Biotech Values

[mouton29]

<<selling creates a taxable event,maintaining a short against an appreciated long position would freeze and protect gain until it becomes a long term gain,wonder if anybody does it just to get the lower long term cap gains tax rate.>>

Not since the law changed in 1997. Generally a short sale would be treated as a "constructive sale". under Code Section 1259, copied below:

Internal Revenue Code
§ 1 2 5 9 Co n s t r u c t i v e s a l e s t r e a t me n t f o r a p p r e c i a t e d f i n a n c i a l
p o s i t i o n s.
(a) In general.
If there is a constructive sale of an appreciated financial position—
(1) the taxpayer shall recognize gain as if such position were sold, assigned, or otherwise terminated at
its fair market value on the date of such constructive sale (and any gain shall be taken into account for
the taxable year which includes such date), and
(2) for purposes of applying this title for periods after the constructive sale—
(A) proper adjustment shall be made in the amount of any gain or loss subsequently realized with
respect to such position for any gain taken into account by reason of paragraph (1) , and
(B) the holding period of such position shall be determined as if such position were originally
acquired on the date of such constructive sale.
(b) Appreciated financial position.
For purposes of this section —
(1) In general.
Except as provided in paragraph (2) , the term “appreciated financial position” means any position
with respect to any stock, debt instrument, or partnership interest if there would be gain were such
position sold, assigned, or otherwise terminated at its fair market value.
(2) Exceptions.
The term “appreciated financial position” shall not include—
(A) any position with respect to debt if—
(i) the position unconditionally entitles the holder to receive a specified principal amount,
(ii) the interest payments (or other similar amounts) with respect to such position meet the
requirements of clause (i) of section 860G(a)(1)(B) , and
(iii) such position is not convertible (directly or indirectly) into stock of the issuer or any related
person,

(B) any hedge with respect to a position described in subparagraph (A) , and
(C) any position which is marked to market under any provision of this title or the regulations
thereunder.
(3) Position.
The term “position” means an interest, including a futures or forward contract, short sale, or option.
(c) Constructive sale.
For purposes of this section —
(1) In general.
A taxpayer shall be treated as having made a constructive sale of an appreciated financial position if
the taxpayer (or a related person)—
(A) enters into a short sale of the same or substantially identical property,
(B) enters into an offsetting notional principal contract with respect to the same or substantially
identical property,
(C) enters into a futures or forward contract to deliver the same or substantially identical property,
(D) in the case of an appreciated financial position that is a short sale or a contract described in
subparagraph (B) or (C) with respect to any property, acquires the same or substantially identical
property, or
(E) to the extent prescribed by the Secretary in regulations, enters into 1 or more other transactions
(or acquires 1 or more positions) that have substantially the same effect as a transaction described
in any of the preceding subparagraphs.
(2) Exception for sales of nonpublicly traded property.
A taxpayer shall not be treated as having made a constructive sale solely because the taxpayer enters
into a contract for sale of any stock, debt instrument, or partnership interest which is not a marketable
security (as defined in section 453(f) ) if the contract settles within 1 year after the date such contract is
entered into.
(3) Exception for certain closed transactions.
(A) In general. In applying this section , there shall be disregarded any transaction (which would
otherwise cause a constructive sale) during the taxable year if—
(i) such transaction is closed on or before the 30th day after the close of such taxable year,
(ii) the taxpayer holds the appreciated financial position throughout the 60-day period
beginning on the date such transaction is closed, and
(iii) at no time during such 60-day period is the taxpayer's risk of loss with respect to such
position reduced by reason of a circumstance which would be described in section 246(c)(4) if
references to stock included references to such position.
(B) Treatment of certain closed transactions where risk of loss on appreciated financial position
diminished. If—
(i) a transaction, which would otherwise cause a constructive sale of an appreciated financial
position, is closed during the taxable year or during the 30 days thereafter, and
(ii) another transaction is entered into during the 60-day period beginning on the date the
transaction referred to in clause (i) is closed—
(I) which would (but for this subparagraph ) cause the requirement of subparagraph (A)(iii)
not to be met with respect to the transaction described in clause (i) of this subparagraph,
(II) which is closed on or before the 30th day after the close of the taxable year in which
the transaction referred to in clause (i) occurs, and
(III) which meets the requirements of clauses (ii) and (iii) of subparagraph (A) ,
the transaction referred to in clause (ii) shall be disregarded for purposes of determining whether the
requirements of subparagraph (A)(iii) are met with respect to the transaction described in clause (i) .
(4) Related person.
A person is related to another person with respect to a transaction if—
(A) the relationship is described in section 267(b) or 707(b) , and
(B) such transaction is entered into with a view toward avoiding the purposes of this section .
(d) Other definitions.
For purposes of this section —
(1) Forward contract.
The term “forward contract” means a contract to deliver a substantially fixed amount of property
(including cash) for a substantially fixed price.
(2) Offsetting notional principal contract.
The term “offsetting notional principal contract” means, with respect to any property, an agreement
which includes—
(A) a requirement to pay (or provide credit for) all or substantially all of the investment yield
(including appreciation) on such property for a specified period, and
(B) a right to be reimbursed for (or receive credit for) all or substantially all of any decline in the
value of such property.

(e) Special rules.
(1) Treatment of subsequent sale of position which was deemed sold.
If—
(A) there is a constructive sale of any appreciated financial position,
(B) such position is subsequently disposed of, and
(C) at the time of such disposition, the transaction resulting in the constructive sale of such
position is open with respect to the taxpayer or any related person,
solely for purposes of determining whether the taxpayer has entered into a constructive sale of any
other appreciated financial position held by the taxpayer, the taxpayer shall be treated as entering
into such transaction immediately after such disposition. For purposes of the preceding sentence, an
assignment or other termination shall be treated as a disposition.
(2) Certain trust instruments treated as stock.
For purposes of this section , an interest in a trust which is actively traded (within the meaning of
section 1092(d)(1) ) shall be treated as stock unless substantially all (by value) of the property held by
the trust is debt described in subsection (b)(2)(A) .
(3) Multiple positions in property.
If a taxpayer holds multiple positions in property, the determination of whether a specific transaction is a
constructive sale and, if so, which appreciated financial position is deemed sold shall be made in
the same manner as actual sales.
(f) Regulations.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes
of this section