Many total return equity swaps provide an investor with the returnon multiple equities. These basket swaps raise two types ofissues. First, how should taxpayers account for changes in thecomposition of the basket, taking into account both the realizationrules and the wash sale rules? Second, what are the rulesgoverning the use of so-called “70/30 baskets” under theDRD/QDI holding period rules, the straddle rules, the constructivesale rules, and the wash sale rules?
Learning Objectives
Understand the income tax accounting treatment of single nameand multiple name total return basket swaps. Understand the taxconsequences under the straddle rules, equity hedging rules,wash sale rules, and constructive sale rules of entering into andholding basket swaps.
Major Topics
Many total return equity swaps provide an investor with the returnon multiple equities. These basket swaps raise two types ofissues. First, how should taxpayers account for changes in thecomposition of the basket, taking into account both the realizationrules and the wash sale rules? Second, what are the rulesgoverning the use of so-called “70/30 baskets” under theDRD/QDI holding period rules, the straddle rules, the constructivesale rules, and the wash sale rules?
