Taxpayers report gains and losses from regulated futures contracts and other “Section 1256 contracts” annually under the “mark-to-market” rules. All Section 1256 contracts must be marked to market at year-end. Each contract held by a taxpayer is treated as if it were sold for FMV on the last business day of the year.

If a taxpayer holds Section 1256 contracts at the beginning of a tax year, any gain or loss later realized on the contracts must be adjusted to reflect any gain or loss taken into account with respect to the contracts in an earlier year. Any capital gain or loss on a Section 1256 futures contract is treated as if 40% of the gain or loss is short term capital gain or loss, and 60% of the gain or loss is long-term capital gain or loss. Use Form 6781.