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USC Title 26 enacted through 2008

§ 1234. Options to buy or sell

Treatment of gain or loss in the case of the purchaser
General rule
Gain or loss attributable to the sale or exchange of, or loss attributable to failure to exercise, an option to buy or sell property shall be considered gain or loss from the sale or exchange of property which has the same character as the property to which the option relates has in the hands of the taxpayer (or would have in the hands of the taxpayer if acquired by him).
Special rule for loss attributable to failure to exercise option
For purposes of paragraph (1), if loss is attributable to failure to exercise an option, the option shall be deemed to have been sold or exchanged on the day it expired.
Nonapplication of subsection
This subsection shall not apply to -
an option which constitutes property described in paragraph (1) of section 1221(a);
in the case of gain attributable to the sale or exchange of an option, any income derived in connection with such option which, without regard to this subsection, is treated as other than gain from the sale or exchange of a capital asset; and
a loss attributable to failure to exercise an option described in section 1233(c).
Treatment of grantor of option in the case of stock, securities, or commodities
General rule
In the case of the grantor of the option, gain or loss from any closing transaction with respect to, and gain on lapse of, an option in property shall be treated as a gain or loss from the sale or exchange of a capital asset held not more than 1 year.
For purposes of this subsection -
Closing transaction
The term "closing transaction" means any termination of the taxpayer's obligation under an option in property other than through the exercise or lapse of the option.
The term "property" means stocks and securities (including stocks and securities dealt with on a "when issued" basis), commodities, and commodity futures.
Nonapplication of subsection
This subsection shall not apply to any option granted in the ordinary course of the taxpayer's trade or business of granting options.
Treatment of options on section 1256 contracts and cash settlement options
Section 1256 contracts
Gain or loss shall be recognized on the exercise of an option on a section 1256 contract (within the meaning of section 1256(b)).
Treatment of cash settlement options
In general
For purposes of subsections (a) and (b), a cash settlement option shall be treated as an option to buy or sell property.
Cash settlement option
For purposes of subparagraph (A), the term "cash settlement option" means any option which on exercise settles in (or could be settled in) cash or property other than the underlying property.

Tax Code (Internal Revenue Code) Section Index

U.S. GAAP by Codification Topic
105 GAAP Hierarchy
105 GAAP History

205 Presentation of Financial Statements
205-20 Discontinued Operations
210 Balance Sheet
210-20 Offsetting
220 Comprehensive Income
225 Income Statement
225-20 Extraordinary and Unusual Items
230 Statement of Cash Flows
250 Accounting Changes and Error Corrections
260 Earnings per Share
270 Interim Reporting

310 Impairment of a Loan
320 Investment Securities
320 Other-Than-Temporary Impairments, FSP FAS 115-2
320-10-05 Overview of Investments in Other Entities
320-10-35 Reclassification of Investments in Securities
323-10 Equity Method Investments
323-30 Investments in Partnerships and Joint Ventures
325-20 Cost Method Investments
330 Inventory

340-20 Capitalized Advertising Costs
350-20 Goodwill
350-30 Intangibles Other than Goodwill
350-40 Internal-Use Software
350-50 Website Development Costs
360 Property, Plant and Equipment
360-20 Real Estate Sales

410 Asset Retirement and Environmental Obligations
420 Exit or Disposal Cost Obligations
450 Contingencies
450-20 Loss Contingencies
450-30 Gain Contingencies
480 Redeemable Financial Instruments

505-20 Stock Dividends, Stock Splits
505-30 Treasury Stock

605 SEC Staff Accounting Bulletin, Topic 13
605-25 Revenue Recognition - Multiple Element Arrangements

715-30 Defined Benefit Plans - Pension
718 Share-Based Payment
730 Research and Development
730-20 Research and Development Arrangements

805 Business Combinations
810 Consolidation
810 Noncontrolling Interests
810 Consolidation of Variable Interest Entities, SFAS 167

815 Derivatives and Hedging Overview

820 Fair Value Measurements
820 Fair value when the markets are not active, FSP FAS 157-4
825 Fair Value Option

830 Foreign Currency Matters
830-20 Foreign Currency Transactions
830-30 Translation of Financial Statements
835 Interest
835-20 Capitalization of Interest
835-30 Imputation of Interest

840 Leases
840-20 Operating Leases
840-30 Capital Leases
840-40 Sale-Leaseback Transactions
845 Nonmonetary Transactions

855 Subsequent Events
860-20 Sale of Financial Assets, SFAS 166
860-50 Servicing Assets and Liabilities, SFAS 156

985-20 Costs of software to be sold

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Tax Code (Internal Revenue Code) Section Index

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