IRS RULINGS

The Sixth Circuit, however, reversed the Tax Court's decision in Wright, holding that a foreign currency option could be a foreign currency contract because the plain language of IRC Section 1256(g)(2) does not explicitly require the contract to be settled. The Preamble notes that (1) current l...

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Bibliographic Details
Published in:Journal of Taxation 2022-10, Vol.137 (4), p.39-44
Main Author: Grais, Susan M
Format: Article
Language:English
Subjects:
Derivatives
Federal court decisions
Health care
Health facilities
Income taxes
REITs
Tax courts
Taxpayers
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Summary:The Sixth Circuit, however, reversed the Tax Court's decision in Wright, holding that a foreign currency option could be a foreign currency contract because the plain language of IRC Section 1256(g)(2) does not explicitly require the contract to be settled. The Preamble notes that (1) current law determines whether a derivative contract is properly characterized as a forward contract for US federal income tax purposes and (2) the IRS may consider applying anti-abuse rules and judicial doctrines to evaluate whether a contract and any related transactions are properly characterized as a forward contract. The Proposed Regulations would override the Sixth Circuit decision in Wright noting that the legislative history of IRC Section 1256 expressly stated that prior amendments to the definition of a foreign currency contract were merely to include all types of foreign currency contracts - i.e., to expand the term from physically-settled contracts to include cash-settled foreign currency forward contracts as an IRC Section 1256 contract. [...]based on the legislative history, "it would be inconsistent with this purpose to construe the term foreign currency contract as including options or other derivatives" The Proposed Regulations would apply to contracts entered into on or after the date 30 days after the regulations are published as final in the Federal Register. Taxpayer intends that a Facility resident (Resident) will enter into a month-to-month lease agreement, which, in exchange for fixed monthly payments, will entitle the Resident to individual living quarters within a Facility and certain services (Services) such as meals in a central dining area, light housekeeping (including linen service), and social events and exercise classes.
ISSN:0022-4863