100: 1 उत्तोलन - मानक और प्रीमियम खाता धारकों के लिए लागू जो संयुक्त राज्य अमेरिका के बाहर रहते हैं। कृपया ध्यान दें । यदि बाजार की स्थिति बहुत ही अस्थिर हो, तो हम मार्जिन आवश्यकताओं को और बढ़ा सकते हैं। कृपया अपने उपयोगी मार्जिन पर बारीकी से निगरानी करें, सुनिश्चित करें कि यह शून्य से ऊपर रहता है हम अनुशंसा करते हैं कि आपके खाते के कम से कम 80 इक्विटी (उपयोग करने योग्य हाशिए प्लस मार्जिन) में उपयोग करने योग्य मार्जिन। ट्रेडिंग स्टेशन की सरलीकृत डीलिंग दरें विंडो में अप-टू-डेट मार्जिन आवश्यकताओं को प्रदर्शित किया जाता है। एफएक्ससीएम मार्जिन आवश्यकता के बारे में और जानें। एक पूरी तरह से सूची जारी करने के लिए पूरी तरह से एक सूची जारी रखें: नोट एक मूसलधार बारिश से जुड़ी हुई मात्रा में वृद्धि करने के लिए, जो कि एक एमएस के माध्यम से बढ़ने की जरूरत है। :। एनी vollstndige Auflistung der Neuen मार्जिन - Anforderungen खोजा गया था: Vous trouverez सीआई-डेसस ला के बारे में जानकारी प्राप्त करने के लिए आवश्यक है: ध्यान दें। वेयूलीज़ नोटर क्वीन नलस्ट्र्रेन्स कॉर्नर अग्निपरीर नोज मार्जेस एस लस कंट्रीज डे मार्च डिविएन एनेंट टीआरएस वालटिल्स। :,। व्यापार प्रश्न प्रस्तुत करें एक ट्रेड ऑडिट ऑनलाइन एफएक्ससीएम एक जांच की समीक्षा करने में प्रसन्नता है अगर आपको लगता है कि हमारे पास तकनीकी समस्या से नकारात्मक प्रभाव पड़ा है। यदि आप चाहें तो अपने ट्रेड (ट्रेडों) की समीक्षा करें, तो कृपया ट्रायल नंबर, समय, मूल्य और विवादित राशि जैसे व्यापार विवरण उपलब्ध कराएं। अनिर्धारित क्लोजर या तरलता के मुद्दों के कारण नोटिस के बिना सख्त घंटे बदल सकते हैं। सहायक सीएफडी संसाधन: कृपया ध्यान दें कि एफएक्ससीएम एलएलसी ग्राहकों के लिए शेयर सीएफडी और सीएफडी उत्पाद उपलब्ध नहीं हैं। न्यूनतम मार्जिन आवश्यकताएँ अद्यतन अनुसूची पिछला शुक्रवार को प्रत्येक माह अपडेट किया जाता है। कृपया ध्यान दें कि मार्जिन आवश्यकताओं को कीमत में उतार-चढ़ाव के आधार पर बिना सूचना के अधीन किया जा सकता है और 1 के वेतन वृद्धि में या नीचे समायोजित किया जाएगा। अपर से डेट मार्जिन आवश्यकताओं को ट्रेडिंग प्लेटफॉर्म के सरलीकृत डीलिंग दरें खिड़की में मुद्रा जोड़ी द्वारा प्रदर्शित किया जाता है। हमेशा की तरह, यदि आप एक तकनीकी समस्या का अनुभव करते हैं और हमारे समर्थन स्टाफ से बात करना चाहते हैं, तो किसी भी समय हमसे संपर्क करने के लिए स्वतंत्र महसूस करें। हम सप्ताह में 24 घंटे 7 दिन उपलब्ध हैं। बस ऊपरी दाहिने हाथ के कोने में लाइव चैट पर क्लिक करें या हमारे संपर्क पृष्ठ पर जाएं यदि आप अपने काम के बारे में दोबारा गौर कर रहे हैं, तो आप उन कार्यों के बारे में जानकारी दे सकते हैं, जिनमें से कुछ के बारे में जानकारी दी गई है, जो कि शुरूआत और शुरूआत की जाती है। पर्स के लिए एन्वेनस सु रीक्लेमो कोंस लॉस डिटेलेस डे ला ओपेरासिन् पोर मेडीओ डेल सिग्यूएनेट फेल: एफएक्ससीएमएक्सएनलोमोरियरी-डी-ऑडिटोरिया.जेस्प एफएक्ससीएम ,, एफएक्ससीएम ,,.fxcm. co. il विदेशी मुद्रा के मूलभूतकरण शुरुआती विदेशी मुद्रा व्यापारियों के लिए, लक्ष्य केवल सफल ट्रेडों बनाने के लिए है एक बाजार में जहां मुनाफे - और नुकसान - एक आँख की झपकी में महसूस किया जा सकता है, कई निवेशक लंबे समय तक सोचने से पहले अपने हाथ की कोशिश में शामिल हो जाते हैं। हालांकि, क्या आप विदेशी मुद्रा को एक कैरियर मार्ग बनाने की योजना बना रहे हैं या यह देखने में रुचि रखते हैं कि आपकी रणनीति किस प्रकार से बाहर निकलती है, आप अपने पहले व्यापार से पहले विचार करना चाहिए जबरदस्त कर लाभ हैं। जबकि ट्रेडिंग फॉरेक्स मास्टर के लिए एक भ्रमित क्षेत्र हो सकता है, यू.एस. में अपने लाभ-लाभ अनुपात के लिए करों को भरना वाइल्ड वेस्ट की याद दिलाता है। आपको जो पता होना चाहिए, उसका एक ब्रेक नीचे है। विकल्प और फ्यूचर्स निवेशकों के लिए विदेशी मुद्रा विकल्प में शुरू करने वाले किसी के लिए और फ्यूचर्स को आईआरसी 1256 कॉन्ट्रैक्ट्स के नाम से जाना जाता है। ये आईआरएस-संबंधित अनुबंधों का मतलब है कि व्यापारियों को कम 6040 कर विचार मिलता है। इसका मतलब है कि लाभ में से 60 या हानि दीर्घकालिक पूंजी लाभ हानियों के रूप में गिने जाते हैं और शेष 40 कम अवधि के रूप में। इस कर उपचार के दो मुख्य लाभ हैं: समय कई विदेशी मुद्रा वायदा विकल्प व्यापारियों प्रति दिन कई लेनदेन करते हैं। इन ट्रेडों में से 60 तक लंबी अवधि के पूंजीगत लाभ के रूप में गिना जा सकता है। कर दर जब ट्रेडिंग स्टॉक (एक वर्ष से कम आयोजित), निवेशक 35 अल्पकालिक दर पर कर लगाए जाते हैं। जब ट्रेडिंग फ्यूचर्स या ऑप्शंस, निवेशकों को 23 दर से लगाया जाता है (गणना 60 लंबी अवधि के 15 अधिकतम दर से 40 अल्पकालिक दर बार 35 अधिकतम दर)। ओवर-द-काउंटर (ओटीसी) निवेशकों के लिए आईआरसी 988 अनुबंधों के मुताबिक अधिकांश हाजिर व्यापारियों पर कर लगाया जाता है। ये अनुबंध विदेशी मुद्रा लेनदेन के लिए दो दिनों के भीतर बसे हैं, जिससे आईआरएस को रिपोर्ट किए गए सामान्य लाभ और घाटे के लिए उन्हें खोल दिया गया है। यदि आप स्पॉट फॉरेक्स व्यापार करते हैं तो आपको इस श्रेणी में स्वचालित रूप से समूहबद्ध किया जाएगा। इस कर उपचार का मुख्य लाभ हानि संरक्षण है। यदि आप अपने साल के अंत तक व्यापार में शुद्ध घाटे का अनुभव करते हैं, तो 988 व्यापारी के रूप में वर्गीकृत किया जा रहा है, जो बड़े लाभ के रूप में कार्य करता है। जैसा कि 1256 अनुबंध में है, आप अपने सभी घाटे को सिर्फ 3,000 के बजाय साधारण नुकसान के रूप में भरोसा कर सकते हैं। आईआरसी 1258 अनुबंधों की तुलना में दो आईआरसी 988 कॉन्ट्रैक्ट्स की तुलना में टैक्स की दर दोनों लाभ और नुकसान के लिए स्थिर रहती है - नुकसान के लिए एक आदर्श स्थिति - 1256 अनुबंध, जबकि अधिक जटिल, शुद्ध लाभ वाले एक व्यापारी के लिए अधिक बचत की पेशकश - 12 और दोनों के बीच सबसे महत्वपूर्ण अंतर अनुमानित लाभ और नुकसान का है। समाधान: आपकी श्रेणी को ध्यानपूर्वक चुनना अब मुश्किल भाग आता है: अपनी स्थिति के लिए करों को कैसे फाइल करना है यह निर्णय करना क्या विदेशी मुद्रा विनिमय भ्रामक है, यह है कि जब विकल्पों में फ्यूचर्स और ओटीसी को अलग से समूहित किया जाता है, तो आप के रूप में निवेशक 1256 या 988 अनुबंध चुन सकता है। मुश्किल हिस्सा यह है कि आपको ट्रेडिंग वर्ष के 1 जनवरी से पहले तय करना होगा। विदेशी मुद्रा के दो प्रकार के विवादों के संघर्ष के दो प्रकार हैं, लेकिन अधिकतर लेखांकन कंपनियों में आप 988 अनुबंधों के अधीन होंगे यदि आप एक स्पेश ट्रेडर और 1256 कॉन्ट्रैक्ट हैं यदि आप वायदा व्यापारी हैं मुख्य कारक निवेश करने से पहले आपके एकाउंटेंट से बात कर रहा है एक बार जब आप व्यापार शुरू करते हैं तो आप 988 से 1256 या इसके विपरीत पर स्विच नहीं कर सकते। अधिकांश व्यापारियों को शुद्ध लाभ (क्यों अन्य व्यापार) की आशा है, ताकि वे अपने 988 स्थिति से और 1256 स्थिति में से चुनाव करना चाहें। 988 स्थिति से ऑप्ट आउट करने के लिए आपको अपने पुस्तकों में एक आंतरिक नोट बनाने की आवश्यकता है, साथ ही आपके एकाउंटेंट के साथ फ़ाइल भी। यदि आप शेयरों के साथ-साथ मुद्राओं का व्यापार करते हैं तो यह जटिलता तीव्र हो जाती है इक्विटी लेन-देन को अलग तरह से लगाया जाता है और आप अपनी स्थिति के आधार पर 988 या 1256 अनुबंधों का चुनाव नहीं कर सकते। ट्रैक को ट्रैक करना: आपका प्रदर्शन रिकार्ड अपने ब्रोकरेज बयानों पर भरोसा करने के बजाय, मुनाफे का ट्रैक रखने का एक अधिक सटीक और कर अनुकूल तरीका आपके प्रदर्शन रिकॉर्ड के माध्यम से होता है। यह रिकॉर्ड रखने के लिए एक आईआरएस-स्वीकृत फार्मूला है: अपने अंत की परिसंपत्तियों (शुद्ध) से अपने शुरुआती परिसंपत्तियों को घटाएं (अपने खाते में) घटाएं और निकासी जोड़ें (अपने खाते से) ब्याज से आय कम करें और ब्याज भुगतान जोड़ें अन्य ट्रेडिंग खर्च जोड़ें प्रदर्शन रिकॉर्ड फॉर्मूला आपको अपने लाभ-अनुपात अनुपात का अधिक सटीक चित्रण देगा और आपके और आपके एकाउंटेंट के लिए सालाना फाइलिंग आसान बना देगा। याद करने के लिए चीजें जब विदेशी मुद्रा कराधान की बात आती है तो कुछ चीजें हैं जो आप को ध्यान में रखना चाहेंगे, जिनमें शामिल हैं: दाखिल करने की समयसीमा ज्यादातर मामलों में, आपको 1 जनवरी तक कर की स्थिति का एक प्रकार चुनना होगा। यदि आप एक नया व्यापारी हैं, तो आप यह निर्णय अपने पहले व्यापार से पहले कर सकते हैं - चाहे यह 1 जनवरी या 31 दिसंबर है। यह भी ध्यान देने योग्य है कि आप अपनी स्थिति मध्य वर्ष बदल सकते हैं, लेकिन केवल आईआरएस अनुमोदन के साथ। विस्तृत रिकॉर्ड रखने अच्छे रिकॉर्ड (और बैकअप) को बनाए रखने से आप समय को बचा सकते हैं जब टैक्स का मौसम आता है इससे आप करों को तैयार करने के लिए व्यापार और कम समय के लिए अधिक समय देंगे। भुगतान का महत्व कुछ व्यापारियों ने सिस्टम को हराया और करों का भुगतान किए बिना पूर्ण या अंशकालिक आय व्यापारिक विदेशी मुद्रा की कमाई करने का प्रयास किया। चूंकि ओवर-द-काउंटर व्यापार कमोडिटी फ्यूचर्स ट्रेडिंग कमिशन (सीएफटीसी) के साथ पंजीकृत नहीं है, कुछ व्यापारियों को लगता है कि वे इसके साथ भाग ले सकते हैं न केवल यह अनैतिक है, लेकिन आईआरएस आखिरकार पकड़ लेगा और टैक्स से बचने की फीस किसी भी करों को तुरुप देगा। बॉटम लाइन ट्रेडिंग फॉरेक्स सभी अवसरों और बढ़ते हुए लाभ मार्जिन पर पूंजीकरण के बारे में है, इसलिए एक करदाता निवेश कर सकता है जब करों की बात आती है सही तरीके से लिखने के लिए समय लेते हुए आपको सैकड़ों बचा सकते हैं यदि करों में हजारों नहीं हैं, तो यह एक लेनदेन है जो समय के लायक है। जैक ट्रेयनॉर द्वारा विकसित एक अनुपात जो उस जोखिम से अधिक कमाया जाता है जो एक जोखिमहीन पर अर्जित किया जा सकता था। बाजार पर शेयरों की संख्या को कम करने के लिए एक कंपनी द्वारा बकाया शेयरों (पुनर्खरीद) की पुनर्खरीद। कंपनियों। टैक्स रिफंड एक व्यक्ति या परिवार को दिया गया करों पर रिफंड होता है जब वास्तविक कर दायित्व राशि से कम होता है। किसी विशिष्ट समय अवधि में किसी देश की सीमाओं के भीतर निर्मित सभी तैयार वस्तुओं और सेवाओं का मौद्रिक मूल्य। दर जिस पर माल और सेवाओं की कीमतों का सामान्य स्तर बढ़ रहा है और इसके परिणामस्वरूप, क्रय शक्ति का मर्केंडाइजिंग खुदरा बिक्री के लिए माल या सेवाओं को बढ़ावा देने का कोई कार्य है, जिसमें विपणन रणनीतियों, डिज़ाइन डिज़ाइन और। एमबी ट्रेडिंग, आईबी के सदस्य फाइनरा शामिल हैं। एसआईपीसी एमबी ट्रेडिंग फ्यूचर्स, इंक आईबी के सदस्य एनएफए वायदा, विकल्प और विदेशी मुद्रा में ट्रेडिंग प्रकृति में सट्टा है और सभी निवेशकों के लिए उपयुक्त नहीं है। व्यापारियों के वायदा, विकल्प और विदेशी मुद्रा के कारण निवेशकों को केवल जोखिम पूंजी का इस्तेमाल करना चाहिए क्योंकि पर्याप्त हानि का खतरा हमेशा होता है। एमबी ट्रेडिंग ने Barrons 2018 में 5 में से 4.5 रेटिंग अर्जित की है, ऑनलाइन ब्रोकर्स की समीक्षा, शीर्ष स्थान के लिए शीर्ष स्थान पर काम करना। कंपनी ने कुल 33.8 अंक कमाए, शीर्ष स्कोर के तहत एक बिंदु का दसवां हिस्सा। एमबी ट्रेडिंग ने विभिन्न श्रेणियों की प्रस्तुतियों, व्यापार अनुभव, व्यापारिक प्रौद्योगिकी, प्रयोज्यता और ग्राहक सेवा और शिक्षा के लिए शीर्ष तीन में भी स्कोर किया। एमबी ट्रेडिंग ने बैरन्स 2018 में ऑनलाइन ब्रोकर्स की समीक्षा में 5 में से 4.5 रेटिंग अर्जित की है। कंपनी का दूसरा स्थान है और व्यापार अनुभव और पोर्टफोलियो विश्लेषण रिपोर्टिंग की श्रेणियों में पहली जगह के लिए जुड़ा हुआ है। कंपनी ने भी उपयोगिता की श्रेणी जीती है। कंपनी ने भी फ्री ट्रेड ट्रेडर्स के लिए बेस्ट फॉर ऑप्शंस ट्रेडर्स और बेस्ट फॉर वेंचर्स के लिए अलग-अलग श्रेणियों में पहले स्थान के लिए करार किया है। इस सर्वेक्षण में 27 ऑनलाइन फर्मों का मूल्यांकन किया गया है और इसमें सभी ऑनलाइन ब्रोकर शामिल नहीं हैं डेमो खातों में मुफ्त स्ट्रीमिंग स्टॉक्स, फ्यूचर्स, और ऑप्शन्स उद्धरण प्राप्त होते हैं, जो 20 मिनट तक देरी कर रहे हैं (प्रति व्यक्ति विनिमय आवश्यकता)। स्टॉक, वायदा और विकल्प के लिए निशुल्क वास्तविक-समय स्ट्रीमिंग उद्धरण, वित्तपोषित, जीवित खातों के साथ गैर-पेशेवर उपयोगकर्ताओं के लिए उपलब्ध है। एमबी व्यापार अपने अंतरराष्ट्रीय ग्राहकों के लिए शैक्षिक या सूचनात्मक उद्देश्यों के लिए हमारी वेबसाइट के Google अनुवाद प्रदान करता है। वेबसाइट के ग्राफिक्स, एप्लिकेशन और कुछ अंश अनुवादित नहीं हैं। ग्राहकों को साइट के अंग्रेज़ी संस्करण का प्रतिनिधित्व करने के बाहर ऐसी जानकारी के आधार पर कोई भी निर्णय लेने से पहले अपने क्षेत्रीय अनुवाद का मूल्यांकन करने की पूरी जिम्मेदारी उठानी चाहिए। यह मेन्यूफ़ेक्शन अतिरिक्त सामग्री है। आप यहां से छवियों से शॉर्टकोड में कुछ भी डाल सकते हैं। संपर्क फार्म 7 के लिए शोर्टकोड का उपयोग करते हुए नीचे दिया गया था। तीन तरह से निजी निवेशक प्रत्यक्ष या अप्रत्यक्ष रूप से विदेशी मुद्रा में व्यापार कर सकते हैं: स्पॉट मार्केट (सामान्य कराना आम तौर पर आम लाभों के नुकसान के लिए आईआरसी 988 के तहत होता है) आगे और वायदा: सामान्य लाभ आईपीसी 988 के तहत सामान्य लाभ एम्प हानियों के लिए है जब तक सामान 31 दिसंबर को सामान्यतः एम 2 एम नहीं होता है, उस स्थिति में टैक्सेशन 822060408221 के लिए आईआरसी 1256 के तहत है। विकल्प: सामान्य लाभ आयआरसी 988 के तहत सामान्य लाभ एम्प हानियों के लिए है जब तक सामान 31 दिसंबर को सामान्यतः एम 2 एम नहीं होता है, उस स्थिति में टैक्सेशन 822060408221 के लिए आईआरसी 1256 के तहत है। उपरोक्त चूक से बाहर चुना जा सकता है: आईआरसी 988 मदों 822060408221 के लिए आईआरसी 1256 के तहत कर लगाया जा सकता है यदि उचित चुनाव किए जाने पर घाटा हो तो 988 (सी) (1) (ई) (iii) के तहत परिभाषित कुछ हेज फंड के लिए यह विशेष 1256 822001008221 कैपिटल गेन एम्प घाटे में परिणाम है। आईआरसी 1256 आइटम आईआरसी 988 के तहत कर सकते हैं यदि उचित चुनाव किया जाए। आईआरसी 1256 के तहत आम तौर पर आईआरसी 988 मदों के लिए टैक्स लगाया जा सकता है I दिन आरसी 988 (ए) (1) (बी) और ट्रेज़ के अनुसार इस तरह के ट्रांजैक्शन में दर्ज किए जाने वाले दिन के समापन से पहले चुनाव किया जाता है। रेग। 1.988-3 (ख) (4)। यह तभी किया जा सकता है जब लेन-देन को अलग-अलग ब्रोकरेज खाते में निष्पादित किया जाता है जैसा कि ट्रेज़ के तहत वर्णित है। रेग 1. 9 88-3 (बी) (5) (ii) (डी) आम तौर पर आईआरसी 1256 मदों के लिए आईआरसी 988 के तहत टैक्स लगाया जा सकता है, चुनाव 1 जनवरी या उससे पहले किया जाता है (या, अगर बाद में या इससे पहले कि करदाता एक पद धारण कर लेते हैं) आईआरसी 988 (सी) के अनुसार व्यक्तिगत या किसी साझेदारी। लाभ या हानि (डिफ़ॉल्ट रूप से) का किरदार: व्यापार या निवेश प्रकार की गतिविधियों में शामिल होने पर व्यक्तियों का मुद्रा लाभ और नुकसान सामान्य लाभ और नुकसान होता है। 