TD 8649, Netting Rule for Certain Conversion Transactions

Internal Revenue Code (IRC) section 1258 recharacterizes capital gains from conversion transactions as ordinary income to the extent of the time value element. Treasury Regulations section 1.1258-1 provides that certain gains and losses may be netted for purposes of determining the amount of gain recharacterized. To be eligible for netting relief, the taxpayer must identify on its books and records all the positions that are part of the conversion transaction before the close of the day on which the positions become part of the conversion transaction.

The latest form for TD 8649, Netting Rule for Certain Conversion Transactions expires 2026-05-31 and can be found here.