Insight

Section 475 Mark to Market

An introduction to the rules under section 475 and how those rules apply to banks

Mark Price

Mark Price

Principal, Financial Institutions & Products, KPMG US

Elizabeth B. L'Hommedieu

Elizabeth B. L'Hommedieu

Principal, Financial Institutions & Products, KPMG US

+1 614-249-1849

Under section 475, Congress enacted rules that require dealers in securities to apply mark-to-market (MTM) accounting to their securities portfolios. In many cases, a traditional lender qualifies as a dealer in securities and the lender’s loans will meet the definition of a security. Therefore, the lender may be required to carry its loan portfolio, as well as its other securities portfolios, at fair market value in its tax books. While the concept seems relatively straightforward, the application of the rules to banks continues to raise challenges for tax departments. The purpose of this article is to provide an introduction to the rules under section 475 and how those rules apply to banks. It will also address certain elections under section 475 that banks may consider to achieve their desired tax objectives.