988 (ए) (1) (ए) और 988 (ई) देखें व्यक्तिगत गतिविधियों में उलझाने वाले व्यक्तियों का मुद्रा लाभ पूंजीगत लाभ है (लेकिन 988 (ई) (2) (बी) प्रति लेनदेन प्रति व्यक्तिगत मुद्रा लाभ के अनुसार 200 से अधिक आम तौर पर छूट दी जाती है)। निजी गतिविधियों में उलझाने वाले व्यक्तियों की मुद्रा हानि नॉनडेक्च्यूबल निजी व्यय 165 और 262 देखें 1.165-1 (ई) व्यक्तियों के नुकसान पर सीमा किसी व्यक्ति के मामले में, धारा 165 (ए) द्वारा दी गई हानियों के लिए कटौती, इस धारा के धारा 165 (सी) और अनुच्छेद (ए) के प्रावधानों के अधीन ही सीमित होगी: व्यापार या व्यापार में हुए नुकसान लाभ के लिए प्रवेश किए गए किसी लेन-देन में किए गए नुकसान उदा एक निवेश । यद्यपि व्यापार या व्यापार और संपत्ति के नुकसान से जुड़ा नहीं है जो व्यापार या व्यवसाय से जुड़ा नहीं है और न ही लाभ के लिए प्रवेश किए गए किसी लेन-देन में किए गए खर्चों को अगर अग्नि, तूफान, जहाज़ के मल, या चोरी से, या चोरी से उत्पन्न होने वाले नुकसान, और यदि सम्मिलित नुकसान में एस्टेट कर रिटर्न में संपत्ति कर के प्रयोजनों के लिए अनुमति नहीं दी गई है। हताहत और चोरी घाटे के भत्ता से संबंधित अतिरिक्त प्रावधानों के लिए, क्रमशः 1.165-7 और 1.165-8 देखें। रिपोर्टिंग (आईआरएस फॉर्म 1040 फाइल करने वाले व्यक्तिगत करदाताओं द्वारा): साधारण लाभ और नुकसान को ब्याज आय या ब्याज व्यय के रूप में माना जाता है। कुछ करदाताओं फॉर्म 4797, भाग II का उपयोग करते हैं। कुछ करदाता फॉर्म 4704 फॉर्म के बजाय फॉर्म 2040 का उपयोग करते हैं। किसी अन्य उपयुक्त जगह पर जहां ब्याज आय या ब्याज व्यय की जानी चाहिए। आईआरएस फॉर्म 8886 पर आमतौर पर 50,000 से अधिक की एक ही स्थिति से शुद्ध नुकसान की सूचना की जानी चाहिए। पूंजीगत लाभ और हानि की रिपोर्ट अनुसूची डी (और यदि उपयुक्त हो, आईआरएस फॉर्म 6781 पर) पर दी जाती है। यदि आईआरसी 988 चुनाव किया गया था तो करदाता को सत्यापन बयान संलग्न करना आवश्यक है। पूलिंग फंड: PAMM (प्रतिशत आवंटन प्रबंधन मॉड्यूल या कभी-कभी प्रतिशत आवंटन मनी प्रबंधन) एलएएम (लॉट आबंटन मैनेजमेंट) एमएएम (मल्टी-अकाउंट मैनेजमेंट) मुद्रा और फॉरवर्ड मुद्रा कॉन्ट्रैक्ट्स विदेशी मुद्रा लेनदेन, पहचान के समय से संबंधित मुद्दों, चरित्र ( पूंजी या सामान्य), और लाभ या हानि के स्रोत (घरेलू या विदेशी)। 1 9 86 में, कांग्रेस ने विदेशी मुद्रा लेनदेन के उपचार के संबंध में व्यापक कर कानून लागू किए। 333 उन कानूनों से पहले, विभिन्न फैसलों और अदालती फैसलों ने ऐसे लेनदेन के उपचार के लिए मार्गदर्शन प्रदान किया था। 334 फुटनोट 333 9 85- 9 8 9 विदेशी मुद्रा लेनदेन की विस्तृत चर्चा के लिए, 184 टीएम। देखें स्टॉक, सिक्योरिटीज और अन्य वित्तीय साधनों में लेनदेन। फुटनोट 334 रेव। 74-7, 1 9 74-1 सी.बी. 198 (विदेशी मुद्रा में पूंजीगत परिसंपत्ति लाभ या हानि मुद्रा के पुनर्विचार पर पूंजी की पूंजी है) गिलिन बनाम यूएस 423 एफ.2 डी 30 9 (सीटी। 1 9 70) अमेरिकी होम प्रॉड। कार्पोरेट वी। यूएस 601 एफ 2 डी 540 (सीटी। 1 9 7 9) (विदेशी मुद्रा में पूंजीगत संपत्ति है) नाट्ल - मानक कं। कॉम। 80 टीसी 551 (1 9 83), एफ़ 8217 डी, 74 9 एफ.2 डी 36 9 (1 9 84) (विदेशी मुद्राओं के संबंध में यू.एस. डॉलर के मूल्य में परिवर्तन से सामान्य लाभ या हानि उत्पन्न होती है) संयुक्त राज्य की मुद्रा एक पूंजीगत संपत्ति का गठन हो सकती है, हालांकि, यदि यह कानूनी निविदा नहीं है, परिचालित नहीं है, या मुख्य रूप से अपने अंकित मूल्य की तुलना में अपने सिमुज्मेटिक द्वारा बाजार में मूल्यवान है। कैलिफोर्निया फेड देखें लाइफ इन्स कं। कॉम। 76 टी.सी. 107 (1 9 81), एफ़ 8217 डी, 680 एफ 2 डी 85 (9 वी 1 9 82) (यू.एस. डबल ईगल सोने के सिक्के पूंजीगत संपत्ति हैं)। बुकिंग की तारीख के बीच विनिमय दर में बदलाव के कारण विदेशी मुद्रा से जुड़े लेनदेन में एक्सचेंज गेन या हानि उठता है (उस तारीख को जो किसी परिसंपत्ति या दायित्व को यूएस कर उद्देश्यों के लिए खाते में लिया जाता है) और वह तिथि जिस पर भुगतान किया जाता है या प्राप्त किया। 345 कुछ अपवादों के साथ, विनिमय लाभ या हानि को सामान्य आय या नुकसान के रूप में माना जाता है। 346 फुटनोट 345 988 (बी) फुटनोट 346 988 (ए) (1) (ए)। विदेशी मुद्रा की बिक्री के लिए आगे के अनुबंध संपत्ति के हितों का गठन 347 इस प्रकार, मुद्रा वायदा अनुबंध का काम सामान्य कर सिद्धांतों के तहत पूंजीगत लाभ या हानि का उत्पादन करता है। 1 9 86 में लागू किए गए व्यापक कर कानूनों के तहत, पूंजीगत लाभ या हानि उपचार अब भी आगे के ठेके, भविष्य के ठेके, या विदेशी मुद्राओं में विकल्प के लिए उपलब्ध है यदि अनुबंध या विकल्प अन्यथा पूंजीगत आस्तियां हैं, तो एक लेनदेन लेनदेन का हिस्सा नहीं हैं, और पहचान की जाती है उस दिन के बंद होने से पहले, जिस पर लेनदेन दर्ज हैं 348 फुटनोट 347 कारबोरंडम कंपनी बनाम कॉमरे 74 टी.सी. 730 (1 9 80) पीएलआर 7847004। फुटनोट 348 988 (ए) (1) (बी) आंतरिक राजस्व संहिता 988. कुछ विदेशी मुद्रा लेनदेन का उपचार 988 (ए) सामान्य नियम इस अध्याय 8211 988 (ए) (1) के किसी भी अन्य प्रावधानों के बावजूद सामान्य आय या हानि 988 (ए) (1) (ए) इस खंड में, कोई विदेशी मुद्रा लाभ या खंड 9 8 लेनदेन के कारण होने वाले नुकसान को अलग से गणना और सामान्य आय या हानि (जैसा मामला हो सकता है) के रूप में माना जाएगा। 988 (ए) (1) (बी) फॉरवर्ड कॉन्ट्रैक्ट्स, आदि के लिए विशेष नियम, नियमों में प्रदान किए गए सिवाय, एक करदाता किसी विदेशी मुद्रा लाभ या हानि का एक फॉरवर्ड अनुबंध, फ्यूचर कॉन्ट्रैक्ट, या विकल्प में वर्णित विकल्प का चुनाव कर सकता है। उपधारा (सी) (1) (बी) (iii) जो कि करदाता के हाथों में पूंजीगत संपत्ति है और जो अनुच्छेद (4 के बिना, धारा 10 9 2 (सी) के अर्थ के भीतर नहीं है (4 ) के रूप में पूंजीगत लाभ या हानि (जैसा मामला हो सकता है) के रूप में यदि करदाता ऐसे चुनाव करता है और ऐसे लेनदेन को उस दिन के बंद होने से पहले की पहचान करता है, जिस पर इस तरह के लेनदेन में प्रवेश किया जाता है (या इस तरह के समय पूर्व सचिव ने लिख सकता है) 988 (ए) (2) लाभ या हानि के कुछ उद्देश्यों के लिए ब्याज के रूप में व्यवहार नियमों में प्रदान की गई सीमा तक, पैरा (1) के तहत सामान्य आय या हानि के रूप में माना गया कोई भी राशि ब्याज आय या व्यय के रूप में माना जाएगा (जैसा मामला हो सकता है )। 988 (ए) (3) स्रोत 988 (ए) (3) (ए) सामान्य रूप में अन्यथा नियमों में प्रदान किए जाने के अलावा, किसी भी राशि के मामले में पैराग्राफ (1) (पैराग्राफ के बिना सामान्य आय या हानि के रूप में माना जाता है 1) (बी)), इस तरह की राशि का स्रोत करदाता के निवास के संदर्भ या करदाता की योग्य व्यावसायिक इकाई के आधार पर निर्धारित किया जाएगा, जिनकी पुस्तकों की परिसंपत्ति, देयता, या आय या व्यय की वस्तु ठीक से प्रतिबिंबित होती है 988 (ए) (3) (बी) निवास इस उपधारा 8211 988 (ए) (3) (बी) (i) के प्रयोजनों के लिए किसी भी व्यक्ति का निवास 8211 988 (ए) (3) (बी) (i ) (I) एक व्यक्ति के मामले में, जिस देश में ऐसे व्यक्ति 8217 रुपये कर घर (जैसा कि 911 (डी) (3) में परिभाषित है) 988 (ए) (3) (बी) (i) (द्वितीय ) किसी संयुक्त निगम, साझेदारी, ट्रस्ट या संपत्ति के मामले में, जो एक संयुक्त राज्य व्यक्ति है (जैसा कि धारा 7701 (ए) (30)) में परिभाषित किया गया है, संयुक्त राज्य अमेरिका और 988 (ए) (3) (बी) ( i) (III) किसी निगम, साझेदारी, ट्रस्ट, या संपत्ति के मामले में जो संयुक्त राज्य अमेरिका नहीं है, संयुक्त राज्य अमेरिका के अलावा कोई अन्य देश। अगर किसी व्यक्ति का कर घर (जैसा कि परिभाषित नहीं है) नहीं है, तो इस तरह के व्यक्ति का निवास संयुक्त राज्य होगा यदि वह व्यक्ति संयुक्त राज्य का नागरिक या एक निवासी विदेशी है और यदि वह व्यक्ति संयुक्त राज्य अमेरिका के अलावा अन्य देश होगा एक संयुक्त राज्य अमेरिका के नागरिक या एक निवासी विदेशी नहीं है 988 (ए) (3) (बी) (ii) अपवाद किसी भी करदाता (किसी व्यक्ति सहित) की योग्य व्यावसायिक इकाई के मामले में, ऐसी इकाई का निवास देश होगा जहां इस तरह के योग्यता के व्यवसाय का प्रमुख स्थान व्यवसाय इकाई स्थित है 988 (ए) (3) (बी) (iii) साझेदारी के लिए विशेष नियम नियमों में प्रदान की गई सीमा तक साझेदारी के मामले में, साझेदार स्तर पर निवास का निर्धारण किया जाएगा। 988 (ए) (3) (सी) कुछ संबंधित पार्टी ऋणों के लिए विशेष नियम, एक संयुक्त राज्य व्यक्ति या किसी संबंधित व्यक्ति द्वारा 10 प्रतिशत स्वामित्व वाले विदेशी निगम के लिए ऋण के मामले में नियमों में दी गई सीमा को छोड़कर डॉलर के मुकाबले किसी अन्य मुद्रा में ब्याज और ब्याज दर पर संघीय मध्यकालिक दर (खंड 1274 (डी) के तहत निर्धारित दर से कम से कम 10 प्रतिशत अंक की दर से ब्याज देता है, जैसे कि उस ऋण में प्रवेश किया जाता है, निम्न नियम लागू होंगे : 988 (ए) (3) (सी) (i) केवल धारा 904 के प्रयोजनों के लिए, ऐसे ऋण को वार्षिक आधार पर बाजार में चिह्नित किया जाएगा। 988 (ए) (3) (सी) (ii) कर योग्य वर्ष के लिए इस तरह के ऋण के संबंध में अर्जित किसी भी ब्याज आय को क्लॉज (i) के कारण किसी भी नुकसान की सीमा तक संयुक्त राज्य के भीतर के स्रोतों से आय के रूप में माना जाएगा। इस उप-पैराग्राफ के प्रयोजनों के लिए, 8220 से संबद्ध व्यक्ति 8221 शब्द का अर्थ धारा 954 (डी) (3) के द्वारा दिया गया है, सिवाय इसके कि इस खंड को 8220 नियंत्रक विदेशी निगम 8221 के लिए 8220 युनाइटेड स्टेट्स व्यक्ति 8221 के स्थान पर लागू किया जाएगा। 988 (ए) (3) (डी) 10-प्रतिशत स्वामित्व वाली विदेशी निगम 822018-प्रतिशत स्वामित्व वाले विदेशी निगम 8221 का अर्थ किसी भी विदेशी निगम का है जिसमें संयुक्त राज्य का व्यक्ति प्रत्यक्ष या अप्रत्यक्ष रूप से कम से कम 10 प्रतिशत वोटिंग स्टॉक का मालिक है। 988 (बी) विदेशी मुद्रा लाभ या हानि इस खंड 8211 988 (बी) (1) विदेशी मुद्रा लाभ के प्रयोजनों के लिए 8220 विदेशी मुद्रा लाभ 8221 शब्द का अर्थ है कि धारा 988 लेनदेन से प्राप्त लाभ ऐसे हद तक लाभ से अधिक नहीं है बुकिंग की तिथि या भुगतान तिथि से पहले और उसके बाद के विनिमय दर में परिवर्तन 988 (बी) (2) विदेशी मुद्रा हानि 8220 के लिए विदेशी मुद्रा हानि 8221 का मतलब है कि खंड 988 लेनदेन से किसी भी हानि की सीमा तक ऐसी हानि बुकिंग दिनांक के बाद या उसके बाद के विनिमय दर में परिवर्तन के कारण एहसास हुआ नुकसान से अधिक नहीं है भुगतान तिथि। 988 (बी) (3) कुछ नियमों के लिए विशेष नियम, आदि। उपखंड (सी) (1) (बी) (iii) में वर्णित किसी भी धारा 988 लेनदेन के मामले में, ऐसे लेनदेन से कोई लाभ या हानि माना जाएगा विदेशी मुद्रा लाभ या हानि (जैसा मामला हो सकता है)। 988 (सी) अन्य परिभाषाएं इस खंड 8211 988 (सी) (1) खंड 988 के लेनदेन 988 (सी) (1) (ए) के उद्देश्य के लिए 8220 सेक्शन 988 लेन-देन 8221 का मतलब है कि उप-पैराग्राफ़ (बी) में वर्णित कोई भी लेन-देन यदि राशि जो इस प्रकार के लेन-देन 8211 988 (सी) (1) (ए) (आई) के कारण एक गैर-कार्यात्मक मुद्रा या 988 (सी) (1) के संदर्भ में करदाता को प्राप्त करने का हकदार है (या भुगतान करने की आवश्यकता है) ए) (ii) 1 या अधिक गैर-कार्यात्मक मुद्राओं के मूल्य के संदर्भ द्वारा निर्धारित किया जाता है। 988 (सी) (1) (बी) लेनदेन का विवरण उप-पैराग्राफ (ए) के प्रयोजनों के लिए, निम्न लेन-देन इस उप-पैराग्राफ में वर्णित हैं: 988 (सी) (1) (बी) (i) एक ऋण साधन के अधिग्रहण या एक ऋण साधन के तहत तिरछी बनना 988 (सी) (1) (बी) (ii) इस उपशीर्षक के प्रयोजनों के लिए किसी भी आइटम के खर्च या सकल आय या रसीदों को प्राप्त करने (या अन्यथा ध्यान में रखना) ध्यान में रखा। 988 (सी) (1) (बी) (iii) किसी भी अग्रिम अनुबंध, वायदा अनुबंध, विकल्प, या इसी तरह के वित्तीय साधन में प्रवेश करना या प्राप्त करना। सचिव धारा के आवेदन से बाहर छोड़कर नियमों को निर्धारित कर सकता है (ii) किसी भी वर्ग की वस्तुओं को ध्यान में रखते हुए, इस खंड के उद्देश्यों को पूरा करने के लिए जरूरी नहीं है क्योंकि इसमें छोटी राशि या छोटी अवधि शामिल है, या अन्यथा 988 (सी) (1) (सी) गैर-कार्यात्मक मुद्रा के निपटान के लिए विशेष नियम 988 (सी) (1) (सी) (i) सामान्य में किसी भी गैर-कार्यात्मक मुद्रा के किसी भी प्रकार के मामले में 8211 988 (सी) (1) ( सी) (i) (I) इस तरह के व्यवहार को धारा 988 लेनदेन के रूप में माना जाएगा, और 988 (सी) (1) (सी) (i) (II) ऐसे लेनदेन से कोई लाभ या हानि विदेशी मुद्रा लाभ के रूप में माना जाएगा या नुकसान (जैसा मामला हो सकता है)। 988 (सी) (1) (सी) (ii) गैर-कार्यात्मक मुद्रा इस खंड के प्रयोजनों के लिए, 8220 अनंतिम कार्यकाल मुद्रा 8221 में सिक्का या मुद्रा शामिल है, और बैंक या अन्य वित्तीय संस्था द्वारा जारी किए गए गैर-कार्यात्मक मुद्रा निहित मांग या समय जमा या समान उपकरण। 988 (सी) (1) (डी) कुछ उपकरण के लिए अपवाद मार्केट 988 (सी) (1) (डी) (i) उप-पैराग्राफ (बी) के सामान्य खंड (iii) में किसी विनियमित वायदा अनुबंध पर लागू नहीं होगा या टैक्सेबल वर्ष के आखिरी दिन अगर कलम 1256 के तहत मार्केट में चिह्नित किया गया है तो कोई विकल्प नहीं होगा। 988 (सी) (1) (डी) (ii) चुनाव आबादी 988 (सी) (1) (डी) (ii) (आई) सामान्य में करदाता क्लॉज का चुनाव कर सकता है (i) ऐसे करदाता पर लागू नहीं होता है। इस तरह के चुनाव कर योग्य वर्ष के दौरान किसी भी समय आयोजित अनुबंधों के लिए लागू होंगे, जिसके लिए ऐसा चुनाव किया जाता है या कर योग्य वर्ष हो सकता है, जब तक इस तरह के चुनाव सचिव की सहमति से रद्द नहीं किया जाता है। 988 (सी) (1) (डी) (ii) (II) नियमों में प्रदान किए गए चुनावों को छोड़कर चुनाव बनाने के लिए समय, किसी भी कर योग्य वर्ष के उपचलों (I) के तहत एक चुनाव ऐसे कर योग्य वर्ष के पहले दिन या उससे पहले किया जाएगा (या, यदि बाद में, उस वर्ष के दौरान 1 दिन पहले या उससे पहले, जिस पर करदाता क्लॉज (आई) में वर्णित अनुबंध रखता है)। 988 (सी) (1) (डी) (ii) (III) साझेदारी के लिए विशेष नियम, आदि। साझेदारी के मामले में, प्रत्येक उप-विलय (I) के तहत एक चुनाव अलग से किया जाएगा। एस निगम के मामले में एक समान नियम लागू होगा। 988 (सी) (1) (डी) (iii) कुछ साझेदारी का उपचार यह उप-पैराग्राफ किसी भी आय या किसी भी कर योग्य वर्ष के लिए भागीदारी की हानि पर लागू नहीं होगी अगर ऐसी साझेदारी उप-पैराग्राफ (ई) (iii) (वी ) ऐसे वर्ष या किसी भी पूर्ववर्ती वर्ष के लिए 988 (सी) (1) (ई) कुछ नियम 988 (सी) (1) (ई) (i) के लिए विशेष नियम एक योग्य निधि के मामले में उप-पैराग्राफ (बी) की धारा (iii) लागू नहीं होगी किसी भी उपकरण के लिए जो कि धारा 1256 के तहत बाजार में चिह्नित किया जाएगा यदि कर योग्य वर्ष के अंतिम दिन (खंड (iv) के आवेदन के बाद निर्धारित) पर रखा गया है। 988 (सी) (1) (ई) (ii) विशेष नियम जहां चुनावी साझेदारी योग्य नहीं है यदि किसी साझेदारी ने किसी भी कर योग्य वर्ष के लिए खंड (iii) (वी) के तहत चुनाव कराया है और इस तरह की साझेदारी के ऐसे वर्ष के लिए शुद्ध हानि या खंड (i) में निर्दिष्ट उपकरणों से किसी भी सफल वर्ष, खंड (i) और (iv) के नियम किसी भी ऐसे हानि वर्ष पर लागू होंगे चाहे इस तरह की साझेदारी ऐसे वर्ष के लिए एक योग्य फंड है या नहीं। 