
similar agreement.
Special rules apply to certain foreign
currency contracts. See section 988 and
Regulations sections 1.988-1(a)(7) and
1.988-3. If an election is made under
section 988(a)(1)(B) or 988(c)(1)(D), attach
to your return a list of the contracts
covered by the election(s). On the
attachment, show the net gain or loss
reported from those contracts and
identify where the gain or loss is
reported on the return. If an election is
made under section 988(a)(1)(B), report
on Form 6781 the gains and losses from
section 1256 contracts that are also
section 988 transactions.
Options and commodities dealers
must take any gain or loss from the
trading of section 1256 contracts into
account in figuring net earnings subject
to self-employment tax. See section
1402(i).
Mark-to-Market Rules
Under these rules, each section 1256
contract held at year end is treated as if
it were sold at fair market value (FMV) on
the last business day of the tax year. The
wash sale rules don’t apply.
If your section 1256 contracts produce
capital gain or loss, gains or losses on
section 1256 contracts open at the end
of the year, or terminated during the
year, are treated as 60% long term and
40% short term, regardless of how long
the contracts were held.
The mark-to-market rules don’t apply
if you properly and timely identified a
section 1256 contract as a hedge.
Straddle
A straddle means offsetting positions
with respect to personal property of a
type that is actively traded.
Offsetting Positions
If there is a substantial decrease in risk
of loss to a taxpayer holding a position
because that taxpayer or a related party
also holds one or more other positions,
then those positions are offsetting and
may be part of a straddle. However, if an
identified straddle is properly
established, other positions held by the
taxpayer won’t be treated as offsetting
with respect to any position that is part
of the identified straddle.
General Rule for Straddles
If you don’t make any of the elections
described in box A, B, or C, and you
have a loss on the section 1256 contract
component, use Part II to reduce the
loss by any unrecognized gain on the
non-section 1256 contract component
before making an entry in Part I. You
also must reduce the loss from any
section 1256 contract component of a
straddle that would be a mixed straddle
if the positions had been properly
identified as such.
Box A. Mixed Straddle Election
Under section 1256(d), you can elect to
have the mark-to-market rules not apply
to section 1256 contracts that are part of
a mixed straddle. A mixed straddle is
any straddle in which at least one but not
all of the positions is a section 1256
contract. On the day the first section
1256 contract forming part of the
straddle is acquired, each position
forming part of the straddle must be
clearly identified as being part of such
straddle. If you make this election, it will
apply for all later years and you can’t
revoke it without IRS consent. If you are
making or have previously made this
election, check box A and report the
section 1256 component in Part II
instead of Part I.
Box B. Straddle-by-Straddle
Identification Election
Make this election for mixed straddles
according to Temporary Regulations
section 1.1092(b)-3T(d) by clearly
identifying each position by the earlier of
(a) the close of the day the identified
mixed straddle is established, or (b) the
time the position is disposed of. No
straddle-by-straddle identification
election may be made for any straddle
for which a mixed straddle election was
made or if one or more positions are
includible in a mixed straddle account. If
you are making or have previously made
this election, check box B.
If you make this election, any positions
you held on the day before the election
are deemed sold for their fair market
value at the close of the last business
day before the day of the election. For
elections made on or before August 18,
2014, take this gain or loss into account
when computing taxable income for the
year in which the election was made. For
elections made after August 18, 2014,
take this gain or loss into account in the
year you would have reported the gain or
loss if the identified mixed straddle had
not been established. In addition, when
the gain or loss that accrued prior to the
time the identified mixed straddle was
established is taken into account, it will
have the same character it would have
had if the identified mixed straddle had
not been established. See Regulations
section 1.1092(b)-6 for details.
Each year you hold positions subject
to this election, you must mark to market
your section 1256 contracts and
determine, in accordance with
Regulations sections 1.1092(b)-3T and
1.1092(b)-6, whether you have a net gain
or loss. If the net gain or loss is
attributable to a net non-section 1256
position, then the net gain or loss is
treated as a short-term capital gain or
loss. Enter it directly on Form 8949 and
identify the election. If the net gain or
loss is attributable to a section 1256
position, enter the gain or loss on Form
6781, Part I, and identify the election.
Box C. Mixed Straddle Account
Election
Make this election according to
Temporary Regulations section
1.1092(b)-4T(f) to establish one or more
mixed straddle accounts for 2020 by the
due date (without extensions) of your
2019 tax return. To make this election,
check box C and attach to your return
(or your request for an extension of time
to file) the statement required by the
regulations. Report the annual account
net gain or loss from a mixed straddle
account in Part II and identify the
election. See Temporary Regulations
section 1.1092(b)-4T(c)(4) for limits on
the total annual account net gain or loss.
