tax straddle rule

tax-straddle rule. A rule preventing undue deferral of tax on income or conversion of ordinary income or short-term capital gain into long-term capital gain by disallowing the premature deduction of a loss on sale or disposition of one leg of a straddle position (e.g., a promise to sell offset by a promise to buy, such as in futures contracts) while retaining the other, offsetting leg or position. • This practice has been greatly restricted by the requirement that gains and losses on commodities transactions must be reported based on their value at year end. IRC (26 USCA)§ 165(c)(2). See STRADDLE. [Cases: Internal Revenue 3397.]

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