Eligibility
The agreement must provide for the return of identical securities, payment of equivalent distributions (dividends/interest), and not reduce the transferor's risk of loss or opportunity for gain.
Frequently Asked Questions
Who is eligible for the Nonrecognition of Gain on Securities Lending?
The agreement must provide for the return of identical securities, payment of equivalent distributions (dividends/interest), and not reduce the transferor's risk of loss or opportunity for gain.
How does the Nonrecognition of Gain on Securities Lending work?
No gain or loss is recognized when a taxpayer transfers securities pursuant to a qualifying lending agreement that requires the return of identical securities.
What law authorizes the Nonrecognition of Gain on Securities Lending?
The Nonrecognition of Gain on Securities Lending is authorized under IRC §1058 of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §1058
Source: Internal Revenue Code, Title 26, United States Code
§ 1058. Transfers of securities under certain agreements(a) General ruleIn the case of a taxpayer who transfers securities (as defined in section 1236(c)) pursuant to an agreement which meets the requirements of subsection (b), no gain or loss shall be recognized on the exchange of such securities by the taxpayer for an obligation under such agreement, or on the exchange of rights under such agreement by that taxpayer for securities identical to the securities transferred by that taxpayer.
(b) Agreement requirementsIn order to meet the requirements of this subsection, an agreement shall—(1) provide for the return to the transferor of securities identical to the securities transferred;
(2) require that payments shall be made to the transferor of amounts equivalent to all interest, dividends, and other distributions which the owner of the securities is entitled to receive during the period beginning with the transfer of the securities by the transferor and ending with the transfer of identical securities back to the transferor;
(3) not reduce the risk of loss or opportunity for gain of the transferor of the securities in the securities transferred; and
(4) meet such other requirements as the Secretary may by regulation prescribe.
(c) BasisProperty acquired by a taxpayer described in subsection (a), in a transaction described in that subsection, shall have the same basis as the property transferred by that taxpayer.
(Added Pub. L. 95–345, § 2(d)(1), Aug. 15, 1978, 92 Stat. 482.)
Editorial Notes
Prior ProvisionsA prior section 1058 was renumbered section 1063 of this title.
Statutory Notes and Related Subsidiaries
Effective DateSection applicable with respect to amounts received after Dec. 31, 1976, as payments with respect to securities loans (as defined in section 512(a)(5) of this title), and transfers of securities, under agreements described in this section, occurring after such date, see section 2(e) of Pub. L. 95–345, set out as an Effective Date of 1978 Amendment note under section 509 of this title.