As the Commodity Futures Trading Commission seeks to crack down on excessive speculation in energy markets by imposing position limits (see Daily GPI, July 29), a U.S. senator is eyeing changes in the tax code to achieve the same result.

Sen. Ron Wyden (D-OR) is expected to introduce legislation this week that would nix the favorable tax treatment for noncommercial speculators, such as hedge funds and swap dealers, in oil and natural gas markets. It would amend the Internal Revenue Code of 1986 to provide the same tax treatment for both commercial and noncommercial investors in oil and natural gas and related commodities.

It proposes taxing the trading gains and losses of tax-paying noncommercial energy commodity investors in the same way that commercial participants — buyers and sellers of physical oil and gas commodities — are taxed: as if they were ordinary gains and losses. Gains made on oil and natural gas investments would no longer be eligible for lower capital gains rates.

It also would end the tax breaks that favor tax-exempt energy commodity investors, such as pension funds or endowments, over commercial traders. Tax-exempt organizations and funds currently pay no tax at all on their commodity investments.

The legislation would require gains from any kind of oil and natural gas trading to be defined as “unrelated business taxable income” and taxed at the same rate as taxable income would be taxed.

The bill calls on the secretary of the Department of Treasury to conduct a study of the “effect of tax policy on the operation of the commodities exchanges and on the demand for, and price of, commodities, particularly with respect to oil and gas.” By no later than Jan. 1, 2012, the results of the study are to be reported to the Senate Finance Committee and the House Ways and Means Committee, along with any legislative recommendations.

Wyden and Sen. Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee, offered a similar proposal last year, but it didn’t see any legislative action.

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