* House's top Republican tax writer mulls tax code revamp
* Latest proposal looks at derivatives, mark to market
* Crackdown on 'wash sales' eyed by Ways & Means chairman
By Kim Dixon
WASHINGTON, Jan 24 (Reuters) - The Republican head of the House of Representatives' tax-writing committee on Thursday unveiled options to revamp tax treatment of derivatives and other financial instruments amid criticism the current law permits gaming the system for tax advantages.
The discussion draft comes from House Ways and Means Committee Chairman Dave Camp, who has been exploring for more than a year a thorough rewrite of the tax code - a politically daunting project made even more so by this Congress' deep divisions.
Many tax rules for financial instruments "are inconsistent with each other and have no basis in the reality of economics," said David Miller, a tax lawyer at Cadwalader law firm who also teaches derivatives taxation at Columbia University Law School in New York. "As a result, sophisticated taxpayers are free to choose a tax treatment that minimizes their taxes."
Camp's draft lays out options for altering the tax treatment of financial products, such as puts, calls, and swaps. One proposal would require marking certain securities to fair market value at year-end, triggering recognition of gains or losses. Mark-to-market rules would not apply to end-use companies, such as airlines hedging risk for changes in the price in jet fuel.
Another Camp option would tighten "wash sale" rules intended to prevent an abusive strategy that involves gaining a tax deduction by selling a security at a tax-deductible loss and then immediately re-buying the same or a similar security.
More broadly, House Republicans wants to slash the top corporate tax rate to 25 percent from 35 percent and simplify the loophole-riddled tax code. The United States has one of the steepest corporate tax rates in the world.
Most companies do not pay the top rate after deductions and other tax breaks. But both parties, including Democratic President Barack Obama, back a corporate tax rate cut, though they disagree on how deep it should be.
Camp's House panel, along with the Senate Finance Committee, held a joint hearing on financial products in late 2011, exploring the taxation of stocks, bonds and derivatives.
Congress is locked in a series of budget battles, including raising the debt ceiling and automatic spending cuts.