988 (सी) (1) (ई) (iii) इस उप-पैराग्राफ के प्रयोजनों के लिए निर्धारित योग्य फंड, 8220 क्वालिफाइड फंड 8221 का अर्थ है कि किसी भी साझेदारी का मतलब है 8282 988 (सी) (1) (ई) (iii) (आई) के दौरान हर समय कर योग्य वर्ष (और प्रत्येक पूर्ववर्ती कर योग्य वर्ष के दौरान जिसके तहत उपचले (वी) लागू होते हैं), इस तरह की साझेदारी में कम से कम 20 भागीदार हैं और कोई भी भागीदार पूंजी में 20% से अधिक हितों या साझेदारी के लाभ का मालिक नहीं है, 988 (सी) (1) (ई) (iii) (2) ऐसी कर योग्य वर्ष (और प्रत्येक पूर्ववर्ती कर योग्य वर्ष) के लिए ऐसी साझेदारी की प्रमुख गतिविधि में वस्तुओं के संबंध में विकल्पों, वायदा, या आगे खरीदने और बेचने के होते हैं, 988 (सी) (1) (ई) (iii) (III) कर योग्य वर्ष (और प्रत्येक ऐसे पूर्ववर्ती कर योग्य वर्ष के लिए) की साझेदारी का सकल आय का कम से कम 90 प्रतिशत में उप-पैराग्राफ (ए ), (बी), या (जी) खंड 7704 (डी) (1) या ब्याज या लाभांश के उत्पादन के लिए आयोजित पूंजी संपत्ति की बिक्री या स्वभाव से लाभ, 988 (सी) (1) (ई) (iii) (IV) कर योग्य वर्ष (और प्रत्येक ऐसे पूर्ववर्ती कर योग्य वर्ष) के लिए साझेदारी की सकल आय की न्यूनतम राशि से अधिक नहीं, वस्तुओं को खरीदने और बेचने से प्राप्त किया गया था, और 988 (सी) (1) (ई) (iii) (वी) इस उपचला के तहत एक चुनाव कर योग्य वर्ष पर लागू होता है। किसी भी कर योग्य वर्ष के लिए उप-खंड (वी) के तहत एक चुनाव इस तरह के कर योग्य वर्ष के पहले दिन (या, यदि बाद में, उस वर्ष के दौरान या उस दिन के दौरान पहले किया जाना चाहिए जिसमें साझेदारी खंड में निर्दिष्ट एक उपकरण रखती है (मैं))। ऐसा कोई भी चुनाव करयोग्य वर्ष पर लागू होगा, जिसके लिए सचिव द्वारा किए गए सहमति से निरस्त नहीं किए गए सभी कर योग्य वर्षों के बाद किए गए। 988 (सी) (1) (ई) (iv) कुछ मुद्रा कॉन्ट्रैक्ट्स के उपचार 988 (सी) (1) (ई) (iv) (I) सामान्य में नियमों के अनुसार, एक योग्य निधि के मामले में, किसी भी बैंक अग्रिम अनुबंध, विदेशी मुद्रा वायदा अनुबंध पर किसी भी विदेशी मुद्रा वायदा अनुबंध का कारोबार होता है, या किसी भी तरह के उपकरण के नियमों में प्रदान की गई सीमा से, जो अन्यथा नहीं है, खंड 1256 अनुबंध को धारा 1256 के उद्देश्यों के लिए धारा 1256 अनुबंध माना जाएगा। 988 (सी) (1) (ई) (iv) (ii) लाभ और हानि, धारा 1256 के उप-पैराग्राफ (ए) के उप-खंड (आई) के तहत धारा 1256 अनुबंध के रूप में इलाज किए गए किसी भी साधन के मामले में अल्प अवधि के रूप में व्यवहार किया गया ) (3) 822040 प्रतिशत 8221 (और इस तरह के उप-पैराग्राफ (बी) के लिए 8220180 प्रतिशत 8221 प्रतिस्थापन के द्वारा लागू किया जाएगा लागू नहीं होगा)। 988 (सी) (1) (ई) (वी) खंड के लिए विशेष नियम (iii) (i) 988 (सी) (1) (ई) (वी) (i) कुछ सामान्य पार्टनर्स साझेदारी को साझेदारी के किसी भी कर योग्य वर्ष के लिए धारा (iii) (I) के 20% स्वामित्व की आवश्यकताओं को पूरा करने में विफल रहने के रूप में नहीं माना जाएगा, यदि साझेदार कर योग्य वर्ष समाप्त होने वाले भागीदार के कर योग्य वर्ष के लिए, ऐसे भागीदार और प्रत्येक निगम ऐसे साझेदार के साथ एक समेकित वापसी दाखिल करता है) में धारा 988 लेनदेन से कोई आम आय या हानि नहीं थी, जो विदेशी मुद्रा लाभ या हानि (जैसा मामला हो) हो सकता है। 988 (सी) (1) (ई) (वी) (II) प्रोत्साहन मुआवजे का उपचार, क्लॉज (iii) (I) के प्रयोजनों के लिए, आम व्यय के लिए आवंटित किसी आय को पूंजी के मुकाबले लाभ के आधार पर प्रोत्साहन मुआवजे के रूप में नहीं किया जाएगा साझेदारी के मुनाफे में ऐसे भागीदार 8217 के ब्याज का निर्धारण करने में ध्यान में रखा गया 988 (सी) (1) (ई) (वी) (III) कर-मुक्त पार्टनर्स के उपचार नियमों में दिए गए अनुसार, साझेदारी में भागीदार के हित को 20 प्रतिशत स्वामित्व आवश्यकताओं को पूरा करने में विफल नहीं माना जाएगा खंड (iii) (मैं) की ऐसी भागीदारी से इस तरह के साझीदार की आय में से कोई भी इस अध्याय (चाहे प्रत्यक्ष तौर पर या 1 या अधिक से अधिक संस्थाओं के माध्यम से) के अधीन कर के अधीन है। 988 (सी) (1) (ई) (वी) (IV) नियम के आधार पर देखें कि नियम (iii) (I) की आवश्यकताओं को किसी भी साझेदारी के संबंध में मिले हैं, नियमों में प्रदत्त हद तक, अन्य साझेदारी द्वारा आयोजित ऐसी साझेदारी में ब्याज, इस तरह के अन्य साझेदारों में साझीदारों द्वारा अनुपात के अनुसार आयोजित किया जाएगा। 988 (सी) (1) (ई) (vi) अन्य विशेष नियम इस उप-पैराग्राफ 8211 988 (सी) (1) (ई) (वी.आई) (आई) के प्रयोजनों के लिए संबंधित व्यक्ति एक दूसरे से संबंधित व्यक्तियों की साझेदारी में रूचियां (धारा 267 (बी) और 707 (बी)) के अर्थ के तहत 1 व्यक्ति द्वारा आयोजित के रूप में इलाज किया जाएगा। 988 (सी) (1) (ई) (वी.आई) (II) पूर्ववर्ती किसी भी साझेदारी के संदर्भ में किसी भी पूर्ववर्ती के संदर्भ शामिल होंगे। 988 (सी) (1) (ई) (vi) (III) खंड 7704 (ई) के नियमों के समान अनजाने टर्मिशन नियम लागू होंगे। 988 (सी) (1) (ई) (vi) (IV) कुछ ऋण उपकरणों का उपचार क्लॉज (iii) (IV) के प्रयोजनों के लिए, कोई भी ऋण साधन जो धारा 988 लेनदेन है, उसे एक वस्तु के रूप में माना जाएगा। 988 (सी) (2) बुकिंग की तारीख पैराग्राफ (1) (बी) (i), अधिग्रहण की तिथि या जिस पर वर्णित लेनदेन के मामले में 8220 बुकिंग दिनांक 8221 का अर्थ 8211 988 (सी) (2) (ए) है अनुच्छेद (1) (बी) (ii) में वर्णित लेन-देन के मामले में करदाता obligor, या 988 (c) (2) (बी) हो जाता है, जिस तारीख को अर्जित किया गया है या अन्यथा खाते में लिया जाता है। 988 (सी) (3) भुगतान की तारीख शब्द 8220 भुगतान तारीख 8221 का अर्थ है जिस पर भुगतान किया जाता है या प्राप्त किया जाता है। 988 (सी) (4) ऋण साधन 8220debt शब्द 8221 शब्द का मतलब है एक बांड, डिबेंचर, नोट, या प्रमाणपत्र या ऋणी का अन्य प्रमाण। नियमों में प्रदान की गई सीमा तक, ऐसे पद में पसंदीदा स्टॉक शामिल होगा। 988 (सी) (5) विशेष नियम जहां करदाता लेता है या डिलिवरी करता है यदि करदाता किसी भी धारा 988 लेनदेन के संबंध में अनुच्छेद (1) (बी) (iii) में वर्णित लेनदेन लेता है या डिलीवरी करता है, तो कोई लाभ या हानि करदाता ने उस तारीख को अनुबंध, विकल्प या उपकरण बेच दिया, जिस पर उसने खरीदा था या उस तारीख को उचित बाजार मूल्य के लिए डिलीवरी किया था) उसी तरह से मान्यता प्राप्त होगी जैसे कि इस तरह के अनुबंध, विकल्प या उपकरण बेचे गए थे। 988 (डी) 988 हेजिंग लेनदेन के व्यवहार 988 (डी) (1) सामान्य नियमों में प्रदान की गई सीमा के लिए, यदि कोई 988 लेन-देन 988 हेजिंग लेनदेन का हिस्सा है, तो ऐसे सभी लेनदेन, जो कि ऐसे 988 हेजिंग लेनदेन का हिस्सा हैं इस उपशीर्षक के उद्देश्यों के लिए एकीकृत और एक सिंगल ट्रांजैक्शन या अन्यथा इलाज किया जाता है। पूर्ववर्ती वाक्य के प्रयोजनों के लिए, यह निर्धारित करने के लिए कि क्या कोई लेन-देन धारा 988 लेनदेन है, इस संबंध में निर्धारित किए बिना निर्धारित किया जाएगा कि क्या इस तरह के लेनदेन को अन्यथा चिह्नित-से-बाजार के लिए 475 या 1256 चिह्नित किया जाएगा और ऐसी अवधि के संबंध में कोई लेनदेन शामिल नहीं होगा जो एक उप-धारा (ए) (1) (बी) के तहत किया जाता है। धारा 492, 10 9 2 और 1256 1 इस उपधारा द्वारा कवर किए गए लेनदेन पर लागू नहीं होगा। 988 (डी) (2) 988 हेजिंग ट्रांजैक्शन पैराग्राफ (1) के प्रयोजनों के लिए, 8220 9 88 हेजिंग लेन-देन 8221 का अर्थ है कि किसी भी लेन-देन 8211 988 (डी) (2) (ए) को करदाता मुख्य रूप से 8211 988 (डी) (2) ए) (i) उधार के संबंध में मुद्रा में उतार चढ़ाव के जोखिम को प्रबंधित करने के लिए करदाता द्वारा रखी हुई या करदाता द्वारा आयोजित होने वाली या संपत्ति के संबंध में मुद्रा में उतार चढ़ाव के जोखिम को प्रबंधित करने के लिए, या 988 (डी) (2) (ए) (ii) करदाता द्वारा, या 988 (डी) (2) (बी) को 988 हेजिंग लेनदेन के रूप में सचिव या करदाता द्वारा पहचाने गए या किए जाने या किए जाने या किए गए दायित्वों या खर्च किए जाने या बनाने के लिए। 988 (ई) व्यक्तियों के लिए आवेदन। सामान्य 982 (ई) (1) में सामान्य। 8 9 11 इस खंड के पूर्ववर्ती प्रावधान किसी भी व्यक्ति द्वारा दर्ज किसी भी धारा 988 लेनदेन पर लागू नहीं होंगे जो कि निजी लेनदेन है। 988 (ई) (2) कुछ व्यक्तिगत लेनदेन के लिए बहिष्करण। 8211 अगर 8211 988 (ई) (2) (ए) गैर-कार्यात्मक मुद्रा किसी भी लेनदेन में व्यक्ति द्वारा निपटाया जाता है, और 988 (ई) (2) (बी) एक व्यक्तिगत लेन-देन है, इस उपशीर्षक के प्रयोजनों के लिए इस तरह की मुद्रा के बदले विनिमय दर में बदलाव के कारण कोई भी लाभ नहीं पहचाना जाएगा, इस तरह के व्यक्ति द्वारा इस तरह की मुद्रा के अधिग्रहण के बाद और इस तरह के स्वभाव से पहले। पूर्ववर्ती वाक्य लागू नहीं होगी यदि लेनदेन पर मान्यता प्राप्त अन्यथा 200 से अधिक हो। 988 (ई) (3) व्यक्तिगत लेनदेन। 811 इस उपधारा के प्रयोजनों के लिए, व्यक्तिगत लेनदेन 8217 शब्द का मतलब किसी व्यक्ति द्वारा दर्ज लेनदेन है, सिवाय इसके कि इस अवधि में ऐसी कोई भी लेनदेन शामिल नहीं होगा जो इस तरह के लेनदेन के लिए उचित रूप से खर्च करने योग्य व्यय 8211 988 (ई) (3) (ए) सेक्शन 162 (उपधारा (ए) (2) में वर्णित यात्रा के अलावा ), या 988 (ई) (3) (बी) सेक्शन 212 (टैक्स के संबंध में किए गए खर्चों से संबंधित धारा 212 के उस हिस्से के अलावा) (पब जोड़ा गया। 99-514, शीर्षक XII, धारा 1261 (ए), 22 अक्टूबर, 1 99 8, 100 राज्य 2587, और संशोधित पब। एल। 100-647, शीर्षक I, धारा 1012 (v) (2) (ए), (3), (4), (6) - (8), शीर्षक छठी, धारा 6130 (ए), (बी), 10 नवंबर, 1 99 8, 102 राज्य 3529, 3530, 3717 पब एल 101-239, शीर्षक VII, धारा 7811 (i) (7), 1 9, 1 9 8 9, 103 राज्य। 2410 पब। एल। 105-34, शीर्षक XI, धारा 1104 (ए), 5 अगस्त 1997, 111 स्टेट 788 पब। एल। 106-170, शीर्षक वी, धारा 532 (बी), 17 दिसंबर, 1 999, 113 स्टेट 1860.) आंतरिक राजस्व संहिता धारा 1256 अनुबंध एक धारा 1256 अनुबंध कोई भी है : 1. विनियमित वायदा अनुबंध, 2. विदेशी मुद्रा अनुबंध, 3. अधिकांश विकल्प, 4. डीलर इक्विटी विकल्प, या 5. डीलर सिक्योरिटीज वायदा अनुबंध विनियमित वायदा अनुबंध यह एक ऐसा अनुबंध है जो: 1. उस राशि को जमा कराना चाहिए जिसे से निकाला जा सकता है, या आपके मार्जिन खाते को दैनिक बाजार की स्थितियों (बाजार को चिह्नित करने की व्यवस्था) पर निर्भर करता है, और 2. उस पर कारोबार किया जाता है, या इसके अधीन नियम, के एक योग्य बोर्ड विनिमय। एक्सचेंज का एक योग्य बोर्ड कमोडिटी फ्यूचर्स ट्रेडिंग कमिशन, ट्रेजरी के सचिव द्वारा स्वीकृत व्यापार या एक्सचेंज के किसी भी बोर्ड या प्रतिभूति और विनिमय आयोग के साथ पंजीकृत राष्ट्रीय प्रतिभूति विनिमय के रूप में नामित व्यापार का एक घरेलू बोर्ड है। विदेशी मुद्रा अनुबंध यह एक अनुबंध है: 1. एक विदेशी मुद्रा की डिलीवरी की आवश्यकता होती है जिसमें विनियमित वायदा अनुबंधों (या उस के निपटारे से उस प्रकार के विदेशी मुद्रा के मूल्य पर निर्भर होता है) के माध्यम से कारोबार किया जाता है, 2. इंटरबैंक बाजार में कारोबार किया जाता है, और 3 इंटरबैंक बाजार में कीमत के संदर्भ द्वारा निर्धारित कीमत पर बांह 8217 की लंबाई में प्रवेश किया गया है। नियत वायदा अनुबंधों के लिए आम तौर पर उपलब्ध परिपक्वता से अधिक समय वाली परिपक्वता तारीखों के साथ बैंक आगे के ठेके को विदेशी मुद्रा अनुबंध की परिभाषा को पूरा करने के लिए माना जाता है यदि उपरोक्त तीन शर्तें संतुष्ट हैं विशेष नियम कुछ विदेशी मुद्रा लेनदेन पर लागू होते हैं। ये लेनदेन सामान्य लाभ या हानि उपचार में परिणाम कर सकते हैं। विवरण के लिए, आंतरिक राजस्व संहिता अनुभाग 988 और विनियम अनुभाग 1. 9 88-1 (ए) (7) और 1. 9 88-3 देखें। आंतरिक राजस्व संहिता 988. कुछ विदेशी मुद्रा लेनदेन का उपचार 988 (ए) सामान्य नियम इस अध्याय 8211 988 (ए) (1) के किसी भी अन्य प्रावधानों के बावजूद सामान्य आय या हानि 988 (ए) (1) (ए) इस खंड में, कोई विदेशी मुद्रा लाभ या खंड 9 8 लेनदेन के कारण होने वाले नुकसान को अलग से गणना और सामान्य आय या हानि (जैसा मामला हो सकता है) के रूप में माना जाएगा। 988(a)(1)(B) Special Rule For Forward Contracts, Etc. Except as provided in regulations, a taxpayer may elect to treat any foreign currency gain or loss attributable to a forward contract, a futures contract, or option described in subsection (c)(1)(B)(iii) which is a capital asset in the hands of the taxpayer and which is not a part of a straddle (within the meaning of section 1092(c), without regard to paragraph (4) thereof) as capital gain or loss (as the case may be) if the taxpayer makes such election and identifies such transaction before the close of the day on which such transaction is entered into (or such earlier time as the Secretary may prescribe). Treas. Regulations 1.988-1(a)(7) 1.988-1(a)(7) Special rules for regulated futures contracts and non-equity options8211 1.988-1(a)(7)(i) In general. Except as provided in paragraph (a)(7)(ii) of this section, paragraph (a)(2)(iii) of this section shall not apply to any regulated futures contract or non-equity option which would be marked to market under section 1256 if held on the last day of the taxable year. 1.988-1(a)(7)(ii) Election to have paragraph (a)(2)(iii) of this section apply. Notwithstanding paragraph (a)(7)(i) of this section, a taxpayer may elect to have paragraph (a)(2)(iii) of this section apply to regulated futures contracts and non-equity options as provided in paragraph (a)(7)(iii) and (iv) of this section. 1.988-1(a)(7)(iii) Procedure for making the election. A taxpayer shall make the election provided in paragraph (a)(7)(ii) of this section by sending to the Internal Revenue Service Center . Examination Branch, Stop Number 92, Kansas City, MO 64999 a statement titled 8220ELECTION TO TREAT REGULATED FUTURES CONTRACTS AND NON-EQUITY OPTIONS AS SECTION 988 TRANSACTIONS UNDER SECTION 988(c)(1)(D)(ii)8221 that contains the following: 1.988-1(a)(7)(iii)(A) The taxpayer8217s name, address, and taxpayer identification number 1.988-1(a)(7)(iii)(B) The date the notice is mailed or otherwise delivered to the Internal Revenue Service Center 1.988-1(a)(7)(iii)(C) A statement that the taxpayer (including all members of such person8217s affiliated group as defined in section 1504 or in the case of an individual all persons filing a joint return with such individual) elects to have section 988(c)(1)(D)(i) and section 1.988-1(a)(7)(i) not apply 1.988-1(a)(7)(iii)(D) The date of the beginning of the taxable year for which the election is being made 1.988-1(a)(7)(iii)(E) If the election is filed after the first day of the taxable year, a statement regarding whether the taxpayer has previousl y held a contract described in section 988(c)(1)(D)(i) or section 1.988-1(a)(7)(i) during such taxable year, and if so, the first date during the taxable year on which such contract was held and 1.988-1(a)(7)(iii)(F) The signature of the person making the election (in the case of individuals filing a joint return, the signature of all persons filing such return). The election shall be made by the following persons: in the case of an individual, by such individual in the case of a partnership, by each partner separately effective for taxable years beginning after March 17, 1992, in the case of tiered partnerships, each ultimate partner in the case of an S corporation, by each shareholder separately in the case of a trust (other than a grantor trust) or estate, by the fiduciary of such trust or estate in the case of any corporation other than an S corporation, by such corporation (in the case of a corporation that is a member of an affiliated group that files a consolidated return, such election shall be valid and binding only if made by the common parent, as that term is used in section 1.1502-77(a)) in the case of a controlled foreign corporation, by its controlling United States shareholders under section 1.964-1(c)(3). With respect to a corporation (other than an S corporation), the election, when made by the common parent, shall be binding on all members of such corporation8217s affiliated group as defined in section 1504 that file a consolidated return. The election shall be binding on any income or loss derived from the partner8217s share (determined under the principles of section 702(a)) of all contracts described in section 988(c)(1)(D)(i) or paragraph (a)(7)(i) of this section in which the taxpayer holds a direct interest or indirect interest through a partnership or S corporation however, the election shall not apply to any income or loss of a partnership for any taxable year if such partnership made an election under section 988(c)(1)(E)(iii)(V) for such year or any preceding year. Generally, a copy of the election must be attached to the taxpayer8217s income tax return for the first year it is effective. It is not required to be attached to subsequent returns. However, in the case of a partner, a copy of the election must be attached to the taxpayer8217s income tax return for every year during which the taxpayer is a partner in a partnership that engages in a transaction that is subject to the election. 