Momenta Pharmaceuticals, Inc. (MNTA)

[mouton29]

No, trade date governs.


Rev. Rul. 93-84, 1993-2 CB 225, 12/06/1993, IRC Sec(s). 453

CASH METHOD TAXPAYER MUST REALIZE GAIN/LOSS ON SALE OF STOCK IN YEAR OF TRADE, NOT YEAR PROCEEDS ARE RECEIVED

Full Text:

ISSUE

In what taxable year must a cash method taxpayer report the gain or loss realized from a year-end sale of stock or securities that are traded on an established securities market?

FACTS

A uses the cash receipts and disbursements method of accounting and files returns on a calendar year basis. For several years A held stock that is traded on the E Exchange, an established securities market. On December 31, 1992, A contacted a broker and placed a regular-way sale order on the stock. The broker executed the trade on the same day (the trade date). As permitted by the rules of the exchange, A delivered the stock certificates to the broker, and the broker delivered the proceeds of the sale to A, on January 8, 1993 (the settlement date).

LAW AND ANALYSIS

Section 453(k) of the Internal Revenue Code, as added by section 812(a) of the Tax Reform Act of 1986, 1986-3 (Vol. 1) C.B. 288, provides that any installment obligation arising out of a sale of stock or securities traded on an established securities market is not eligible for the installment method of reporting income under section 453(a), and all payments to be received shall be treated as received in the year of disposition. The Senate Report states that, for sales made on an established market, if cash settlement of transactions customarily occurs several business days after the date on which a trade is made, gain or loss will be recognized for federal income tax purposes by both cash and accrual method taxpayers on the date the trade is executed. S. Rep. No. 313, 99th Cong., 2d Sess. 131 (1986), 1986-3 (Vol. 3) C.B. 131. The conference agreement adopted the Senate amendment. 2 H.R. Conf. Rep. No. 841, 99th Cong., 2d Sess. II-297 (1986), 1986-3 (Vol. 4) C.B. 297.

Accordingly, the year of disposition of a regular-way sale of stock or securities traded on an established securities market is the year that includes the trade date. Therefore, A may not report the gain from the sale of the stock under the installment method, and A must recognize and report any gain or loss in 1992, the year in which the trade date falls.

HOLDING

A cash basis taxpayer must report the gain or loss realized from a year-end sale of stock or securities, traded on an established securities market, in the year in which the trade date falls.