7618 / What constitutes a “constructive sale” of an appreciated financial position?
In addition, if the appreciated financial position is a short sale, a futures contract (see Q 7588), a forward contract, or an offsetting notional principal contract, with respect to any property, a taxpayer who acquires the same or substantially identical property is generally treated as having made a constructive sale of the position.2
It appears that if a taxpayer holds a long-term position in actively traded stock (which is a capital asset in the taxpayer’s hands) and enters into a securities futures contract to sell substantially identical stock at a time when the position in the stock has appreciated in value, the constructive sale rules will apply.3
The Secretary of the Treasury is authorized to issue regulations providing that certain other positions or transactions having substantially the same effect as those described above will also constitute a constructive sale.4 The types of transactions intended to be targeted by such regulations are those that result in the reduction of both risk of loss and opportunity for gain; transactions that reduce only one or the other would not be affected.5