Internal Revenue Code · 26 U.S.C.
§ 475. Mark to market accounting method for dealers in securities
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 475
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Added
- August 10, 1993 by Pub. L. 103–66
- Last amended
- March 9, 2002 by Pub. L. 107–147
- Amendments
- 5 dated changes in the source credit
- Length
- 7 subsections · 2,103 words · about 9 min to read
- Defines
- 5 terms
- Cross-references
- cites 10; cited by 12 Code sections and 40 other regulations
- Regulations
- 9 issued under this section
A security shall not be treated as described in subparagraph (A), (B), or (C) of paragraph (1), as the case may be, unless such security is clearly identified in the dealer’s records as being described in such subparagraph before the close of the day on which it was acquired, originated, or entered into (or such other time as the Secretary may by regulations prescribe).
The term “hedge” means any position which manages the dealer’s risk of interest rate or price changes or currency fluctuations, including any position which is reasonably expected to become a hedge within 60 days after the acquisition of the position.
The rules of sections 263(g), 263A, and 1256(a) shall not apply to securities to which subsection (a) applies, and section 1091 shall not apply (and section 1092 shall apply) to any loss recognized under subsection (a).
In the case of a dealer in commodities who elects the application of this subsection, this section shall apply to commodities held by such dealer in the same manner as this section applies to securities held by a dealer in securities.
An election under this subsection may be made without the consent of the Secretary. Such an election, once made, shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
Any security to which subparagraph (A) applies and which was acquired in the normal course of the taxpayer’s activities as a trader in securities shall not be taken into account in applying section 1259 to any position to which subparagraph (A) does not apply.
Rules similar to the rules of subsections (b)(4) and (d) shall apply to securities held by a person in any trade or business with respect to which an election under this paragraph is in effect. Subsection (d)(3) shall not apply under the preceding sentence for purposes of applying sections 1402 and 7704.
In the case of a person who is engaged in a trade or business as a trader in commodities and who elects to have this paragraph apply to such trade or business, paragraph (1) shall apply to commodities held by such trader in connection with such trade or business in the same manner as paragraph (1) applies to securities held by a trader in securities.
The elections under paragraphs (1) and (2) may be made separately for each trade or business and without the consent of the Secretary. Such an election, once made, shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
(Added Pub. L. 103–66, title XIII, § 13223(a), Aug. 10, 1993, 107 Stat. 481; amended Pub. L. 105–34, title X, § 1001(b), Aug. 5, 1997, 111 Stat. 906; Pub. L. 105–206, title VI, § 6010(a)(3), title VII, § 7003(a), (b), July 22, 1998, 112 Stat. 813, 832; Pub. L. 106–170, title V, § 532(b)(1), Dec. 17, 1999, 113 Stat. 1930; Pub. L. 106–554, § 1(a)(7) [title III, § 319(4)], Dec. 21, 2000, 114 Stat. 2763, 2763A–646; Pub. L. 107–147, title IV, § 417(10), Mar. 9, 2002, 116 Stat. 56.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 475
- § 1.475-0 Table of contents.
- § 1.475(a)-3 Acquisition by a dealer of a security with a substituted basis.
- § 1.475(a)-4 Valuation safe harbor.
- § 1.475(b)-1 Scope of exemptions from mark-to-market requirement.
- § 1.475(b)-2 Exemptions—identification requirements.
- § 1.475(c)-1 Definitions—dealer in securities.
- § 1.475(c)-2 Definitions—security.
- § 1.475(d)-1 Character of gain or loss.
- § 1.475(g)-1 Effective dates.
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 10 other sections
- § 1256(a) Section 1256 contracts marked to market
- § 267(b) Losses, expenses, and interest with respect to transactions between related taxpayers
- § 263(g) Capital expenditures
- § 263A Capitalization and inclusion in inventory costs of certain expenses
- § 1091 Loss from wash sales of stock or securities
- § 1092 Straddles
- § 1236(b) Dealers in securities
- § 1259 Constructive sales treatment for appreciated financial positions
- § 1402 Definitions
- § 7704 Certain publicly traded partnerships treated as corporations
Cited by 12 Code sections
- § 163(l)(5) Interest
- § 199A(d)(2)(B) Qualified business income
- § 355(g)(2)(B)(iii) Distribution of stock and securities of a controlled corporation
- § 856(n)(4) Definition of real estate investment trust
- § 954(c)(2)(C)(ii) Foreign base company income
- § 956(c)(2)(L)(ii)(II) Investment of earnings in United States property
- § 988(d)(1) Treatment of certain foreign currency transactions
- § 1061(c)(3) Partnership interests held in connection with performance of services
- § 1291(d)(1)(B) Interest on tax deferral
- § 1411(c)(2)(B) Imposition of tax
- § 1471(d)(5)(C) Withholdable payments to foreign financial institutions
- § 4975(f)(11)(D)(i) Tax on prohibited transactions
Cited in 40 regulations not issued under it
- § 1.59A-6 Qualified derivative payment.
