Yes, whether or not MLP options are Section 1256 Contracts is part of the issue. TD, E-Trade and Fidelity say that they are Section 1256 Contracts. Schwab says that they are not, they are "short term transactions", but Schwab does not report them to the IRS (??).
It seems the Tax Code is sort of unclear on the topic.
TD says MLP options are Section 1256 Contracts, and TD is the broker which created the 1099, so I'm trying to get them to create it correctly. If the MLP option is a Section 1256 contract then I think the call premium does not go into the MLP purchase; rather, it is included in the Mark to Market calculation of the section 1256 contract exercise.
One problem is TD has (I think) done this calculation wrong for EVERY MLP contract that their customers have executed, and changing all of their 1099s (at this point in time) is likely arduous.
