Stevie D. Conlon and Vincent M. Aquilino, in their treatise Principles of Financial Derivatives: U.S. & International Taxation, par. A1.03 (2009) (citing Hull, Options, Futures and Other Derivative Securities 3-5 (2d ed. 1993), define a futures contract as an agreement to deliver specified commodities or other property at a future date at an agreed price. Futures contracts are standardized agreements, 134 T.C. 248">*259 tradable on regulated exchanges. A key aspect of regulated futures contracts is the margin requirement. In enacting section 1256, Congress concluded that the daily receipt of profits and the daily payment of losses employed by commodity futures exchanges 2010 U.S. Tax Ct. LEXIS 15">*35 in the United States for determining margin requirements made it appropriate to compute gains and losses for tax purposes under a similar, albeit annual, marked-to-market system of accounting. H. Rept. 97-201, at 157 (1981), 1981-2 C.B. 352, 475. The marked-to-market rule was also applied to futures transactions occurring before December 31 of each year if taxpayers terminated the futures contract before that date. Sec. 1256(c).

The Technical Corrections Act of 1982 (1982 act), Pub. L. 97-448, sec. 105(c)(5), 96 Stat. 2385, made four significant changes to section 1256 that are pertinent to this case. First, the 1982 act removed the requirement of physical delivery for futures contracts so that cash-settled futures contracts, newly authorized to trade on futures exchanges by the Commodity Futures Trading Commission, would also qualify for section 1256 treatment. Id.

Second, the 1982 act expanded the phrase "regulated futures contract" by adding "Such term includes any foreign currency contract" at the end of section 1256(b). Id. As the House Ways and Means Committee explained:

Trading in foreign currency for future delivery is conducted through regulated futures contracts, and is also 2010 U.S. Tax Ct. LEXIS 15">*36 conducted through contracts negotiated with any one of a number of commercial banks which comprise an informal market for such trading (bank forward contracts). Bank forward contracts differ from regulated future contracts in that they are private contracts in which the parties remain entitled to performance from each other. They further differ from regulated futures contracts in that they do not call for daily variation margin to reflect market changes, and in that the interbank market has no mechanism for settlement terminating a taxpayer's position prior to the delivery date. Prior to ERTA, taxpayers who used both the futures exchanges and the interbank market to conduct short-term trading in foreign currency were subject to substantially comparable tax treatment for both types of contract. Although bank forward contracts differ from regulated futures contracts, the volume of trading through forward contracts in foreign currency in the interbank market is substantially greater than foreign currency trading on futures exchanges, and prices are readily available. Such contracts are economically comparable to regulated futures contracts in the same currencies and are used interchangeably 2010 U.S. Tax Ct. LEXIS 15">*37 with regulated futures contracts by traders. [H. Rept. 97-794, at 23 (1982).]

Third, 1982 act sec. 105(c)(5) added subsection (g)(1), a definitional subsection, to flesh out general definitions in section 1256(b). The newly enacted section 1256(g)(1) defined a foreign currency contract to be a contract:

(A) which requires delivery of a foreign currency which is a currency in which positions are also traded through regulated futures contracts,

(B) which is traded in the interbank market, and

(C) which is entered into at arm's length at a price determined by reference to the price in the interbank market.

Fourth, 1982 act sec. 105(c)(5) granted the Secretary authority to prescribe regulations to determine the 2010 U.S. Tax Ct. LEXIS 15">*38 types of contracts that could be included in or excluded from the definition of a foreign currency contract in section 1256(g)(2):

(2) Regulations.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of paragraph (1), including regulations excluding from the application of paragraph (1) any contract (or type of contract) if its application thereto would be inconsistent with such purposes.

The Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98-369, 98 Stat. 494, made three significant changes pertinent to this case. First, DEFRA sec. 722(a)(2), 98 Stat. 972, amended section 1256(g)(1)(A) by adding the phrase "or the settlement of which depends on the value of" to the definition of a foreign currency contract. The effect of this amendment is in dispute in this case. Section 1256(g)(2)(A), as changed by DEFRA sec. 102(a)(3), defined a foreign currency contract to be a contract--

134 T.C. 248">*261 (i) which requires delivery of, or the settlement of which depends on the value of, a foreign currency which is a currency in which positions are also traded through regulated futures contracts,

(ii) 2010 U.S. Tax Ct. LEXIS 15">*39 which is traded in the interbank market, and

(iii) which is entered into at arm's length at a price determined by reference to the price in the interbank market.

[Emphasis added to highlight amendment.]

Second, DEFRA sec. 102 changed the term "regulated futures contract" to the more general term "section 1256 contract" and reorganized section 1256(b) to identify, in general terms, contracts qualifying as section 1256 contracts.

Third, DEFRA sec. 102(a)(2) and (3) extended section 1256 to cover "any nonequity option", sec. 1256(b)(3), and "any dealer equity option", sec. 1256(b)(4), and added specific definitions for those terms in section 1256(g)(3) through (6) inclusive.

The Consolidated Appropriations Act, 2001, Pub. L. 106-554, app. G, sec. 401(g), 114 Stat. 2763A-649 (2000), added "any dealer securities futures contract" and an option on such a contract as section 1256(b)(5).

After reflecting all amendments, section 1256(b) now provides:

SEC. 1256(b). Section 1256 Contract Defined.--For purposes of this section, the term "section 1256 contract" means--

The term "section 1256 contract" shall not include any securities futures contract or option on such a contract unless such contract or option is a dealer securities futures contract.

Petitioners contend that under the plain meaning of section 1256(g)(2)(A), as amended in 1984, major foreign currency options are foreign currency contracts subject to the marked-to-market rules of section 1256. To support their position they maintain that section 1256(b)(2) refers to "any foreign currency contract". Therefore, section 1256(g)(2)(A) should be construed broadly because "contract" is an inherently broad term, and an option, by definition, is a unilateral contract. 1 Restatement, Contracts 2d, sec. 25 (1981). They 134 T.C. 248">*262 argue there are no legally significant differences among futures, forwards, and options.

Second, petitioners note that no regulations have been issued by the Secretary since 1982 which would limit the definition of a foreign currency contract, and, in petitioners' view, the application of section 1256 to various types of contracts has been expanded and broadened over time. Petitioners reason that this constant expansion, 2010 U.S. Tax Ct. LEXIS 15">*41 coupled with the inherently broad original defining term "contract", suggests that where a close call is to be made on this issue, the history favors including major foreign currency options within the meaning of "foreign currency contract". ¹²

Third, petitioners maintain that there are no economically significant differences among foreign currency forwards, futures, and options. As petitioners state in their posthearing memorandum:

All of these derivatives accomplish the same economic access to currency risk. They reproduce the economic risks and rewards of holding a particular foreign currency over time. These derivatives only differ in their pricing, timing and payment structure, and thus, can be modified or transformed into one another by entering into other derivatives. For example, an option writer fearing a movement in the underlying security adverse to his position can purchase a future on that security to effectively offset 2010 U.S. Tax Ct. LEXIS 15">*42 his risk, or he could write a contraindicated option as Petitioners did here.

Fourth, petitioners contend, under the plain meaning of the statute, if the Court finds that (1) an option is a contract; (2) the value of the option depends on the value of the euro; (3) the euro is a major foreign currency traded on the interbank market; and (4) the option was entered into at arm's length and with a price coinciding with the interbank market price for such options, section 1256(g)(2)(A) "compels the conclusion that all major foreign currency derivatives created on the informal interbank market [including the major currency options at issue in this case] should be marked to market".