- § 1.199A-5 Specified service trades or businesses and the trade or business of performing services as an employee.
- § 1.250(b)-3 Foreign-derived deduction eligible income (FDDEI) transactions.
- § 1.367(a)-2 Exceptions for transfers of property for use in the active conduct of a trade or business.
- § 1.381(c)(4)-1 Method of accounting.
- § 1.385-3 Certain distributions of debt instruments and similar transactions.
- § 1.446-3 Notional principal contracts.
- § 1.446-4 Hedging transactions.
- § 1.451-3 Timing of income inclusion for taxpayers with an applicable financial statement using an accrual method of accounting.
- § 1.721(c)-1 Overview, definitions, and rules of general application.
- § 1.721(c)-7 Examples.
- § 1.865-1 Loss with respect to personal property other than stock.
- § 1.865-2 Loss with respect to stock.
- § 1.871-15 Treatment of dividend equivalents.
- § 1.882-5 Determination of interest deduction.
- § 1.892-3 Income of foreign governments.
- § 1.954-2 Foreign personal holding company income.
- § 1.956-2T Definition of United States Property (temporary).
- § 1.987-3 Determination of section 987 taxable income or loss of an owner of a section 987 QBU.
- § 1.987-3T Determination of section 987 taxable income or loss of an owner of a section 987 QBU (temporary).
- § 1.1001-4 Modifications of certain derivative contracts.
- § 1.1061-1 Section 1061 definitions.
- § 1.1291-1 Taxation of U.S. persons that are shareholders of section 1291 funds.
- § 1.1411-4 Definition of net investment income.
Show 16 more
- § 1.1411-5 Trades or businesses to which tax applies.
- § 1.1411-9 Exception for self-employment income.
- § 1.1446(f)-4 Withholding on the transfer of a publicly traded partnership interest.
- § 1.1471-5 Definitions applicable to section 1471.
- § 1.1472-1 Withholding on NFFEs.
- § 1.1473-1 Section 1473 definitions.
- § 1.1502-13 Intercompany transactions.
- § 1.1502-32 Investment adjustments.
- § 1.1502-36 Unified loss rule.
- § 1.6038D-3 Specified foreign financial assets.
- § 1.6038D-6 Specified domestic entities.
- § 1.6045-0 Table of contents.
- § 1.6045-1 Returns of information of brokers and barter exchanges.
- § 1.7704-3 Qualifying income.
- § 58.4501-3 Exceptions.
- § 58.4501-7 Special rules for acquisitions or repurchases of stock of certain foreign corporations.
Amendment history
From the source credit and the official notes, newest first.
- Amended by Pub. L. 107–147Parts changed in 2002: (g)(3)
- Amended by Pub. L. 106–554Parts changed in 2000: (g)(3)
- Amended by Pub. L. 106–170Parts changed in 1999: (c)(3)
- Amended by Pub. L. 105–206Parts changed in 1998: (c)(4) (f)(1)(D) (g)(3)
- Amended by Pub. L. 105–34Parts changed in 1997: (e)
- Added by Pub. L. 103–66
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter E Accounting Periods and Methods of Accounting
- Part II METHODS OF ACCOUNTING
- Subpart D Inventories
Nearby sections
- § 471 General rule for inventories
- § 472 Last-in, first-out inventories
- § 473 Qualified liquidations of LIFO inventories
- § 474 Simplified dollar-value LIFO method for certain small businesses
- § 475 Mark to market accounting method for dealers in securities
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
Amendments
2002—Subsec. (g)(3). Pub. L. 107–147 substituted “described in section” for “described in sections”.
2000—Subsec. (g)(3). Pub. L. 106–554 substituted “267(b) or” for “267(b) of”.
1999—Subsec. (c)(3). Pub. L. 106–170 substituted “manages” for “reduces”.
1998—Subsec. (c)(4). Pub. L. 105–206, § 7003(a), added par. (4).
Subsec. (f)(1)(D). Pub. L. 105–206, § 6010(a)(3), inserted at end “Subsection (d)(3) shall not apply under the preceding sentence for purposes of applying sections 1402 and 7704.”
Subsec. (g)(3). Pub. L. 105–206, § 7003(b), added par. (3).
1997—Subsecs. (e) to (g). Pub. L. 105–34 added subsecs. (e) and (f) and redesignated former subsec. (e) as (g).
Statutory Notes and Related Subsidiaries
Effective Date of 1999 Amendment
Amendment by Pub. L. 106–170 applicable to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after Dec. 17, 1999, see section 532(d) of Pub. L. 106–170, set out as a note under section 170 of this title.
Effective Date of 1998 Amendment
Amendment by section 6010(a)(3) of Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.
Pub. L. 105–206, title VII, § 7003(c), July 22, 1998, 112 Stat. 833, provided that:
“(1) In general.— The amendments made by this section [amending this section] shall apply to taxable years ending after the date of the enactment of this Act [July 22, 1998].“(2) Change in method of accounting.— In the case of any taxpayer required by the amendments made by this section to change its method of accounting for its first taxable year ending after the date of the enactment of this Act—“(A) such change shall be treated as initiated by the taxpayer;“(B) such change shall be treated as made with the consent of the Secretary of the Treasury; and“(C) the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 shall be taken into account ratably over the 4-taxable-year period beginning with such first taxable year.”