1.988-1(a)(7)(iv) Time for making the election8211 1.988-1(a)(7)(iv)(A) In general. Unless the requirements for making a late election described in paragraph (a)(7)(iv)(B) of this section are satisfied, an election under section 988(c)(1)(D)(ii) and paragraph (a)(7)(ii) of this section for any taxable year shall be made on or before the first day of the taxable year or, if later, on or before the first day during such taxable year on which the taxpayer holds a contract described in section 988(c)(1)(D)(ii) and paragraph (a)(7)(ii) of this section. The election under section 988(c)(1)(D)(ii) and paragraph (a)(7)(ii) of this section shall apply to contracts entered into or acquired after October 21, 1988, and held on or after the effective date of the election. The election shall be effective as of the beginning of the taxable year and shall be binding with respect to all succeeding taxable years unless revoked with the prior consent of the Commissioner. In determining whether to grant revocation of the election, recapture of the tax benefit derived from the election in previous taxable years will be considered. A taxpayer may make an election under section 988(c)(1)(D)(ii) and paragraph (a)(7)(ii) of this section within 30 days after the time prescribed in the first sentence of paragraph (a)(7)(iv)(A) of this section. Such a late election shall be effective as of the beginning of the taxable year however, any losses recognized during the taxable year with respect to contracts described in section 988(c)(1)(D)(ii) or paragraph (a)(7)(ii) of this section which were entered into or acquired after October 21, 1988, and held on or before the date on which the late election is mailed or otherwise delivered to the Internal Revenue Service Center shall not be treated as derived from a section 988 transaction. A late election must comply with the procedures set forth in paragraph (a)(7)(iii) of this section. 1.988-1(a)(7)(v) Transition rule. An election made prior to September 21, 1989 which satisfied the requirements of Notice 88-124, 1988-51 I. R.B. 6, shall be deemed to satisfy the requirements of paragraphs (a)(7)(iii) and (iv) of this section. 1.988-1(a)(7)(vi) General effective date provision. This paragraph (a)(7) shall apply with respect to futures contracts and options entered into or acquired after October 21, 1988. Treas. Regulations 1.988-3 Character of exchange gain or loss. 1.988-3(a) In general. The character of exchange gain or loss recognized on a section 988 transaction is governed by section 988 and this section. Except as otherwise provided in section 988 (c)(1)(E), section 1092, section 1.988-5 and this section, exchange gain or loss realized with respect to a section 988 transaction (including a section 1256 contract that is also a section 988 transaction) shall be characterized as ordinary gain or loss. Accordingly, unless a valid election is made under paragraph (b) of this section, any section providing special rules for capital gain or loss treatment, such as sections 1233, 1234, 1234A, 1236 and 1256(f)(3), shall not apply. 1.988-3(b) Election to characterize exchange gain or loss on certain identified forward contracts futures contracts and option contracts as capital gain or loss8211 1.988-3(b)(1) In general. Except as provided in paragraph (b)(2) of this section, a taxpayer may elect, subject to the requirements of paragraph (b)(3) of this section, to treat any gain or loss recognized on a contract described in section 1.988- 2(d)(1) as capital gain or loss, but only if the contract 8212 1.988-3(b)(1)(i) Is a capital asset in the hands of the taxpayer 1.988-3(b)(1)(ii) Is not part of a straddle within the meaning of section 1092(c) (without regard to subsections (c)(4) or (e)) and 1.988-3(b)(1)(iii) Is not a regulated futures contract or nonequity option with respect to which an election under section 988(c)(1)(D)(ii) is in effect. If a valid election under this paragraph (b) is made with respect to a section 1256 contract, section 1256 shall govern the character of any gain or loss recognized on such contract. 1.988-3(b)(2) Special rule for contracts that become part of a straddle after an election is made. If a contract which is the subject of an election under paragraph (b)(1) of this section becomes part of a straddle within the meaning of section 1092 (c) (without regard to subsections (c)(4) or (e)) after the date of the election, the election shall be invalid with respect to gains from such contract and the Commissioner, in his sole discretion, may invalidate the election with respect to losses. 1.988-3(b)(3) Requirements for making the election. A taxpayer elects to treat gain or loss on a transaction described in paragraph (b)(1) of this section as capital gain or loss by clearly identifying such transaction on its books and records on the date the transaction is entered into . No specific language or account is necessary for identifying a transaction referred to in the preceding sentence. However, the method of identification must be consistently applied and must clearly identify the pertinent transaction as subject to the section 988(a)(1)(B) election. The Commissioner, in his sole discretion, may invalidate any purported election that does not comply with the preceding sentence. 1.988-3(b)(4) Verification. A taxpayer that has made an election under section 1.988-3(b)(3) must attach to his income tax return a statement which sets forth the following: 1.988-3(b)(4)(i) A description and the date of each election made by the taxpayer during the taxpayer8217s taxable year 1.988-3(b)(4)(ii) A statement that each election made during the taxable year was made before the close of the date the transaction was entered into 1.988-3(b)(4)(iii) A description of any contract for which an election was in effect and the date such contract expired or was otherwise sold or exchanged during the taxable year 1.988-3(b)(4)(iv) A statement that the contract was never part of a straddle as defined in section 1092 and 1.988-3(b)(4)(v) A statement that all transactions subject to the election are included on the statement attached to the taxpayer8217s income tax return . In addition to any penalty that may otherwise apply, the Commissioner, in his sole discretion, may invalidate any or all elections made during the taxable year under section 1.988-3(b)(1) if the taxpayer fails to verify each election as provided in this section 1.988-3(b)(4). The preceding sentence shall not apply if the taxpayer8217s failure to verify each election was due to reasonable cause or bona fide mistake. The burden of proof to show reasonable cause or bona fide mistake made in good faith is on the taxpayer. 1.988-3(b)(5) Independent verification8211 1.988-3(b)(5)(i) Effect of independent verification. If the taxpayer receives independent verification of the election in paragraph (b)(3) of this section, the taxpayer shall be presumed to have satisfied the requirements of paragraphs (b)(3) and (4) of this section. A contract that is a part of a straddle as defined in section 1092 may not be independently verified and shall be subject to the rules of paragraph (b)(2) of this section. 1.988-3(b)(5)(ii) Requirements for independent verification. A taxpayer receives independent verification of the election in paragraph (b)(3) of this section if 8212 1.988-3(b)(5)(ii)(A) The taxpayer establishes a separate account (s) with an unrelated broker(s) or dealer(s) through which all transactions to be independently verified pursuant to this paragraph (b)(5) are conducted and reported. 1.988-3(b)(5)(ii)(B) Only transactions entered into on or after the date the taxpayer establishes such account may be recorded in the account. 1.988-3(b)(5)(ii)(C) Transactions subject to the election of paragraph (b)(3) of this section are entered into such account on the date such transactions are entered into. 1.988-3(b)(5)(ii)(D) The broker or dealer provides the taxpayer a statement detailing the transactions conducted through such account and includes on such statement the following: 8220Each transaction identified in this account is subject to the election set forth in section 988(a)(1)(B).8221 INTERNAL REVENUE SERVICE NATIONAL OFFICE FIELD SERVICE ADVICE MEMORANDUM FOR ASSOCIATE DISTRICT COUNSEL FROM: DEBORAH A. BUTLER ASSISTANT CHIEF COUNSEL CC:DOM:FS SUBJECT: Section 1256 Contracts and Section 988 Transactions This Field Service Advice responds to your memorandum dated November 23, 1999. Field Service Advice is not binding on Examination or Appeals and is not a final case determination. This document is not to be cited as precedent. 1. A may have traded in RFCs as defined in 1256(b)(1) and 1256(g)(1). Additional factual development is required. 2. A foreign currency contract may include a non-regulated foreign currency futures contract and a forward contract in foreign currency traded on the interbank market. 3. Foreign currency option contracts are not foreign currency contracts pursuant to 1256(g)(2). Transactions in these contracts may qualify as 988 transactions. The gains or losses on foreign currency options contracts that are not nonequity options will be characterized as ordinary gains or losses, pursuant to 988(c)(1)(B)(iii). 4. To the extend that A was in the trade or business of engaging in 988 transactions, any losses incurred could affect the taxpayers8217 NOL. 5. If C is viewed as an agent of A, its trading activity may be aggregated with A8217s activity in determining whether he was a trader or investor. 