Treasury Decision (TD) 8400 contains previously approved final regulations regarding the taxation of gain or loss from certain foreign currency transactions under Internal Revenue Code (IRC) section 988 and applies to taxpayers engaging in such transactions. Such gains and losses are characterized as ordinary income or loss. However, under IRC section 988(a)(1)(B), taxpayers may elect to characterize exchange gain or loss on certain transactions as capital gain or loss. Treasury Regulations section 1.988-3(b) provides the procedure for making the election. Under IRC section 988(c)(1)(D)(ii), taxpayers may elect to have regulated futures contracts and certain options (which generally are not subject to section 988) treated as section 988 transactions. Treasury Regulations sections 1.988-1(a)(7)(iii) and (iv) provide the procedure for making that election. Under IRC section 988(c)(1)(E)(iii), a qualified fund may elect out of section 988 with respect to certain financial transactions. Treasury Regulations section 1.988-1(a)(8)(iv) provides the procedure for making that election. Under IRC section 988(d), taxpayers may receive special treatment allowing integration with respect to certain borrowings and property if the transactions are properly identified. The identification rules are in Treasury Regulations sections 1.988-5(a)(8), 1.988-5(b)(3), and 1.988-5(c)(2). Treasury Regulations section 1.988-2(a)(2)(v) allows an accrual basis taxpayer to make an election that provides special translation rules regarding the purchase and sale of stock or securities traded on an established securities market. Treasury Regulations section 1.988-2(b)(2)(iii)(B) provides an election allowing the translation of interest income and expense using a spot accrual convention.
US Code:
26 USC 988 (c)(1)(E)
Name of Law: Special rules for certain funds
US Code:
26 USC 988 (c)(1)(D)
Name of Law: Exception for certain instruments marked to market
US Code:
26 USC 988 (a)(1)(B)
Name of Law: Special rule for forward contracts, etc.
US Code:
26 USC 988
Name of Law: Treatment of certain foreign currency transactions
US Code:
26 USC 988 (d)
Name of Law: Treatment Of 988 Hedging Transactions
On behalf of this Federal agency, I certify that the collection of information encompassed by this request complies with 5 CFR 1320.9 and the related provisions of 5 CFR 1320.8(b)(3).
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Supporting Statement-1545-1131.docx
TD 8400 - Taxation of Gain or Loss from Certain Nonfunctional Currency Transactions (Section 988 Transactions)