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107 STAT. 464 PUBLIC LAW 103-66—AUG. 10, 1993 "(A) the applicable Federal rate determined under section 1274(d) (compounded semiannually) as if the conversion transaction were a debt instrument, or ''(B) if the term of the conversion transaction is indefi- nite, the Federal short-term rates in effect under section 6621(b) during the period of the conversion transaction (compounded daily). "(3) TREATMENT OF BUILT-IN LOSSES.— "(A) IN GENERAL.—If any position with a built-in loss becomes part of a conversion transaction— "(i) for purposes of applying this subtitle to such position for periods after such position becomes part of such transaction, such position shall be taken into account at its fair market value as of the time it became part of such transaction, except that "(ii) upon the disposition or other termination of such position in a transaction in which gain or loss is recognized, such built-in loss shall be recognized and shall have a character determined without regard to this section. "(B) BUILT-IN LOSS.—For purposes of subparagraph (A), the term 'built-in loss' means the loss (if any) which would have been realized if the position had been disposed of or otherwise terminated at its fair market value as of the time such position became part of the conversion trans- action. "(4) POSITION TAKEN INTO ACCOUNT AT FAIR MARKET VALUE.—In determining the taxpayer's net investment in any conversion transaction, there shall be included the fair market value of any position which becomes part of such transaction (determined as of the time such position became part of such transaction). "(5) SPECIAL RULE FOR OPTIONS DEALERS AND COMMODITIES TRADERS.— "(A) IN GENERAL.—Subsection (a) shall not apply to transactions — "(i) of an options dealer in the normal course of the dealer's trade or business of dealing in options, or "(ii) of a commodities trader in the normal course of the trader's trade or business of trading section 1256 contracts. "(B) DEFINITIONS.—^For purposes of this paragraph— •^(i) OPTIONS DEALER.—The term 'options dealer* has the meaning given such term by section 1256(gX8). "(ii) COMMODITIES TRADER.— The term 'commod- ities trader* means any person who is a member (or, except as otherwise provided in regulations, is entitled to trade as a member) of a domestic board of trade which is designated as a contract market by the Commodity Futures Trading Commission. "(C) LIMITED PARTNERS AND LIMITED ENTRE- PRENEURS.—In the case of any g&in from a transaction recognized by an entity which is allocable to a Umited partner or limited entrepreneur (within the meaning of section 464(eX2)), subparagraph (A) shall not apply if—