6. The taxpayers have properly amended their Tax Court petition in this case to raise the new issues with respect to the carryforward to the Year 3 tax year of NOLs allegedly incurred by the taxpayers in the Year 1 through Year 2 tax years. irs. govpubirs-wd0025020.pdf short n8217 sweet explanation found elsewhere on the web8230 Forex trades are not reported to the IRS the same as stocks and options, or futures. Forex trades are considered by the IRS as simple interest and the gain or loss is reported as 8220other income8221 on Form 1040 (line 21). No special schedules or matched trade lists are necessary. short n8217 sweet explanation 2 as suggested by larger hedge funds8230 Section 988 gain or loss While we are aware of no specific IRS instructions regarding the proper reporting of Section 988 gain or loss, we recommend that such amounts be reflected on Form 4797, Part II, line 10. National Futures Association (NFA) is the industry-wide, self-regulatory organization for the U. S. futures industry. nfa. futures. org a Rank: Based on a total universe of 2,289 U. S. and international hedge fund managers and CTAs representing US317.1 billion in assets under management reporting a single Auditor relationship to TASS Research as of 123102. In this ranking, where appropriate the group or parent company name is used. a Rank: Based on a total universe of 1,638 U. S. and international hedge fund managers and CTAs representing US214.1 billion in assets under management reporting a single Legal Counsel relationship to TASS Research as of 123102. In this ranking, where appropriate the group or parent company name is used. IRS Publication 550: Loss transactions . For individuals, a loss transaction is any transaction that results in a deductible loss if the gross amount of the loss is at least 2 million in a single tax year or 4 million in any combination of tax years. A loss from a foreign currency transaction under Internal Revenue Code section 988 is a loss transaction if the gross amount of the loss is at least 50,000 in a single tax year . whether or not the loss flows through from an S corporation or partnership. IRS Publication 334: Reportable transactions . You must file Form 8886 . Reportable Transaction Disclosure Statement, to report certain transactions. You may have to pay a penalty if you are required to file Form 8886 but do not do so. You may also have to pay interest and penalties on any reportable transaction understatements. Reportable transactions include (1) transactions the same as or substantially similar to tax avoidance transactions identified by the IRS, (2) transactions offered to you under conditions of confidentiality for which you paid an advisor a minimum fee, (3) transactions for which you have, or a related party has, contractual protection against disallowance of the tax benefits, (4) transactions that result in losses of at least 2 million in any single tax year ( 50,000 if from certain foreign currency transactions ) or 4 million in any combination of tax years, (5) transactions resulting in book-tax differences of more than 10 million on a gross basis, and (6) transactions with asset holding periods of 45 days or less and that result in a tax credit of more than 250,000. For more information, see the Instructions for Form 8886. IRS Schedule C instructions: Reportable Transaction Disclosure Statement . Use Form 8886 to disclose information for each reportable transaction in which you participated. Form 8886 must be filed for each tax year that your federal income tax liability is affected by your participation in the transaction . You may have to pay a penalty if you are required to file Form 8886 but do not do so. You may also have to pay interest and penalties on any reportable transaction understatements. The following are reportable transactions. Any transaction resulting in a loss of at least 2 million in any single tax year or 4 million in any combination of tax years. (At least 50,000 for a single tax year if the loss arose from a foreign currency transaction defined in section 988(c)(1) . whether or not the loss flows through from an S corporation or partnership.) Any transaction resulting in a book-tax difference of more than 10 million on a gross basis. Investor Reporting You may be required to provide the following information. 1. Reportable transaction disclosure statement. 2. Tax shelter registration number. Reportable Transaction Disclosure Statement Use Form 8886 to disclose information for each reportable transaction in which you participated. Generally, you must attach Form 8886 to your return for each year that your tax liability is affected by your participation in the transaction. In addition, for the first year Form 8886 is attached to your return, you must send a copy to: Internal Revenue Service LM:PFTG:OTSA Large amp Mid-Size Business Division 1111 Constitution Avenue, NW Washington, DC 20224 If you fail to file Form 8886 as required or fail to include any required information on the form, you may have to pay a penalty. See Penalty for failure to disclose a reportable transaction later under Penalties. The following discussion briefly describes reportable transactions. For more details, see the instructions for Form 8886. Reportable transaction. A reportable transaction is any of the following. A listed transaction. A confidential transaction. A transaction with contractual protection. Loss transactions. Transactions with a significant book-tax difference. Transactions with a brief asset holding period. This category includes transactions that result in your claiming a tax credit (including a foreign tax credit) of more than 250,000 if the asset giving rise to the credit was held by you for 45 days or less. Listed transaction. A listed transaction is a transaction that is the same as or substantially similar to one of the types of transactions that the IRS has determined to be a tax-avoidance transaction. These transactions have been identified in notices, regulations, and other published guidance issued by the IRS. For a list of existing guidance, see the instructions for Form 8886. Confidential transaction. A confidential transaction is one that is offered to you under conditions of confidentiality and for which you have paid an advisor a minimum fee. A transaction is offered under conditions of confidentiality if the advisor who is paid the fee places a limit on the disclosure of the tax treatment or tax structure on you and the limit protects the advisor8217s tax strategies. The transaction is treated as confidential even if the conditions of confidentiality are not legally binding on you. Transaction with contractual protection. Generally, a transaction with contractual protection is a transaction in which you or a related party has the right to a full or partial refund of fees if all or part of the intended tax consequences of the transaction are not sustained, or a transaction for which the fees are contingent on your realizing the tax benefits from the transaction. Loss transactions. For individuals, a loss transaction is any transaction that results in a deductible loss if the gross amount of the loss is at least 2 million in a single tax year or 4 million in any combination of tax years. A loss from a foreign currency transaction under Internal Revenue Code section 988 is a loss transaction if the gross amount of the loss is at least 50,000 in a single tax year, whether or not the loss flows through from an S corporation or partnership. Certain losses (such as losses from casualties, thefts, and condemnations) are excepted from this category and do not have to be reported on Form 8886 (see Form 8886 instructions). For information on other exceptions, see Revenue Procedure 2003-24 in Internal Revenue Bulletin 2003-11. This Internal Revenue Bulletin is available at irs. govpubirs-irbsirb03-11.pdf . Transactions with a significant book-tax difference. This category includes transactions that result in book-tax differences of more than 10 million in any tax year. The book-tax difference is the amount by which the amount of any income, gain, expense, or loss item from the transaction for federal income tax purposes differs on a gross basis from the amount of the item for book purposes for any tax year. Internal Revenue Code Sec. 988 Tax Shelter Effective Date: July 26, 2005 Coordinated Issue Paper, All Industries, 8220Notice 2003-818221 Tax Shelter, UIL 9300.31-00 INTRODUCTION On December 4, 2003, the Service issued Notice 2003-81, 2003-2 C. B. 1223, announcing that it will challenge transactions involving the assignment of offsetting foreign currency options to a charity in order to claim substantial artificial net losses and identifying these transactions as listed transactions for purposes of I. R.C. 6011, 6111, and 6112. The transaction is designed to create an overall net loss (either ordinary or capital) when a taxpayer transfers two foreign currency contracts to a charity where only one such contract is subject to the mark-to-market rules contained in I. R.C. 1256. Whether the tax law permits premium income received on a taxpayer8217s written 8220minor8221 foreign currency option contracts to go untaxed where the taxpayer retains the premium but transfers the obligation associated with the written option to a charity. Whether a taxpayer participating in this shelter strategy obtained a timing benefit by being able to recognize a loss on a purchased foreign currency option in advance of gain recognition on the premium received for writing a foreign currency option. Whether a taxpayer8217s purported loss is a bona fide loss allowable under I. R.C. 165. Whether the at-risk provisions of I. R.C. 465 limit the taxpayer8217s claimed loss. Whether the transaction as a whole lacks economic substance and business purpose apart from tax savings. Whether the provisions of I. R.C. 988 limit a taxpayer8217s claimed foreign currency losses. Whether the Service should assert the appropriate I. R.C. 6662 accuracy-related penalty against a taxpayer who entered into the transaction. Whether the Service should examine the role of the charity in this transaction. SUMMARY OF CONCLUSIONS A taxpayer remains obligated to take into income the premium received for writing a 8220minor8221 foreign currency option contract even if it transfers the obligation associated with that written option to a charity. A taxpayer did not obtain a timing benefit because I. R.C. 1092 does not permit a taxpayer to recognize loss in advance of gain on offsetting foreign currency contracts. The taxpayer8217s loss is not a bona fide loss allowable under I. R.C. 165. The taxpayer8217s loss is limited by the I. R.C. 465 at-risk provisions. The taxpayer8217s loss is disallowed because the transaction as a whole lacks economic substance and business purpose apart from tax savings. The taxpayer is not entitled to an ordinary loss under I. R.C. 988 . The 20-percent accuracy-related penalty under I. R.C. 6662 should be asserted against a taxpayer entering into this transaction unless the taxpayer is able to establish reasonable cause and good faith under I. R.C. 6664(c)(1) and the applicable regulations. The agent examining the taxable entity should forward all information gathered about the involvement of the charity to the Exempt Organizations Division of TEGE through the process established by the Notice 2003-81 Issue Management Team. Taxpayers deployed Notice 2003-81 transactions in order to offset substantial taxable income (either capital or ordinary). Taxpayers initiated the transactions by entering into an investment management agreement and opening a trading account managed by the promoter, who is also a registered investment advisor. Generally, the initial capital investment is determined by the anticipated loss needed. The required investment amount is equal to either (1) 15 of the desired ordinary loss or (2) 10 of the desired capital loss. The taxpayer agrees to leave the funds in the account for a five-year period, although funds can be withdrawn at any time subject to significant monetary penalties. A small portion, approximately 1.75, of the initial capital investment is used to establish a foreign currency trading account that is used to purchase foreign currency option contracts. The remaining balance is invested in a hedge fund of funds that in turn invests in a variety of investment vehicles including other hedge funds, stock funds, commodity funds and currency funds. B. Foreign Currency 8220Investment8221 Strategy The foreign currency 8220investment8221 strategy involves the purchase and sale of a series of foreign currency option contracts denominated in both a foreign currency in which positions are traded through regulated futures contracts and a foreign currency that is not traded through regulated futures contracts. The values of the two currencies underlying the options (i) historically have demonstrated a very high positive correlation with one another, or (ii) officially have been linked to one another, such as through the European Exchange Rate Mechanism (8220ERM II8221). 