unrecognized gain

(4) Limitation on losses from hedging transactions (A) In general (i) Limitation Any hedging loss for a taxable year which is allocable to any limited partner or limited entrepreneur (within the meaning of paragraph (3)) shall be allowed only to the extent of the taxable income of such limited partner or entrepreneur for such taxable year attributable to the trade or business in which the hedging transactions were entered into. For purposes of the preceding sentence, taxable income shall be determined by not taking into account items attributable to hedging transactions. (ii) Carryover of disallowed loss Any hedging loss disallowed under clause (i) shall be treated as a deduction attributable to a hedging transaction allowable in the first succeeding taxable year. (B) Exception where economic loss Subparagraph (A)(i) shall not apply to any hedging loss to the extent that such loss exceeds the aggregate unrecognized gains from hedging transactions as of the close of the taxable year attributable to the trade or business in which the hedging transactions were entered into. (C) Exception for certain hedging transactions In the case of any hedging transaction relating to property other than stock or securities, this paragraph shall apply only in the case of a taxpayer described in section 465(a)(1). (D) Hedging loss The term “hedging loss” means the excess of— (i) the deductions allowable under this chapter for the taxable year attributable to hedging transactions (determined without regard to subparagraph (A)(i)), over (ii) income received or accrued by the taxpayer during such taxable year from such transactions. (E) Unrecognized gain The term “unrecognized gain” has the meaning given to such term by section 1092(a)(3).

Source

26 USC § 1256(e)(4)

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Scoping language

None identified, default scope is assumed to be the parent (part IV) of this section.

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