Quote from Surdo:
ALL futures contracts are "Marked to Market" on a daily basis.
This has nothing to do with MTM filing status.
Searched through a lot of sources on this issue, still a little confused about whether it's possible to keep the 1256 contracts out of the MTM election. The following is copied from another elite post: (
http://www.elitetrader.com/vb/showthread.php?s=&postid=401107&highlight=mtm+commodities#post401107)
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There are two approaches to keeping the 1256 contracts out of the MTM election. Actually, there is a third approach, but it is problematic and hence I don¡¯t want to address it. The first two approaches are clean.
The first approach is based on the way that Section 475 defines ¡°security.¡± The way it is defined explicitly excludes 1256 contracts from the definition. See IRC Section 475(c)(2)(flush language). Hence a MTM election for your securities trading business does not cover 1256 contracts.
The second approach is based on the clear recognition by the IRS that trading in securities vs. trading in commodities (1256 contracts) constitute two separate businesses. The Code specifically provides that MTM elections for a securities trading business and a commodities trading business are to be separately made. See IRC Section 475(f)(3).
Given those two approaches, a taxpayer could simply take the MTM election without elaboration and rely on the Code language to exclude 1256 contracts from the election. But there are a number of things a trader can do to strengthen his position in this regard to deter any IRS argument¡ªin much the same way as one can wear a certain religious accoutrement to ward off werewolves.
The first thing a trader could do is to use language in the election letter that beats the code sections down the IRS¡¯s throat. An example is:
"I hereby elect to use the Mark-to-Market method of accounting under Section 475(f)(1) of the Internal Revenue Code for my trade or business of trading securities. The first year for which the election is effective is the taxable year beginning January 1, (insert applicable year).
This election applies only my securities trading business per Section 475(f)(1). It does not apply to any business I have now or in the future for trading commodities and Section 1256 contracts per Section 475(f)(2)."
The second protective step a trader can take is to have the 1256 contracts trading done in a separate account from the account where the securities (stocks, options) trading occurs. The separate accounts simply reinforce the proposition that there are two separate businesses involved, and it was the taxpayer¡¯s intent to elect MTM for one business (securities) and not for the other business (commodities/1256 contracts).