Effective Date of 1997 Amendment
Pub. L. 105–34, title X, § 1001(d), Aug. 5, 1997, 111 Stat. 907, as amended by Pub. L. 105–206, title VI, § 6010(a)(4), July 22, 1998, 112 Stat. 813, provided that:
“(1) In general.— Except as otherwise provided in this subsection, the amendments made by this section [enacting section 1259 of this title and amending this section] shall apply to any constructive sale after June 8, 1997.“(2) Exception for sales of positions, etc. held before june 9, 1997.— If—“(A) before June 9, 1997, the taxpayer entered into any transaction which is a constructive sale of any appreciated financial position, and“(B) before the close of the 30-day period beginning on the date of the enactment of this Act [Aug. 5, 1997] or before such later date as may be specified by the Secretary of the Treasury, such transaction and position are clearly identified in the taxpayer’s records as offsetting,such transaction and position shall not be taken into account in determining whether any other constructive sale after June 8, 1997, has occurred. The preceding sentence shall cease to apply as of the date such transaction is closed or the taxpayer ceases to hold such position.“(3) Special rule.— In the case of a decedent dying after June 8, 1997, if—“(A) there was a constructive sale on or before such date of any appreciated financial position,“(B) the transaction resulting in such constructive sale of such position remains open (with respect to the decedent or any related person)—“(i) for not less than 2 years after the date of such transaction (whether such period is before or after June 8, 1997), and“(ii) at any time during the 3-year period ending on the date of the decedent’s death, and“(C) such transaction is not closed before the close of the 30th day after the date of the enactment of this Act,then, for purposes of such Code [probably means the Internal Revenue Code of 1986], such position (and the transaction resulting in such constructive sale) shall be treated as property constituting rights to receive an item of income in respect of a decedent under section 691 of such Code. Section 1014(c) of such Code shall not apply to so much of such position’s or property’s value (as included in the decedent’s estate for purposes of chapter 11 of such Code) as exceeds its fair market value as of the date such transaction is closed.“(4) Election of mark to market by securities traders and traders and dealers in commodities.—“(A) In general.— The amendments made by subsection (b) [amending this section] shall apply to taxable years ending after the date of the enactment of this Act.“(B) 4-year spread of adjustments.— In the case of a taxpayer who elects under subsection (e) or (f) of section 475 of the Internal Revenue Code of 1986 (as added by this section) to change its method of accounting for the taxable year which includes the date of the enactment of this Act—“(i) any identification required under such subsection with respect to securities and commodities held on the date of the enactment of this Act shall be treated as timely made if made on or before the 30th day after such date of enactment, and“(ii) the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of such Code shall be taken into account ratably over the 4-taxable year period beginning with such first taxable year.”
Effective Date
Pub. L. 103–66, title XIII, § 13223(c), Aug. 10, 1993, 107 Stat. 484, provided that:
“(1) In general.— The amendments made by this section [enacting this section and amending section 988 of this title] shall apply to all taxable years ending on or after December 31, 1993.“(2) Change in method of accounting.— In the case of any taxpayer required by this section to change its method of accounting for any taxable year—“(A) such change shall be treated as initiated by the taxpayer,“(B) such change shall be treated as made with the consent of the Secretary, and“(C) except as provided in paragraph (3), the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 shall be taken into account ratably over the 5-taxable year period beginning with the first taxable year ending on or after December 31, 1993.“(3) Special rule for floor specialists and market makers.—“(A) In general.— If—“(i) a taxpayer (or any predecessor) used the last-in first-out (LIFO) method of accounting with respect to any qualified securities for the 5-taxable year period ending with its last taxable year ending before December 31, 1993, and“(ii) any portion of the net amount described in paragraph (2)(C) is attributable to the use of such method of accounting,then paragraph (2)(C) shall be applied by taking such portion into account ratably over the 15-taxable year period beginning with the first taxable year ending on or after December 31, 1993.“(B) Qualified security.— For purposes of this paragraph, the term ‘qualified security’ means any security acquired—“(i) by a floor specialist (as defined in section 1236(d)(2) of the Internal Revenue Code of 1986) in connection with the specialist’s duties as a specialist on an exchange, but only if the security is one in which the specialist is registered with the exchange, or“(ii) by a taxpayer who is a market maker in connection with the taxpayer’s duties as a market maker, but only if—“(I) the security is included on the National Association of Security Dealers Automated Quotation System,“(II) the taxpayer is registered as a market maker in such security with the National Association of Security Dealers, and“(III) as of the last day of the taxable year preceding the taxpayer’s first taxable year ending on or after December 31, 1993, the taxpayer (or any predecessor) has been actively and regularly engaged as a market maker in such security for the 2-year period ending on such date (or, if shorter, the period beginning 61 days after the security was listed in such quotation system and ending on such date).”