Basket contracts are generally 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 instead of when changes to the underlying assets are made. The IRS has had basket transactions on its radar since 2015, when the IRS first issued notices classifying basket option contracts as "listed transactions" and basket contracts as "transactions of interest."7 On February 6, 2017, the IRS issued audit guidelines for auditing basket transactions,8 in tandem with an earlier announcement of a compliance campaign focusing on such transactions. Now, with the addition of new audit guidelines, the IRS seems to be intensifying its scrutiny of basket transactions, and taxpayers who have engaged in these transactions would be prudent to prepare for some kind of audit.