SECTION 2. LISTED

TRANSACTIONS

.01 Transactions Identified as Listed Transactions

A transaction is the same as, or substantially similar to, the transaction identified in this notice only if: (1) T enters into a transaction with C that is denominated as an option contract; (2) T receives a return based on the performance of the reference basket; (3) substantially all of the assets in the reference basket primarily consist of actively traded personal prop

3See section 3.01 for disclosure requirements.

erty as defined under § 1.1092(d)–1(a); (4) the contract is not fully settled at intervals of one year or less; (5) T or T’s designee (as defined in section 2.02 of this notice) has exercised discretion (as defined in section 2.03 of this notice) to change (either directly or through a request to C) the assets in the reference basket or the trading algorithm; and (6) T’s tax return for a taxable year ending on or after January 1, 2011, ³ reflects a tax benefit described in section 2.04 of this notice. Notwithstanding any other provision in this notice, a transaction is not the same as, or substantially similar to, the listed transaction identified in this notice if the transaction is described in section 2.05 of this notice.

.02 Designee

For purposes of this notice, any reference to T having the right to change or request changes to the assets in the reference basket or the trading algorithm includes T’s designee as defined in this section 2.02. T’s designee is any person who is: (1) T’s agent under principles of agency law; (2) compensated by T for suggesting, requesting, or determining changes in the assets in the reference basket or the trading algorithm; or (3) selected by T to suggest, request, or determine changes in the assets in the reference basket or the trading algorithm. A person will not, however, be treated as compensated or selected by T as a result of: (1) the person’s position as an investment advisor, officer, or employee of an entity, such as a mutual fund, when the entity’s publicly offered securities are included in the reference basket; or (2) the person’s use of, the person’s payment of a licensing fee for the right to use, or the person’s authority to suggest, request, or determine changes in the assets included in (y) a widely used and publicly quoted index that is based on objective financial information or (z) an index that tracks a broad market or a market segment.

.03 Discretion

For purposes of this notice, T will not be treated as having discretion to change (either directly or through a request to C) the assets in the reference basket or the

trading algorithm if changes in the assets in the reference basket or the trading algorithm are made according to objective instructions, operations, or calculations that are disclosed at the inception of the transaction (the rules) and T does not have the right to alter or amend the rules during the term of the transaction or to deviate from the assets in the reference basket or the trading algorithm selected in accordance with the rules. For these purposes, T will not be treated as having authority to alter or amend the rules solely because T has the authority to: (1) exercise routine judgment in the administration of the rules provided, however, that such routine judgment does not include deviations or alteration to the rules that are designed to improve the financial performance of the reference basket; (2) correct errors in the implementation of the rules or calculations made pursuant to the rules; or (3) make an adjustment to respond to an unanticipated event outside of T’s control, such as a stock split, merger, listing or delisting, nationalization, or insolvency of a component of a basket, a disruption in the financial markets for specific assets or in a particular jurisdiction, regulatory compliance requirement, force majeure, or any other unanticipated event of similar magnitude and significance.

.04 Tax Benefit

For purposes of this notice, a tax benefit is a deferral of income into a later taxable year or a conversion of ordinary income or short-term capital gain or loss into long-term capital gain or loss.

.05 Excluded Contracts

A transaction is not the same as, or substantially similar to, the transaction described in this notice if: (1) the contract is traded on (a) a national securities exchange that is regulated by the Securities and Exchange Commission or a domestic board of trade regulated by the Commodity Futures Trading Commission, or (b) a foreign exchange or board of trade that is subject to regulation by a comparable regulator; or (2) the contract is treated as a contingent payment debt instrument under § 1.1275–4 (including a short-term con

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tingent payment debt instrument) or a variable rate debt instrument under § 1.1275–5. With respect to T, a transaction is not the same as, or substantially similar to, the transaction described in this notice unless T’s tax return for a taxable year ending on or after January 1, 2011, ⁴

reflects a tax benefit of the transaction that is described in section 2.04 of this notice. With respect to C, a transaction is not the same as, or substantially similar to, the transaction described in this notice if: (1) T represents to C in writing under penalties of perjury that T’s tax return has not and will not reflect a tax benefit described in section 2.04 of this notice in any taxable year ending on or after January 1, 2011, ⁵ or (2) C has established that T is a nonresident alien that is not engaged in a U.S. trade or business or a foreign corporation that is not engaged in a U.S. trade or business by obtaining a valid withholding certificate from the beneficial owner of the payments made or to be made under the basket option contract (W–8BEN, W–8BEN–E, or W–8EXP), or in the case of payments made outside of the U.S. on offshore obligations, by obtaining documentary evidence as described in § 1.1441–1(c)(17).