# Prop. Treas. Reg. § 1.864(b)-1: Trading in derivatives. Proposed regulation, not in force. REG-106031-98, 63 FR 32164, published 1998-06-12 . Interprets 26 U.S.C. § 864. Par. 2. Section 1.864(b)-1 is added to read as follows: (a) Trading for taxpayer's own account. As used in part I (section 861 and following) and part II (section 871 and following), subchapter N, chapter 1 of the Internal Revenue Code (Code), and chapter 3 (section 1441 and following) of the Code, and the regulations thereunder, if a taxpayer is an eligible nondealer, the term engaged in trade or business within the United States does not include effecting transactions in derivatives for the taxpayer's own account, including hedging transactions within the meaning of Sec. 1.1221-2. (b) Definitions--(1) Eligible nondealer. For purposes of this section, an eligible nondealer is a person that is not a resident of the United States and is not, at any place (domestic or foreign), nor at any time during that person's taxable year, any of the following-- (i) A dealer in stocks or securities as defined in Sec. 1.864- 2(c)(2)(iv)(a); (ii) A dealer in commodities as that term is used in Sec. 1.864- 2(d); or (iii) A person that regularly offers to enter into, assume, offset, assign or otherwise terminate positions in derivatives with customers in the ordinary course of a trade or business, including regularly holding oneself out, in the ordinary course of one's trade or business, as being willing and able to enter into either side of a derivative transaction. (2) Derivative. For purposes of this section, the term derivative includes-- (i) An interest rate, currency (as defined in paragraph (b)(3) of this section), equity, or commodity (as the term is used in section 864(b)(2)(B) and Sec. 1.864-2(d)) notional principal contract (as the term is used in section 475(c)(2)); or (ii) An evidence of an interest, or a derivative financial instrument (including any option, forward contract, short position and any similar financial instrument), in any-- (A) Commodity (as the term is used in section 864(b)(2)(B) and Sec. 1.864-2(d)); (B) Currency (as defined in paragraph (b)(3) of this section); (C) Share of stock (as the term is used in Sec. 1.864-2(c)(2)); (D) Partnership or beneficial ownership interest in a widely held or publicly traded partnership or trust; (E) Note, bond, debenture, or other evidence of indebtedness; or (F) Notional principal contract described in paragraph (b)(2)(i) of this section. (3) Limitation. For purposes of this section, the term currency is limited to currencies of a kind customarily dealt in on an organized commodity exchange.