In July 2015, the IRS released two notices addressing “basket contracts.” Generally, these are derivative instruments linked to a basket of reference assets that, among other things, allow the holder to vary the basket over the instrument’s life. According to the IRS, these types of contracts have the potential for tax avoidance, because taxpayers account for gain or loss on the contract once the contract terminates, and not when changes to the underlying assets are made. This may result in deferral and conversion of short-term capital gain into long-term capital gain and other tax discontinuities.

The two notices denominate certain basket contract transactions as “listed transactions,” and others as “transactions of interest.”