What are the procedures and criteria for
mark-to-market accounting?
July 28, 1999
From: Drexell W. King II
Date: Mon, 28 Jun 1999
I'm researching mark-to-market accounting, and I can't find too much information about it. I understand that it is when financial instruments are revalued at regular intervals using market prices, but how exactly is the procedure performed, or is it so simple that I just can't find information on it?
Also, what criteria must be met in order to use Mark-to-Market accounting...Thank you
Answer
Date: Wed, 28 Jul 1999
Hello Drexell,
Sorry it took so long for me to write back to you.
The mark to market rules usually apply to transactions relating to commodity contracts.
Contracts subject to the mark-to-market rules are typically called Section 1256 contracts.
Under the mark-to-market rules, gains and losses inherent in Section 1256 contracts are reported for the year. The security is treated as sold for its fair market value on the last business day of the year.
Typically, the commodities broker gives a net gain or loss figure to the investor on a year-end statement.
The net gain or loss from Section 1256 contracts is reported as 40% short-term and 60% long-term, regardless of how long the securities were actually held.
You can get more details relating to the mark-to-market rules by going to the library of a university with a good business school. Most of them will have a tax research service that you can use, either in paper or CD-ROM.
Good luck!
Mike Gray
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