The IRS has recently set its sights on “basket option contracts” and “basket contracts,” suspecting that certain hedge funds and other taxpayers have improperly used those structures to defer recognition of ordinary income and short-term gains on assets within the basket, and to claim long-term capital gains treatment on exercise of the option or termination of the contract.  IRS Notice 2015-47 deems basket option contracts to be “listed transactions.”  IRS Notice 2015-48 deems basket contracts to be “transactions of interest.”  The Notices apply to transactions in effect on or after January 1, 2011; taxpayers who were parties to basket option contracts or basket contracts on or after that date will have to report them retroactively, even for years for which they have already filed returns.  This article summarizes the key provisions of each Notice.  For more on taxation of options, see “Tax Practitioners Discuss Taxation of Options and Swaps and Impact of Proposed IRS Regulations,” Hedge Fund Law Report, Vol. 8, No. 7 (Feb. 19, 2015).  For a discussion of other strategies that investors have used to seek long-term gains treatment on investments, see “Tax Practitioners Discuss Taxation of Swaps, Wash Sales, Constructive Sales, Short Sales and Straddles at FRA/HFBOA Seminar (Part Four of Four),” Hedge Fund Law Report, Vol. 7, No. 5 (Feb. 6, 2014).  The IRS has previously targeted certain swaps.  See “IRS Directive and HIRE Act Undermine Tax Benefits of Total Return Equity Swaps for Offshore Hedge Funds,” Hedge Fund Law Report, Vol. 3, No. 12 (Mar. 25, 2010).