1 In one version, the taxpayer buys two 180-day European-style digital currency options, pegged to fluctuations in the exchange rate between the U. S. dollar and the euro. These positions are in a foreign currency traded through regulated futures contracts, and thus the taxpayer takes the position that such positions are I. R.C. 1256(g)(2)(A) foreign currency contracts. In the promotional materials, these contracts are referred to as the 8220major options.8221 At the same time, the taxpayer sells two 180-day European-style digital currency options, pegged to fluctuations in the exchange rate between the U. S. dollar and a stated European currency. The European currency is one in which positions are not traded on a qualified board or exchange and are not I. R.C. 1256(g)(2)(A) foreign currency contracts. In the promotional materials, these contracts are referred to as the 8220minor options.8221 The counterparty is the same for all four currency contracts. Therefore, the initial cash outlay to enter into the foreign currency positions is limited to the net premium among the offsetting contracts. In a more complex variation of the transaction, the taxpayer enters into a series of 180-day European-style digital options on the same day. Usually, the taxpayer buys two put options and sells two call options pegged to fluctuations in the exchange rate between the U. S. dollar and the euro. This group of options comprises the 8220major options.8221 The taxpayer also buys two call options and sells two put options, pegged to fluctuations in the exchange rate between the U. S. dollar and a stated European currency. This group of options comprises the 8220minor options .8221 Again, the counterparty is the same for all eight currency contracts and the initial cash outlay is relatively small in reference to the stated notional amounts of the contracts. In some deals, the taxpayer will enter into a second series of 180-day European-style options on the following day. The values of the respective currencies underlying the foreign currency transactions historically have demonstrated a very high positive correlation with one another. Therefore, the major options will move inversely to the minor options such that any gain in a major foreign currency position will be largely offset by a corresponding, though not always identical, loss in a minor foreign currency position. The bank, which serves as counterparty for these deals, generally makes representations to the taxpayer and trader concerning the statistical probabilities of the potential rate of return from the option positions indicating a profit is possible but unlikely. In fact, according to the analysis provided by the bank, there is usually a better than 50 chance that the taxpayer will lose its entire investment. C. Assignment of Major and Minor Contract to Charity Prior to the exercise date, that taxpayer assigns two of its open foreign currency contracts to a charity. The first contract is a major currency option contract that is in a loss position at the time of assignment. The taxpayer also assigns the obligation that is associated with a minor currency option contract that is in a gain position at the time of assignment of the obligation. The taxpayer takes the position that (1) the assignment of the major contract (i. e. I. R.C. 1256 contract) is treated as a termination of the contract requiring recognition of the inherent gain or loss in such contract and (2) the assignment of the minor contract obligation does not trigger the recognition of income because that contract is not covered by the mark-to-market provisions contained in I. R.C. 1256. D. Reporting of Transaction for Federal Income Tax Purposes In some cases, the taxpayer will report the listed transaction on Form 4797, Part II , Ordinary Gains and Losses as an I. R.C 988 foreign currency transaction. The loss claimed is a direct result from the disparate reporting of the donated major and minor contracts. The major contract in a loss position and the remaining option contracts that are not assigned to the charity are accounted for on Form 4797. The remaining option contract positions when closed effectively offset one another. The reporting exclusion of the gain from the donated minor contract, which closely mirrors the loss reported from the donated major contract, creates the artificial loss claimed by the taxpayer. In other cases, the taxpayer will report the listed transaction on Schedule D . Capital Gains amp Losses. In these instances, the taxpayer makes an election pursuant to I. R. C. 988(a)(1)(B) and Treas. रेग। 1.988-3(b)(4) to treat its foreign currency contracts as capital assets in order to claim a capital loss. The taxpayer is required to attach a verification statement to its filed return for a valid capital treatment election. DISCUSSION 1. A taxpayer remains obligated to take into income the premium that it received when it writes a 8220minor8221 foreign currency option contract and later transfers the obligation associated with that written option to a charity. Gain and loss on options is accounted for on an open transaction basis. As explained in Notice 2003-81, the justification for open transaction treatment is that the gain or loss on an option cannot be finally accounted for until such time as the option is terminated. Thus, premium income is not recognized until an option is sold or terminated. Rev. Rul. 58-234, 1958-1 C. B. 279, Accord Rev. Rul. 78-182, 1978-1 C. B. 265 Koch vmissioner . 67 T. C. 71 (1976), a cq . 1980-2 C. B. 1. Rev. Rul. 58-234 explains that this is the treatment for the option writer because the option writer assumes a burdensome and continuing obligation, and the transaction therefore stays open without any ascertainable income or gain until the writer8217s obligation is finally terminated. When the option writer8217s obligation terminates, the transaction closes, and the option writer must recognize any income or gain attributable to the prior receipt of the option premium. Though each taxpayer8217s transaction should be evaluated independently, the assignment documents reviewed to date have been three-party arrangements (involving the option writer, holder and charity) that seem to give rise to a novation of the option contracts. Where there is a novation, the option writer8217s obligation under the minor option contract terminates on the charity8217s assumption of the written option obligation. However, in other cases where a novation does not occur, the writer of the minor foreign currency option writer may well have a continuing obligation because the writer may be called upon to perform if the charity fails to perform or to reimburse the charity for any losses or expenses it may incur if called upon to perform. If an assumption of the liability by the charity causes the option writer8217s obligation under the option contract to terminate, then the option writer must recognize gain upon assignment, when the option obligation is assumed. Notice 2003-81. If the assumption does not terminate the option writer8217s obligation under the option contract, the option writer must recognize the premium when the option writer8217s obligation under the option contract terminates (other than through an exercise of the option against, and performance by, the option writer). Notice 2003-81. It is generally understood that charities that received these options may have terminated them either contemporaneous with or shortly after the assignments. Even if a novation did not occur to cause premium income to be recognized, there is still no support for the apparent contention that responsibility for recognizing premium income shifts to the charity as a result of the assignment of the obligation on the written option. At least some of the tax promotional materials associated with this shelter transaction suggest that the gain or premium income received by the taxpayer on the written option must be recognized by the charity (but goes untaxed because of its taxexempt status). However, there is no support for this 8220too good to be true8221 result. Rather, the taxpayers and their advisors seem to simply assume that a taxpayer can receive premium income, pass off the obligation associated with having received that premium and not be taxed on the premium. No discussion was found in the materials. including an undated draft shelter memorandum (8220Shelter Memorandum8221), that explains why the premium received by the taxpayer is not a taxable accession to wealth of the taxpayer. Nor is there any explanation as to how a charity could be taxed on this premium that the charity does not receive. There is some hint in the promotional materials that the promoters may have been seeking to pass off the transfer of the obligation on the written minor option as a 8220donation.8221 Generally, taxpayers do not recognize gain upon transfer of appreciated property to a qualified charity. See Rev. Rul. 55-138, 1955-1 C. B. 223, modified on other grounds by Rev. Rul. 68-69, 1968-1 C. B. 80. In these challenged transactions, however, property rights were not transferred only the obligation associated with the out-of-the money (losing) purchased option was transferred. The assumption of an obligation is not a donation of property to which I. R.C. 170 applies. Rather it is a disposition event governed by I. R.C. 1001. Crane v. Commissioner . 331 U. S. 1 (1947). If the assumption of the obligation by the charity also involves the donation of associated property, I. R.C. 1001(b) applies and the transaction is treated as a bargain sale. 2 Treas. रेग। 1.1011-2(a)(3) Ebben v. Commissioner . 783 F.2d 906 (9th Cir. 1986). Thus, to the extent there was a transfer of property along with an associated obligation, the taxpayers were, in general, properly advised in this scheme that their charitable deduction for the donated purchased option rights would be reduced by the amount of liability relief provided by the charity that assumed the obligation on the written minor option. In short, contrary to the advice apparently received by the taxpayers, there is no factual or legal basis for the contention that taxpayers in these shelters shifted the responsibility for recognizing the premium income or gain on the written minor option position to a charity. Rather, the taxpayers only transferred an obligation and must be taxed on the premium that they retain. 3 2. A taxpayer did not obtain a timing benefit because section 1092 does not permit a taxpayer to recognize loss in advance of gain on the offsetting foreign currency contracts. For several reasons, this foreign currency shelter transaction did not provide a timing benefit to participating taxpayers. As explained in issue 1, the open transaction doctrine deferred a taxpayer8217s recognition of premium income only until it became possible to finally account for the option transaction. As also indicated, a taxpayer will be required to pick up premium income on the minor option at the same time as loss is allowed on the major option under I. R.C. 1256(c) if there was a novation of the minor option. However, even if a novation did not occur, a taxpayer was still required to recognize income when that taxpayer8217s secondary obligation under the written minor option contract terminated. That may have occurred in the same tax year as the assignment because the options were short term and are understood to have been closed out by the charities either contemporaneous with or shortly after assignment. However, even if a charity kept open the written option obligation beyond the year of assignment, a taxpayer still would not have obtained an overall timing advantage. As indicated in Notice 2003-81, the purchased major foreign currency option and the written minor foreign currency option are substantially offsetting positions. Consequently, such positions were parts of a straddle subject to I. R.C. 1092. Thus, under I. R.C. 1092, any mark-to-market loss on the contributed major foreign currency option would have been appropriately deferred to the extent of the taxpayer8217s unrecognized gain on the written minor foreign currency option. 3. The taxpayer8217s loss is not a bona fide loss allowable under I. R.C. 165. I. R.C. 165(a) provides that there shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise. Treas. रेग। 1.165-1(b) provides that to be allowable as a deduction under I. R.C. 165(a), a loss must be evidenced by closed and completed transactions, fixed by identifiable events, and, except as otherwise provided in I. R.C. 165(h) and Treas. रेग। 1.165-11 (relating to disaster losses), actually sustained during the taxable year. Under I. R.C. 165(b), the amount of the loss from the sale or other disposition of property is the adjusted basis provided in I. R.C. 1011. Treas. रेग। 1.165-1(b) further states that only a bona fide loss is allowable and that substance and not mere form shall govern in determining a deductible loss. See also ACM Partnership v. Commissioner . 157 F.3d 231, 252 (3d Cir. 1998), cert. denied . 526 U. S. 1017 (1999) 8220Tax losses. which do not correspond to any actual economic losses, do not constitute the type of bona fide8217 losses that are deductible under the Internal Revenue Code and regulations8221. Section 165(c) provides that, in the case of an individual, the deduction under 165(a) is limited to losses incurred in a trade or business, losses incurred in a transaction entered into for profit, and certain casualty or theft losses. In this case, the taxpayer has suffered no real economic loss because the acquisition and disposition of the offsetting option contracts constitute an economically inconsequential investment, with the taxpayer effectively in the same economic position as prior to the purported investment strategy less fees paid to the promoter. See ACM Partnership v. Commissioner . 157 F.3d at 251-252. Accordingly, the loss is not allowable under I. R.C. 165. I. R.C. 165(c) also disallows the loss for an individual taxpayer. The 8220loss8221 in this transaction is not incurred in a trade or business or from a casualty or theft, within the meaning of I. R.C. 165(c)(1) and (3). Therefore, a loss in this transaction is only allowable for an individual if it is incurred in a transaction undertaken for profit. I. R.C. 165(c)(2) Fox v. Commissioner . 82 T. C. 1001 (1984) Smith v. Commissioner . 78 T. C. 350 (1982). For the loss to be allowable, a profit motive must be the taxpayer8217s primary motive for engaging in the transaction. Fox v. Commissioner . 