Respondent contends that under the plain meaning of section 1256 a foreign currency option cannot be a foreign currency 134 T.C. 248">*263 contract; i.e., a section 1256 contract. Respondent notes that, as originally enacted in 1982, section 1256(g)(1)(A) referred to a contract that required delivery of a foreign currency. The writer of a forward contract is required to deliver a foreign currency at a future date at an agreed price. On the other hand, respondent points out that, at the time an option is 2010 U.S. Tax Ct. LEXIS 15">*43 signed, there is no obligation to deliver. An obligation to deliver occurs only if the holder of the option exercises its right to require delivery at some future time after the option has been signed. The obligation to deliver may never occur if the option holder allows the option to lapse. Consequently, respondent argues that, because section 1256(g)(1)(A), as originally enacted, referred to a contract that required delivery of the foreign currency, the section, as so enacted, could be applied only to forward contracts, not to options.

Respondent also contends that the addition of the phrase "or the settlement of which depends upon the value of" in DEFRA was intended to deal with uncertainty as to whether cash-settled forward contracts were included in the definition of foreign currency contracts. In respondent's view, the change was not intended to expand the application of section 1256 to foreign currency option contracts because the limiting phrase "which requires delivery of" was left in the statute. Respondent argues that foreign currency contracts can be physically settled or cash-settled, but they still must require settlement at expiration. In support of his position, respondent 2010 U.S. Tax Ct. LEXIS 15">*44 directs us to the House Ways and Means Committee report explaining the provisions of DEFRA, which states:

Because certain contracts may call for a cash settlement by reference to the value of the foreign currency rather than actual delivery of the currency, the bill provides that the delivery of a foreign currency requirement is met where the contract provides for a settlement determined by reference to the value of the foreign currency. [H. Rept. 98-432 (Part 2), at 1646 (1984); emphasis added.]

Each party claims that the plain meaning of section 1256(g)(2)(A)(i) supports his position. In Campbell v. Commissioner, 108 T.C. 54">108 T.C. 54, 108 T.C. 54">62-63 (1997), we set out the well-established and well-understood rules for construing a provision of the Internal Revenue Code:

134 T.C. 248">*264 In construing * * * [a provision of the Internal Revenue Code], our task is to give effect to the intent of Congress, and we must begin with the statutory language, which is the most persuasive evidence of the statutory purpose. United States v. American Trucking Associations, Inc., 310 U.S. 534">310 U.S. 534, 310 U.S. 534">542-543, 60 S. Ct. 1059">60 S. Ct. 1059, 84 L. Ed. 1345">84 L. Ed. 1345 (1940). Ordinarily, the plain meaning of the statutory language is conclusive. United States v. Ron Pair Enters. Inc., 489 U.S. 235">489 U.S. 235, 489 U.S. 235">242, 109 S. Ct. 1026">109 S. Ct. 1026, 103 L. Ed. 2d 290">103 L. Ed. 2d 290 (1989). 2010 U.S. Tax Ct. LEXIS 15">*45 Where a statute is silent or ambiguous, we may look to legislative history in an effort to ascertain congressional intent. Burlington N. R.R. v. Oklahoma Tax Commn., 481 U.S. 454">481 U.S. 454, 481 U.S. 454">461, 107 S. Ct. 1855">107 S. Ct. 1855, 95 L. Ed. 2d 404">95 L. Ed. 2d 404 (1987); Griswold v. United States, 59 F.3d 1571">59 F.3d 1571, 59 F.3d 1571">1575-1576 (11th Cir. 1995). However, where a statute appears to be clear on its face, we require unequivocal evidence of legislative purpose before construing the statute so as to override the plain meaning of the words used therein. Huntsberry v. Commissioner, 83 T.C. 742">83 T.C. 742, 83 T.C. 742">747-748 (1984); see Pallottini v. Commissioner, 90 T.C. 498">90 T.C. 498, 90 T.C. 498">503 (1988), and cases there cited.

For convenience, we again set out section 1256(g)(2)(A), which defines a foreign currency contract to be a contract--

(i) which requires delivery of, or the settlement of which depends on the value of, a foreign currency which is a currency in which positions are also traded through regulated futures contracts,

(ii) which is traded in the interbank market, and

(iii) which is entered into at arm's length at a price determined 2010 U.S. Tax Ct. LEXIS 15">*46 by reference to the price in the interbank market.

