No, I don’t know what that is, either, but Judge Albert G. (“Scholar Al”) Lauber will tell you in GWA, LLC, George A. Weiss, Tax Matters Partner, T. C. Memo. 2025-34, filed 4/16/25, at p. 73.

Here’s the backstory; see my blogpost “Expertizing,” 5/6/22.

The option scheme gets blown away. The optionor (Deutsche Bank) had neither risk of loss nor hope of appreciation, and served merely as custodian of a basket of publicly tradeds and some exotics, the optionee (GWA and its wholly-owned unrecognized) are the real owners. Worse, Sections 446 and 481 give them a real downer, to the tune of about $337 million. At best, Deutsche Bank ran  a margin-lending operation, and GWA and subsidiaries ran the show.

“Because Deutsche Bank could not profit from appreciation in the value of the basket securities—by retention of the ‘premium’ or otherwise—the Barrier Contracts offered it no opportunity for investment gain. Instead, its compensation consisted solely of the leverage fees it received for supplying financing to GWA, the ticket charges it received for trades executed in the securities basket, and the opportunity to earn interest on the $10X of collateral GWA supplied. These forms of profit do not constitute ‘investment gain’ realized by the owner of securities. Rather, they constitute ordinary business income of a prime broker that lends money to a customer who holds and trades securities in a margin account.” at p. 75.

There’s discussion about whether an unrecognized-boxchecked LLC can make a separate mark-to-market Section 475 election (no, it can’t), but anyway the one GWA made is defective because it covers some but not all of its securities, and the statute requires all, lest parties load up current losses and hide current gains.

If options are your thing, with “Greeks” and European-vs-American varieties on your radar, and heteroskedastics are your 23-skidoo, read the opinion, all 139 (count ’em, 139, and I have) pages.

Bottom line: GWA owes ordinary rates, not capital gains. It’s a securities trader that can’t mark to market. Plus chops, of course.