IRS Concludes Taxpayer Loss Allocation Was Not Determined By 'Straddle Rules'

The IRS has concluded in a legal memorandum (ILM 2012-41-005) that a taxpayer's share of loss allocation from a partnership was not affected by the application of the "straddle rules" under Section 1092 and related regulations.

The taxpayer addressed by the memorandum was a common parent of a consolidated group (P). P directly and wholly owned the stock of a U.S. domestic corporation (S). P also held a minority interest in a foreign partnership (FP), and P undertook a trading strategy in which S and FP entered into long and short positions (i.e., offsetting positions) in exchange-traded funds (ETFs). P took the position that some positions held by FP that were offsetting to S were "identified straddles" under Section 1092(a)(2)(B).