WASHINGTON -- Securities firms and other financial institutions have until Oct. 31 to identify which of their securities and loans will be exempted from the tax law's new mark-to-market requirements, the Internal Revenue Service announced yesterday.
The announcement was made in IRS Notice 93-45.
Congress, in the legislative history to the tax bill, had given securities firms and financial institutions up to 30 days from the enactment of the new mark-to-market requirements, or until Sept. 9, to identify the securities and loans that would be exempted from the requirements.
But the IRS said firms were having trouble meeting the deadline and extended it to Oct. 31. The extension will apply to all securities and loans that are acquired on or before Oct. 31, the IRS notice said.
The deadline is part of a transition rule for those firms and institutions that must comply with the mark-to-market requirements.
The requirements, which were enacted on Aug. 10, require securities firms, banks and other financial institutions to take into account the market value, rather than the cost, of the securities and loans they hold at the end of the year in determining, for tax purposes, whether they have experienced gains or losses.
The tax law exempts certain securities and loans from the mark-to-market requirements, but only if they are identified as being exempted from the requirements at the time they are purchased. The purpose of the transition rule was to give firms time to put systems in place to begin complying with the requirements.
Exempted from the mark-to-market requirements are securities held for investment; debt acquired in the course of a taxpayer's business and not held for sale; and securities that hedge debt or securities that are not required to be marked to market.
IRS officials said yesterday that they will provide further guidance on the three exemptions to the requirements in new regulations or revenue rulings to be published during the next few months.
In its notice yesterday, the IRS stressed that the mark-to-market requirements do not just apply to securities firms. The IRS said the requirements apply to any financial institutions or taxpayers that buy and sell securities or that make and sell loans.