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Abstract: 

In TAM 200541040, the Service considered whether the equity linked contingent debt instruments and reference stock constituted a straddle under Section 1092(c). The Service determined that the instruments were, in fact, a “position’ under Section 1092(d)(2), and that this position was, under Section 1092(d)(3)(B)(i)(III) “a position with respect to substantially similar or related property (other than stock)” with respect to stock held by the Taxpayer. The instruments were, therefore, part of a straddle. Secondly, the Service considered whether payments on the debt instruments were interest and carrying charges incurred or continued to purchase or carry the shares under Section 263(g)(2)(A). This question was also answered in the affirmative.

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