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Abstract: 

Treasury and the IRS have made significant progress in providing guidance to taxpayers subject to mark-to-market tax accounting under Section 475, in the form of the proposed regulations issued in May 2005. The authors are concerned, however, that the guidance does not go far enough. First, we believe that the Treasury and IRS should address the fundamental inequity facing taxpayers that find themselves outside the safe harbors set forth in the proposed regulations. These taxpayers should not be shouldered with an effective burden of proof that is more onerous than that normally borne by taxpayers. Second, and independent from the first point, the Treasury and IRS should affirmatively state that a taxpayer’s valuation of property outside the context of Section 475 is not a method of accounting that carries with it an increased burden of proof. We are aware of a situation in which the IRS has questioned this point, and the Treasury and IRS should eliminate any perceived ambiguity in this regard.

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Affiliations:  1: Shearman & Sterling LLP; 2: Shearman & Sterling LLP.