Petitioner views the legal distinction between a forward and an option to be insignificant. We disagree. A forward foreign currency contract is a bilateral contract between a seller and a buyer that obligates the seller, at the time of signing, to settle his obligation to perform by either delivering the currency or making cash settlement. Conlon & Aquilino, supra par. A1.02[2][a][i]. A foreign currency option is a unilateral contract that does not require delivery or settlement unless and until the option is exercised by the holder. An obligation to settle may never arise if the holder does not exercise its rights under the option. It is clear that, as originally enacted in 1982, section 1256(g)(1) applied only to forward contracts. The statute referred to a contract which required delivery of the foreign currency, not to a contract in which delivery was left to the discretion of the holder.

It is also clear that the 1984 amendment "or the settlement of which depends on the value of" was inserted to allow 134 T.C. 248">*265 a cash-settled forward contract to come within the term "foreign currency contract". Foreign currency contracts can be physically 2010 U.S. Tax Ct. LEXIS 15">*47 settled or cash-settled, but they still must require, by their terms at inception, settlement at expiration. ¹³ The statute's plain language is dispositive. There is no evidence 134 T.C. 248">*266 in the legislative history that a literal reading of the statute will defeat Congress' purpose in enacting it. 108 T.C. 54">Campbell v. Commissioner, supra at 62-63.

Petitioners argue, by negative inference, that if the Secretary had wished to identify a foreign currency option as a "contract (or type of contract)" to be "[excluded] from the application of subparagraph (A)" of section 1256(g)(2), the Secretary would have exercised the authority, expressly delegated by subparagraph (B), to prescribe regulations for that purpose. We disagree. The Secretary has not issued regulations bringing a foreign currency option within the definition of a foreign currency contract. That determination is within the province of the Secretary, not within the province of this Court. Moreover, the statute, as we understand it, speaks for itself.

Petitioners' contention 2010 U.S. Tax Ct. LEXIS 15">*48 that an option is a contract and that the addition by Congress of other option contracts to section 1256 over the years evidences an intent to include major foreign currency options also fails. Granted, an option is a contract and Congress has added other option contracts that qualify for section 1256 treatment. However, Congress' additions have been restricted to nonequity options, dealer equity options, and options on dealer securities futures, all of which are traded on a qualified board or exchange. Sec. 1256(b)(3)-(5), (g)(3)-(6). Interbank markets have not been designated as a qualified board or exchange. Sec. 1256(g)(7). When Congress has specified the types of contracts that come within the definition of a section 1256 contract, exclusion of others from its operation may be inferred. ^{142010 U.S. Tax Ct. LEXIS 15">*49} There is no evidence of legislative intent to designate foreign currency options as section 1256 contracts.

Petitioners also contend that futures, forwards, and options "accomplish the same economic access to currency risk" and should be treated the same way under the tax laws. However, petitioners admit that futures, forwards, and options differ in their pricing, timing, and payment structures. It is precisely these economic and legal distinctions that give rise to disparate treatment under the tax laws.

With respect to the first issue presented to us by respondent's motion for partial summary judgment, we hold that under section 1256, the major foreign currency option assigned by Summitt to the charity is not a foreign currency contract as defined in section 1256(b)(2) and (g)(2), and the marked-to-market provisions of section 1256 do not apply to the transfer of the EUR call option (3032) to the charity. As a result, petitioners did not recognize a loss in 2002 on the EUR call option (3032) pursuant to section 1256.

The second issue raised by respondent's 2010 U.S. Tax Ct. LEXIS 15">*50 motion for partial summary judgment deals with the recognition of gain upon assignment of the minor foreign currency call option to charity. That issue cannot be dealt with isolated from the facts involved in the transaction as a whole, and therefore, respondent's motion on the second issue will be denied.

To reflect the foregoing,

An appropriate order will be issued.