82 T. C. at 1020-21 citing Helvering v. National Grocery Co . 304 U. S. 282, 289 n.5 (1938). The taxpayer8217s potential profit from this transaction, apart from tax savings, is statistically improbable. Moreover, any profit generated would likely be derived from the capital that was invested in the hedge fund of funds rather than the small amount of capital used to acquire the major and minor contracts. In fact, the tax materials distinguish the two investment components by opining that the 8220possible profits8221 from the tax-driven currency option trading and the 8220expected profits8221 from investing in the hedge funds create sufficient 8220economic substance8221. Therefore, it is unlikely that a taxpayer can demonstrate a reasonable expectation to earn more than minimal profit solely from the foreign currency investment strategy described above, apart from tax savings. See Knetsch v. United States . 348 F.2d 932, 938 (Ct. Cl. 1965) The statutory definition of profit under I. R.C. 165(c)(2) 8220cannot embrace profit seeking activity in which the only economic gain derived therefrom results from a tax reduction.8221. Therefore, the loss is disallowed under I. R.C. 165(c)(2). 4. The taxpayer8217s loss is limited by the I. R.C. 465 at-risk provisions. I. R.C. 465 generally limits deductions for losses in certain activities to the amount for which the taxpayer is at-risk. In the case of an individual taxpayer, I. R.C. 465 limits the taxpayer8217s losses to the amount for which the taxpayer is at risk in the activity. I. R.C. 465(a)(1). I. R.C. 465 applies to all activities engaged in by the taxpayer in carrying on a trade or business or for the production of income. I. R.C. 465(c)(3)(A). Under those sections, losses incurred in an activity engaged in by a taxpayer carrying on a trade or business or for the production of income is defined broadly to include 8220excess of the allowable deductions allocable to the activity over the income received or accrued by the taxpayer during the taxable year from the activity.8221 Lansburgh v. Commissioner . 92 T. C. 448, 454-55 (1989). This interpretation is supported by the legislative history of I. R.C. 465 that provides the at risk limitation applies to losses 8220regardless of the kind of deductible expenses which contributed to the loss.8221 S. Rept. 94-938, at 48 (1976), 1976-3 C. B. (Vol.3) 86. In this case, I. R.C. 465 applies to the loss stemming from taxpayer8217s purchase of the foreign currency option contracts. The amount at-risk includes the amount of money and the adjusted basis of any property contributed by the taxpayer to the activity, and any amounts borrowed with respect to the activity to the extent that the taxpayer is personally liable to repay the amount, and to the extent of the fair market value of the taxpayer8217s interest in property, not used in the activity, pledged as security for the borrowed amount. I. R.C. 465(b)(1) and (2). Amounts protected against loss by nonrecourse financing, guarantees, stop loss agreements, or other similar arrangements, however, are not at-risk. I. R.C. 465(b)(4). The Senate report promulgated in connection with I. R.C. 465 states in pertinent part that 8220a taxpayer8217s capital is not at risk8217 in the business, even as to the equity capital which he has contributed to the extent he is protected against economic loss of all or part of such capital by reason of an agreement or arrangement for compensation or reimbursement to him of any loss which he may suffer.8221 S. Rept. No. 94-938, Pt. I at 49, 94th Cong. 2d Sess. (1976). The at-risk rules in I. R.C. 465 are most commonly applied to cases involving nonrecourse liabilities however, neither the statutory language nor the legislative history interprets the at-risk rules that narrowly. The legislative history notes that the overall purpose of the at-risk rules is to 8220prevent a situation where the taxpayer may deduct a loss in excess of his econo mic investment in certain types of activities.8221 S. Rept. No. 938, Pt. I at 48, 94th Cong. 2d Sess. (1976). The legislative history also provides that in evaluating the amount at-risk, it should be assumed that a loss-protection guarantee, repurchase agreement or other loss limiting mechanism will be fully paid to the taxpayer. S. Rep. No. 938, 94th Cong. 2d Sess. 50 n.6 (1976), C. B. 1976-3 at 88. Although the foregoing assumption regarding loss-limiting arrangements does not explicitly claim to interpret I. R.C. 465(b)(4), more than one circuit has found such an interpretation to be reasonable. See e. g. Moser v. Commissioner . 914 F.2d 1040, 1048 (8th Cir. 1990) American Principals Leasing Corp. v. Commissioner . 904 F.2d 477, 482 (9th Cir. 1990) assuming in both cases that the reference to loss-limiting arrangements in I. R.C. 465 legislative history refers to I. R.C.465(b)(4). I. R.C. 465(b)(4) limits losses to amounts at risk where a transaction is structured, by whatever method, to remove any realistic possibility that the taxpayer will suffer an economic loss. A theoretical possibility of economic loss is insufficient to avoid the suspension of losses. See Levien vmissioner . 103 T. C. 120, 125 (1994). The case law, however, is not in complete accord on this issue. In Emershaw v. Commissioner . 949 F.2d 841, 845 (6th Cir. 1991), the court adopted a worst-case scenario approach and determined that the issue of whether a taxpayer is 8220at risk8221 for purposes of I. R.C. 465(b)(4) 8220must be resolved on the basis of who realistically will be the payor of last resort if the transaction goes sour and the secured property associated with the transaction is not adequate to pay off the debt.8221 quoting Levy v. Commissioner . 91 T. C. 838, 869 (1988). In contrast, the Second, Eighth, Ninth, and Eleventh Circuits look to the underlying economic substance of the arrangements under I. R.C. 465(b)(4). Waters v. Commissioner . 978 F.2d 1310, 1316 (2d Cir. 1992) (citing American Principals Leasing Corp v. United States . 904 F.2d 477, 483 (9th Cir. 1990) Young v. Commissioner . 926 F.2d 1083, 1089 (11th Cir. 1991) Moser v. Commissioner . 914 F.2d at 1048-49. The view, as adopted by these circuits, is that, in determining who has the ultimate liability for an obligation, the economic substance and the commercial realities of the transaction control. See Waters v. Commissioner . 978 F.2d at 1316 Levien v. Commissioner . 103 T. C. 120 Thornock v. Commissioner . 94 T. C. 439, 448 (1990) Bussing v. Commissioner . 89 T. C. 1050, 1057 (1987). To determine whether a taxpayer is protected from ultimate liability, a transaction should be examined to see if it 8220is structured 8211 by whatever method 8211 to remove any realistic possibility that the taxpayer will suffer an economic loss if the transaction turns out to be unprofitable.8221 American Principals Leasing Corp. v. United States . 904 F.2d at 483 See Young v. Co mmissioner . 926 F.2d at 1088 Thornock v. Commissioner . 94 T. C. at 448-49 Owens v. United States . 818 F. Supp. 1089, 1097 (E. D. Tenn. 1993) Bussing v. Commissioner . 89 T. C. at 1057-58. 8220A binding contract is not necessary for I. R.C. 465(b)(4) to apply.8221 American Principals Leasing Corp. v United States . 904 F.2d at 482-83. In addition, 8220the substance and commercial realities of the financing arrangements presented. by each transaction8221 should be taken into account under I. R.C. 465(b)(4). Thornock v. Commissioner . 94 T. C. at 449. To avoid the application of I. R.C. 465(b)(4), there must be more than 8220a theoretical possibility that the taxpayer will suffer economic loss.8221 American Principals Leasing Corp. v United States . 904 F.2d at 483. In the typical 8220Notice 2003-818221 deal, the counterparty to all the foreign currency contracts is the same. Due to the fact that the currency movements between the euro and European currency used in the minor contracts closely parallel each other, the taxpayer8217s cash investment is relatively small. The transaction is carefully structured so that any gain in one option position is largely offset by a loss in another contract. Therefore, the taxpayer8217s true at-risk amount equals the net out of pocket premium paid to acquire the aggregate offsetting foreign currency positions. 5. The taxpayer8217s loss is disallowed because the transaction as a whole lacks economic substance and business purpose apart from tax savings. In addition to the statutory provisions discussed herein, the taxpayer8217s purported loss may be disallowed under the economic substance doctrine. This approach would deny the tax benefits arising because the transaction does not result in a meaningful change to the taxpayer8217s economic position other than the manufactured loss that results in the purported reduction in tax. See Knestch v. United States . 364 U. S. 361 (1960). The Tax Court has stated that tax law 8220requires that the intended transactions have economic substance separate and distinct from economic benefit achieved solely by tax reduction.8221 ACM Partnership v. Commissioner . T. C. Memo. 1997-115, aff8217d in part and rev8217d in part . 157 F.3d 231 (3rd Cir. 1998). Accordingly, this doctrine is applicable to the typical Notice 2003-81 transaction where the purported tax benefits are unintended by Congress and accomplished by a prearranged deal that serves no economic purpose apart from tax savings. In determining whether a transaction is to be respected for tax purposes, both the objective economic substance of the transaction and the subjective business motivation are considered. ACM Partnership v. Commissioner . 157 F.3d 231, 247 (3d Cir. 1998) Horn v. Commissioner . 968 F.2d 1229, 1237 (D. C. Cir. 1992) Casebeer v. Commissioner . 909 F.2d 1360, 1363 (9th Cir. 1990). Some courts apply a conjunctive analysis that requires a taxpayer to establish the presence of both economic substance (i. e. objective test) and business purpose (i. e. subjective test to determine whether the taxpayer intended the transaction to serve some useful non-tax purpose). See Pasternak v. Commissioner . 990 F.2d 893, 898 (6th Cir. 1993). Other courts apply a less stringent test that either a subjective business purpose or actual economic substance is sufficient. Rice8217s Toyota World v. Commissioner . 752 F.2d 89, 91-92 (4th Cir. 1985). An alternative analysis views economic substance and business purpose as 8220simply more precise factors to consider8221 in determining whether a transaction has any practical economic effects other than the tax benefits created. ACM Partnership v. Commissioner . 157 F.3d at 247. See also Casebeer v. Commissioner . 909 F.2d at 1363 Sacks v. Commissioner . 69 F.3d 982, 985 (9th Cir. 1995) James v. Commissioner . 899 F.2d 905, 908 (10th Cir. 1995). In addition, several courts have applied the economic substance doctrine where a taxpayer was exposed to limited risk and the transaction had a theoretical potential for profit but the profit potential was nominal and insignificant when compared to the tax benefit derived. Gregory v. Helvering . 293 U. S. 465 (1935) Transaction that is entered into for the primary purposes of creating a loss is subject to special scrutiny to determine whether such loss was bona fide Knetsch v. United States . 364 U. S. 361 (1960) Leveraged acquisition of Treasury bills and accompanying prepaid interest deduction lacked economic substance Goldstein v. Commissioner . 364 F.2d 734 739-40 (2d Cir. 1966)Deduction disallowed even though taxpayer has a possibility of small gain or loss from ownership of Treasury bills Sheldon v. Commissioner . 94 T. C. 738, 768 (1990)Loss disallowed from prearranged substantially offsetting transaction where profit potential 8220infinitesimally nominal and vastly insignificant8221 in comparison to loss claimed Rice8217s Toyota World v. Commissioner . 752 F.2d at 94 Economic substance inquiry requires an objective determination of whether reasonable possibility of profit existed apart from tax benefits. See also Compaq Computer Corp v. Commissioner . 277 F.3d at 781 IES Industries v. United States . 