IRS Moves to Stop Taxpayers From Avoiding Gain in Hedging Deals

For over 50 years, Bloomberg BNA’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

Taxpayers who try to take losses but avoid gain in integrated transactions involving hedges and foreign currency debt instruments will not qualify for beneficial treatment under new guidance, IRS says. In new proposed, temporary, and final rules (REG-138489-09, T.D. 9598), IRS says it wants to stop abuses in integrated deals involving a foreign currency debt instrument with multiple associated hedging transactions under tax code Section 988. Taxpayers who terminate some of these hedges now must treat the remaining hedges as having been sold for fair market value on the date of sale, IRS says. Generally, a hedge consists of taking an offsetting position in a related security, such as a futures contract, but hedges can take a wide variety of forms.