a way to diminish risk of loss: the inverse-variation rule, (b)(2), or a deeming rule of (c); the (c)(5) hedge limit is drawn on the gate this one decides
UNDECIDED
0 of 12 settled
- 1ANY OF“A taxpayer has diminished its risk of loss on its stock by holding positions with respect to substantially similar or related property” Reg. § 1.246-5(b)(2)
“Substantially similar or related property”: facts and circumstances, Reg. § 1.246-5(b)(1).
Positions include those of a related party, §§ 267(b) or 707(b)(1), held with a view to avoiding this section, (c)(6)
“a taxpayer is treated as diminishing its risk of loss by holding substantially similar or related property if it engages in the following transactions or their substantial equivalents” Reg. § 1.246-5(c)(2)(ii)“Substantial” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)
Conversion rights, notwithstanding (b)(1) and (2)
Step 12 conversion rights: one of the listed short sales, or its substantial equivalent UNDECIDED
“the taxpayer is the beneficiary of a guarantee, surety agreement, or similar arrangement and the guarantee, surety agreement, or similar arrangement provides for payments that will substantially offset decreases in the fair market value of the stock” Reg. § 1.246-5(c)(4)“Substantially” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)
“the taxpayer holds an interest in, or is the beneficiary of, a pass-through entity, intermediary, or other arrangement with a view to avoiding the application of this section or § 1.1092(d)-2” Reg. § 1.246-5(c)(6)Positions of a related party, §§ 267(b) or 707(b)(1), held with a view to avoiding this section count as the taxpayer's, (c)(6)
“a taxpayer is treated under the preceding sentence as receiving payments under a notional principal contract when the fair market value of the taxpayer's stock declines” Reg. § 1.246-5(c)(7)The consequence, a diminished risk of loss by holding a position in substantially similar or related property, regardless of netting, is what this route establishes, (c)(7)
- 2
diminished risk of loss: positions in substantially similar or related property expected to vary inversely
ALL OF“positions with respect to substantially similar or related property” Opening words needs Step 4 substantially similar or related property under Reg. § 1.246-5: the general rule, (b)(1), the portfolio rule, (c)(1)(ii), or the anti-abuse rule, (c)(1)(vi) UNDECIDED“Substantially similar or related property”: facts and circumstances, Reg. § 1.246-5(b)(1).
“changes in the fair market values of the stock and the positions are reasonably expected to vary inversely”“Reasonably expected”: facts and circumstances, Reg. § 1.246-5(b)(4).
NOT“an option to sell that is significantly out of the money” Reg. § 1.246-5(c)(2)(i)Excludes only a significantly out-of-the-money put held outside a strategy to substantially offset changes in the stock's value, decided at (c)(2)(i)
Step 3 a significantly out-of-the-money put held outside an offsetting strategy UNDECIDED
- 3
a significantly out-of-the-money put held outside an offsetting strategy
ALL OF“an option to sell that is significantly out of the money”NOT“the option is held as part of a strategy to substantially offset changes in the fair market value of the stock”“Substantially” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)
- 4
Reg. § 1.246-5 Ambiguous
substantially similar or related property under Reg. § 1.246-5: the general rule, (b)(1), the portfolio rule, (c)(1)(ii), or the anti-abuse rule, (c)(1)(vi)
ANY OFReg. § 1.246-5 states no single test; this gate joins the general rule, (b)(1), for nonportfolio positions, the portfolio rule, (c)(1)(ii), and the anti-abuse rule, (c)(1)(vi), across paragraphs. Conversion rights, (c)(2)(ii), guarantees, (c)(4), pass-through entities, (c)(6), and notional principal contracts, (c)(7), deem a diminished risk of loss rather than define the term; they are drawn at Reg. § 1.246-5(a) and (c)
“In general, property is substantially similar or related to stock when” Reg. § 1.246-5(b)(1) unless Step 8 the position reflects a portfolio: stocks of 20 or more unrelated issuers UNDECIDED“Facts and circumstances” is the law's own test. Cited by Reg. § 1.246-5(c)(1)(ii), Reg. § 1.246-5(c)(2)(ii), Reg. § 1.246-5(d)
The general rule, clauses (i) and (ii) of (b)(1). Not for a portfolio position: (c)(1)(ii) applies notwithstanding (b)(1); nonportfolio positions in more than one stock are separate positions in each stock, (c)(1)(v)
Step 5 substantially similar or related property (general rule) UNDECIDED
“a position reflecting the value of a portfolio of stocks is substantially similar or related to the stocks held by the taxpayer only if the position and the taxpayer's holdings substantially overlap as of the most recent testing date” Reg. § 1.246-5(c)(1)(ii)“Substantially overlap” is set out in Reg. § 1.246-5(c)(1)(iii).
A portfolio is 20 or more unrelated issuers, (c)(1)(i); the overlapping percentage is substantially similar or related to the Subportfolio, (c)(1)(iii)(C)
“a position that reflects the value of more than one stock is a position in substantially similar or related property to the appropriate portion of the taxpayer's stock holdings” Reg. § 1.246-5(c)(1)(vi)“Substantially similar or related property”: facts and circumstances, Reg. § 1.246-5(b)(1).
