CCA 200942044: Derivative portfolio treatment in the dividends-received deduction calculation

Number

200942044

Outcome

Advice

Document type

Chief Counsel Advice

IRS subject

Reduction of Holding Periods

Topics

Income and deductions

Code sections

§ 246, § 6110

Ruling dated

March 16, 2009

Publicly released

October 16, 2009

Source

View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2009, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

View official IRS release (PDF)

Plain-English summary

This Chief Counsel Advice addresses a derivative portfolio and a collar used to represent 20 or more independent stocks for purposes of a dividends-received deduction calculation. Counsel states that there is no legal basis for disregarding the derivative portfolio. The stocks underlying the derivative portfolio cannot be removed from the collar or from the calculation's denominator, and their value cannot be added to the numerator because the taxpayer technically does not own or hold those stocks for dividends-received deduction purposes under the regulation.

Ruling snapshot

Question: How should stocks underlying a derivative portfolio be treated in the dividends-received deduction overlap calculation?
Outcome: Advice given
Key authorities: Treas. Reg. § 1.246-5(c)(1)(v); IRC § 246

Full text (IRS public release)

ID: CCA-316142-09 Number: 200942044
Office: ----------------
Release Date: 10/16/2009

UILC: 246.05-03

From: -----------------------
Sent: March 16, 2009
To: -------------------
Cc: ----------------------------
Subject: F886-A position – Treas. Regs. 1.246-5(c)(1)(v) ---------

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Your conclusion is absolutely correct except that there is no legal basis for "disregarding" the derivative portfolio. I am not quite sure what you mean by that, but the law is clear that the taxpayer can "create" a portfolio representing 20 or more independent stocks (the collar). The collar includes positions offsetting the stocks underlying the derivative portfolio. We cannot take those stocks out of the collar, and thus the demoninator in the overlap calculation. The other alternative is to include the value of the stocks underlying the derivative portfolio in the numerator of the calculation. We have no authority to do that either because the taxpayer technically does not own those stocks and, according to the regulation, does not "hold" those stocks for purposes of the DRD. --
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------------------------------------------------------------------------------------------------------ I hope this is helpful.

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