Capital Markets Accounting Developments Advisory 2011-2

May 4, 2011
I.R.C. §475: Industry Directive related to Mark-to-Market Valuation

I.R.C. §475 requires dealers in securities to mark their securities to market. This section also allows traders in securities or commodities, as well as dealers in commodities, to elect mark-to-market treatment for their securities or commodities. Under the mark-to-market method, a security or commodity is treated as if it were sold on the last business day of the taxable year for its fair market value, with the appropriate gain or loss recognized.

The valuation requirements under I.R.C. §475 are generally similar to the GAAP mark-to-market valuation presented in the financial statements filed with the Securities and Exchange Commission ("SEC"). Securities and commodities that do not have readily available public price quotations or benchmarks are usually valued internally, using valuation models that may include subjective assumptions.

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