The anti-abuse rule, clauses (A) and (B), applying notwithstanding (c)(1)(i) through (v)
- 5
substantially similar or related property (general rule)
ALL OFSubstantially similar or related property. The term substantially similar or related property is applied according to the facts and circumstances in each case. In general, property is substantially similar or related to stock when—
“(i) The fair market values of the stock and the property primarily reflect the performance of— (A) A single firm or enterprise; (B) The same industry or industries; or (C) The same economic factor or factors such as (but not limited to) interest rates, commodity prices, or foreign-currency exchange rates; and” Reg. § 1.246-5(b)(1)(i)Step 6 clause (i): the values primarily reflect the same performance UNDECIDED
“(ii) Changes in the fair market value of the stock are reasonably expected to approximate, directly or inversely, changes in the fair market value of the property, a fraction of the fair market value of the property, or a multiple of the fair market value of the property.” Reg. § 1.246-5(b)(1)(ii)“Reasonably expected”: facts and circumstances, Reg. § 1.246-5(b)(4).
- 6
clause (i): the values primarily reflect the same performance
ANY OF“The fair market values of the stock and the property primarily reflect the performance of” Opening words“A single firm or enterprise” Reg. § 1.246-5(b)(1)(i)(A)“The same industry or industries” Reg. § 1.246-5(b)(1)(i)(B)“The same economic factor or factors such as (but not limited to) interest rates, commodity prices, or foreign-currency exchange rates” Reg. § 1.246-5(b)(1)(i)(C) - 7
the portfolio rule, (c)(1)(ii): a portfolio position that substantially overlaps the holdings
ALL OF“a position reflecting the value of a portfolio of stocks” Reg. § 1.246-5(c)(1)(ii)A portfolio is 20 or more unrelated issuers, (c)(1)(i). A position in more than one stock but not a portfolio is instead a separate position in each stock, (c)(1)(v), tested under the general rule, (b)(1)
Step 8 the position reflects a portfolio: stocks of 20 or more unrelated issuers UNDECIDED
“the position and the taxpayer's holdings substantially overlap as of the most recent testing date” Reg. § 1.246-5(c)(1)(ii)“Substantially overlap” is set out in Reg. § 1.246-5(c)(1)(iii).
Step Two tests the whole position; Step Three the largest percentage of it, (c)(1)(iii)(C). Testing dates: (c)(1)(iv)
- 8
the position reflects a portfolio: stocks of 20 or more unrelated issuers
ALL OF“any group of stocks of 20 or more unrelated issuers” - 9
substantial overlap: Step Two, for the whole position or the largest percentage of it that overlaps (Step Three)
ALL OF“the fair market value of the Subportfolio is equal to or greater than 70 percent of the fair market value of the stocks represented in the position” Reg. § 1.246-5(c)(1)(iii)(B)Step One builds the Subportfolio: for each stock in the position, the lesser of its value in the position and in the holdings, (c)(1)(iii)(A). Short of 70 percent, Step Three repeats Steps One and Two on a smaller position; the largest percentage that overlaps is substantially similar or related to its Subportfolio, (c)(1)(iii)(C)
- 10
substantial overlap
ALL OF“the fair market value of the Subportfolio is equal to or greater than 70 percent of the fair market value of the stocks represented in the position”Subportfolio: Step One, (c)(1)(iii)(A). Short of 70 percent, Step Three tests a smaller part of the position, (c)(1)(iii)(C)
- 11
the anti-abuse rule applies
ALL OF“a position that reflects the value of more than one stock” Opening words“Changes in the value of the position or the stocks reflected in the position are reasonably expected to virtually track (directly or inversely) changes in the value of the taxpayer's stock holdings, or any portion of the taxpayer's stock holdings and other positions of the taxpayer” Reg. § 1.246-5(c)(1)(vi)(A)“Reasonably expected”: facts and circumstances, Reg. § 1.246-5(b)(4).
“The position is acquired or held as part of a plan a principal purpose of which is to obtain tax savings (including by deferring tax) the value of which is significantly in excess of the expected pre-tax economic profits from the plan” Reg. § 1.246-5(c)(1)(vi)(B) - 12
conversion rights: one of the listed short sales, or its substantial equivalent
ANY OFConversion rights. Notwithstanding paragraphs (b)(1) and (2) of this section, a taxpayer is treated as diminishing its risk of loss by holding substantially similar or related property if it engages in the following transactions or their substantial equivalents—
“(A) A short sale of common stock while holding convertible preferred stock of the same issuer and the price changes of the convertible preferred stock and the common stock are related;” Reg. § 1.246-5(c)(2)(ii)(A)“(B) A short sale of a convertible debenture while holding convertible preferred stock into which the debenture is convertible or common stock; or” Reg. § 1.246-5(c)(2)(ii)(B)“(C) A short sale of convertible preferred stock while holding common stock.” Reg. § 1.246-5(c)(2)(ii)(C)