IRS Proposes Regulations Addressing Notional Principal Contracts and Section 1256 Contracts

What do mortality swaps, credit default swaps and total return swaps have in common? They are all potentially affected by regs the IRS proposed yesterday morning. 

This Stroock Special Bulletin discusses the proposed regulations which, if finalized in their current form, would significantly modify and refine the scope of contracts that constitute "notional principal contracts" for United States federal income tax purposes and clarify the application of the "swap" exclusion added to Section 1256 of the Internal Revenue Code by the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) (the "Dodd-Frank Act") in July 2010.