Taxpayers who enter into offsetting positions in actively traded personal property where one or more—but not all—of the positions making up a straddle are taxed as section 1256 contracts (while another offsetting position is not a section 1256 contract) are subject to the mixed straddle rules. Potential adverse consequences can be magnified or made more complex by application of these special rules. This article can help taxpayers understand and take action to minimize or avoid these consequences when such positions involve virtual currencies.
Special tax rules require taxpayers to treat gains on certain virtual currency positions as taxable even though they still hold their positions. These rules apply to futures and options that qualify as section 1256 contracts, which is potentially relevant to taxpayers buying, selling and holding Bitcoin futures and options, as well as Ether futures and other virtual currencies. This article reviews a number of issues that arise—or may arise in the future—for taxpayers with virtual currency positions.