Our friends at McGladrey shared the following commentary with JLN for publicaiton
New Revenue Procedure makes it easy to revoke 475(f) elections
There are various reasons that traders find refuge in a mark to market election under IRC section 475(f). Some are looking to avoid disallowed losses caused by wash sales and straddles (offsetting positions), both of which can arise when trading frequently. Others find themselves with a losing year, and make the election to obtain ordinary treatment on losses, freeing them up for carryback to earlier years. In any case, circumstances change, and what was once a blessing can now be a curse. For those who’ve switched to buy and hold strategies, or gotten deep into 60/40-eligible commodities contracts, the mark-to-market election can rob the significant benefits of long-term capital gains.
Prior to this year, getting out of a mark to market election was both expensive and uncertain. Not only did you have to ask the IRS for advance permission, but you had to pay a user fee of $7,000 just for the privilege of doing so. Early this year, however, the IRS issued Rev. Proc. 2015-14, their latest in a series of pronouncements listing method changes that don’t require advance consent. Among the new additions to the list: automatic consent to revoke the 475(f) mark-to-market election.
There are, of course, a few steps the IRS has put in place to accomplish this. First, you will need to have your CPA file a revocation statement by the original deadline of your 2014 return (usually April 15), either with your return or your extension, in order for the revocation to be effective for 2015. Next, you will need to file Form 3115, Application for Change in Accounting Method, both with your return and separately to the IRS national office. Finally, you’ll mark your portfolio to market one last time on Dec. 31, 2014, which will then become your cost basis going forward on those positions.
There’s one catch here, and that is a five-year waiting period before you can make another 475(f) election without asking for permission. So, in short, be sure that you really want out of mark to market before revoking the election.
Brian Blacklaw, Partner, McGladrey LLP, 312.634.4606
Ben Wasmuth, Supervisor, McGladrey LLP, 312.634.4631
Adam Spence, Senior Associate, McGladrey LLP, 312.634.4821
This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person.
This publication represents the views of the author(s), and does not necessarily represent the views of McGladrey LLP. This publication does not constitute professional advice.
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475(e) or (f) revocation is now an automatic change (not yet posted)