Updated July 29, 2026. Quick answer: IRC §1259(c)(3)(A) disregards a transaction that would otherwise cause a constructive sale if all three conditions hold: it is closed on or before the 30th day after the close of the taxable year, you hold the appreciated position throughout the 60-day period beginning on the closing date, and at no point in those 60 days is your risk of loss reduced. Missing any one of them loses the whole exception.
The three conditions, and why the third is the hard one
| §1259(c)(3)(A) | Condition | Where it bites |
|---|---|---|
| (i) | The transaction is closed on or before the 30th day after the close of the taxable year | A calendar date. Easy to satisfy, easy to miss |
| (ii) | You hold the appreciated financial position throughout the 60-day period beginning on the closing date | You must still own the stock, unhedged, well into the next year |
| (iii) | At no time in that 60-day period is your risk of loss reduced within the meaning of §246(c)(4) | The one that fails. Re-establishing any hedge inside the window destroys the exception |
What condition (iii) really demands. The cross-reference to §246(c)(4) is the same risk-of-loss concept used in the dividends-received holding-period rules. Read with (ii), the exception requires a genuine sixty-day period of unhedged ownership. The point is to distinguish a transaction that was closed from one that was cosmetically unwound and immediately replaced.
The window straddles two tax years, deliberately. The 30 days run from the close of the taxable year, and the 60 days run from the closing date, so a position closed in late January carries an unhedged obligation deep into the following spring. Anyone treating this as a year-end manoeuvre has the timing backwards: the cost of the exception is paid in the next year.
The companion rule for a second transaction
Section 1259(c)(3)(B) handles the case where a second offsetting transaction is entered into during that 60-day window and would otherwise break condition (iii). The second transaction is itself disregarded for that purpose — but only if it is also closed on or before the 30th day after the close of the taxable year in which the first transaction occurred, and it independently satisfies conditions (ii) and (iii). It is a narrow accommodation, not a way to roll hedges through the window.
What it does not do
The exception disregards the transaction. It does not create an affirmative safe harbour for an instrument, and it has nothing to say about whether a given structure was a constructive sale in the first place — that question runs through the four triggers in §1259(c)(1). It is a relief provision for transactions that would have triggered the section.
Sources
IRC §1259(c)(1)(A)–(E), §1259(c)(3)(A) and (B), §1259(d)(1) and §1259(f); Pub. L. 105-34 §1001(d) (effective-date note); H.R. Conf. Rep. No. 105-220, at 512 (1997); Rev. Rul. 2003-7, 2003-1 C.B. 363. Absence of any regulation under §1259 verified against the eCFR structural index for Title 26, 2026-07-01 edition. All read July 2026.
This states what the cited authority says. It is not tax or legal advice. Constructive-sale analysis, partnership nonrecognition and insider-trading defences all turn on transaction documents and facts that no page can see, and the instruments described here are executed under contracts whose terms vary by provider.