253 F.3d at 354 Applying same objective economic substance test discussed in Rice8217s Toyota World . The doctrine of economic substance should be raised in cases where the facts show that the transaction at issue was primarily designed to generate the tax losses, with little if any possibility for profit, and that such was the expectation of all the parties to the transaction. The wide variety of facts required to support its application should be developed at examination. The administrative record should include documents obtained from the taxpayer, the promoter and other third parties interviews with the same and expert analysis of financial data and industry practices. Summonses should be promptly issued whenever necessary to obtain the requisite transactional documents. In addition to evidence that shows a lack of pre-tax profit potential, facts should be developed demonstrating that the taxpayer and the promoter primarily planned the transaction for tax purposes. Such evidence should include the following: (1) documents or other evidence that the foreign currency option contracts were sold as tax shelters with limited consideration of the underlying economics of the transaction and (2) evidence that a prudent investor would not have invested in the strategy but for the tax savings. A primary source of such evidence is correspondence between the promoter and the taxpayer, including, but not limited to, offering memos, letters identifying tax goals, e - mails and in-house communications at the offices of the promoter and any other third party involved in the strategy. Written correspondence is the best evidence, but evidence of oral communications regarding tax goals is also useful. Indirect sources of the same include correlations between tax losses generated and tax losses requested, and between the taxpayer8217s income and the tax losses generated, particularly if it can be shown that the income to be sheltered was attributable to an unusual windfall, like the liquidation of stock options, or sale of a business. Demonstrations of similarities of the nature and extent of tax losses acquired by other clients of the promoter in this shelter can be very important as well. In the typical case, the transaction fails both prongs of the economic substance analysis. The following facts underscore a lack of a legitimate potential or realistic possibility for a pre-tax profit (i. e objective prong): First, the taxpayer8217s profit potential from the aggregate foreign currency options is severely limited by the offsetting nature of the respective contracts. Although not a traditional straddle, the option contracts create substantially offsetting positions whereby any gain in one contract is offset in another contract. Second, the profit, if any, would be derived from the contractual provision that required a payment equal to twice the premium amount to the holder if the strike price was at or above a stated amount on the exercise date. Third, the net premium paid to enter the option contracts is a mere 1.75 of the actual loss claimed. Fourth, any potential profit realized would be further reduced by significant up - front transaction costs. The fees paid to the promoter were 5 for a capital loss or 6 for any ordinary loss desired. Fifth, the only true profit potential comes from the additional hedge fund investment that represents a distinct investment separate from the foreign currency scheme. This 8220real8221 investment, which was a prerequisite to obtaining the desired loss, provides the trappings of legitimacy and creates the illusion of profit when aggregated with the tax shelter investment. These facts persuasively demonstrate the lack of any realistic potential for pre-tax profit from the foreign currency strategy. The transaction also fails the subjective economic substance prong. Typically, the taxpayer has significant taxable income (either capital gain income or ordinary income) unrelated to the transaction. Through participation in this transaction, the taxpayer is able to choose the character and amount of the loss needed to offset the unrelated income. The close connection between the taxable income being sheltered and the claimed loss suggests that the taxpayer did not enter into this transaction for a business purpose. As the Tenth Circuit has recognized, 8220correlation of losses to tax needs coupled with a general indifference to, or absence of, economic profits may reflect a lack of economic substance.8221 Keeler v. Commissioner . 243 F.3d 1212, 1218 (10th Cir. 2001), citing Freytag v. Commissioner . 89 T. C. 849, 877-878 (1987). Here, the taxpayer does not have a substantial non-tax purpose for entering into the structured transaction other than the creation of an artificial tax loss. If the revenue agent, after consultation with Financial Products specialist andor economist, determines that it is appropriate to assert economic substance with respect to a specific transaction, consideration must be given to possible appellate venue. As discussed herein, various circuits apply different standards in determining whether a transaction lacks economic substance. Prior to asserting economic substance, the examiner should consult with local Counsel to determine the appropriate standard in their jurisdiction. In cases where a taxpayer who invested in the transaction is unable to establish that (1) the transaction changes in a meaningful way (apart from Federal income tax consequences) the taxpayer8217s economic position and (2) that the taxpayer has a substantial non-tax purposes for entering into such transaction and the transaction is a reasonable means of accomplishing such purpose the tax benefits, fees or expenses, related thereto, may be disallowed. 6. The taxpayer is not entitled to an ordinary loss under I. R.C. 988. I. R.C. 985-989, which were enacted as part of the Tax Reform Act of 1986, set forth a comprehensive set of rules for the treatment of foreign currency transactions. In general, I. R.C. 988(a)(1)(A) provides that foreign currency gain or loss attributable to an I. R.C. 988 transaction is computed separately and treated as ordinary income or loss. The I. R.C. 988 foreign currency transaction rules generally apply to forward contracts, futures contracts, options contracts and similar financial instruments. The legislative history of I. R.C. 985-989 suggests a consistent concern about tax motivated transactions. The Senate Finance Committee Report accompanying the Tax Reform Act of 1986 stated that one of the two reasons I. R.C. 985-989 were enacted was prior law provided opportunities for tax motivated transactions. S. Rep. No. 313. 99th Cong. 2d Sess. 450 (1986). Accordingly, in enacting I. R.C. 985-989, Congress granted broad authority for the Service to promulgate regulations 8220as may be necessary or appropriate to carry out the purposes of I. R.C. 985-989. 8221 I. R.C. 989(c). The legislative history to the TAMRA, in discussing the law prior to the enactment of TAMRA, stated that 8220the Secretary has general authority to provide the regulations necessary or appropriate to carry out the purposes of new subpart J. For example, the Secretary may prescribe regulations appropriately recharacterizing transactions to harmonize the general realization and recognition provisions of the Code with the policies of 988.8221 H. R. Rep. No. 795, 100th Cong. 2d Sess. 296 (1988) S. Rep. No. 445, 100th Cong. 2d Sess. 311 (1988) (containing identical language). In response to Congressional concern about tax motivated transactions, the Service, under the authority of I. R.C. 989(c), promulgated Treas. रेग। 1.988-2(f) and Treas. रेग। 1.988-1(a)(11). Treas. रेग। 1.988-2(f) states that if the substance of a transaction differs from its form, the Commissioner may recharacterize the timing, source, and character of gains or losses with respect to the transaction in accordance with the substance of the transaction. Treas. रेग। 1.988-1(a)(11) states, in relevant part, that the Commissioner may exclude a transaction or series of transactions which in form is an I. R.C. 988 transaction from the provisions of I. R.C. 988 if the substance of the transaction, or series of transactions indicates that it is not properly considered an I. R.C. 988 transaction. In this case, the transaction at issue may be recharacterized in accordance with its substance so that the taxpayer is required to take i nto account gain as well as the economically corresponding loss under Treas. रेग। 1.988-2(f). For purposes of I. R.C. 988, the Service may adjust the timing of the transaction at issue consistently with its substance and require the taxpayer to recognize gain upon the transfer of the minor contract to the charity on the date of such transfer. The taxpayer8217s ordinary loss as reported on its return does not reflect the substance of the transaction because the Investor is not economically exposed to fluctuations in the values of the foreign currency positions. The claimed loss is not the result of exposure to exchange rate fluctuations, but rather of differences in timing of recognition of economically offsetting gain and loss positions in an engineered transaction. Accordingly, under Treas. रेग। 1.988-2(f), the taxpayer is required to take both gain and loss into account consistently. Alternatively, the loss may be excluded from I. R.C. 988 under Treas. रेग। 1.988-1(a)(11) because the reported loss is due to the different reporting methods of the major and minor contracts and does not reflect changes in foreign currency exchange rates. Excluding the transaction from the provisions of I. R.C. 988 under this alternative approach, however, would result in capital loss treatment. Barnes Group v. United States . 697 F. Supp 591 (D. Conn. 1988). 7. The 20 percent accuracy-related penalty under I. R.C. 6662 should be asserted against a taxpayer entering into this transaction unless the taxpayer is able to establish reasonable cause and good faith under I. R.C. 6664(c)(1) and applicable regulations. I. R.C. 6662 4 imposes an accuracy-related penalty in an amount equal to 20 percent of the portion of an underpayment attributable to, among other things: (1) negligence or disregard of rules or regulations and (2) any substantial understatement of income tax. Treas. रेग। 1.6662- 2(c) provides that there is no stacking of the accuracy-related penalty components. Thus, the maximum accuracy-related penalty imposed on any portion of an underpayment is 20 percent (40 percent for gross valuation misstatements), even if that portion of the underpayment is attributable to more than one type of misconduct. See D. H.L. Corp. v. Commissioner . T. C. Memo. 1998-461, aff8217d in part and rev8217d on other grounds . remanded by 285 F.3d 1210 (9th Cir. 2002). In order to facilitate the examiner8217s review of the relevant facts and circumstances associated with application of the I. R.C. 6662 penalty, this paper first provides a general overview of the law associated with the penalty where there is (a) negligence or disregard of rules or regulations and (b) any substantial understatement of income tax. After the general overview, some more practical suggestions are offered based on the information that has been reviewed to date including the above - referenced shelter promotion materials and Shelter Memorandum. Much of the focus in that later discussion is on substantial understatement. Negligence or Disregard of Rules or Regulations Negligence under I. R.C. 6662 includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code or to exercise ordinary and reasonable care in the preparation of a tax return. See I. R.C. 6662(c) and Treas. रेग। 1.6662-3(b)(1). Negligence also includes the failure to do what a reasonable and ordinarily prudent person would do under the same circumstances. See Marcello v. Commissioner . 380 F.2d 499, 506 (5th Cir. 1967), aff8217g 43 T. C. 168 (1964) Neely v. Commissioner . 85 T. C. 934, 947 (1985). Treas. रेग। 1.6662-3(b)(1)(ii) provides that negligence is strongly indicated where a taxpayer fails to make a reasonable attempt to ascertain the correctness of a deduction, credit or exclusion on a return that would seem to a reasonable and prudent person to be 8220too good to be true8221 under the circumstances. A return position that has a reasonable basis as defined in Treas. रेग। 1.6662-3(b)(3) is not attributable to negligence. Treas. रेग। 1.6662-3(b)(1). 8220Disregard of rules and regulations8221 includes any careless, reckless, or intentional disregard of rules and regulations. A disregard of rules or regulations is 8220careless8221 if the taxpayer does not exercise reasonable diligence in determining the correctness of a position taken on its return that is contrary to the rule or regulation. A disregard is 8220reckless8221 if the taxpayer makes little or no effort to determine whether a rule or regulation exists, under circumstances demonstrating a substantial deviation from the standard of conduct observed by a reasonable person. Additionally, a disregard of the rules and regulations is 8220intentional8221 where the taxpayer has knowledge of the rule or regulation that it disregards. Treas. रेग। 1.6662-3(b)(2). The term 8220rules and regulations8221 includes the provisions of the Internal Revenue Code, temporary or final treasury regulations, and revenue rulings or notices (other than notices of proposed rulemaking) issued by the Internal Revenue Service and published in the Internal Revenue Bulletin. Treas. रेग। 1.6662-3(b)(2). Therefore, if the facts indicate that a taxpayer took a return position contrary to any published notice or revenue ruling, the taxpayer may be subject to the accuracy-related penalty for an underpayment attributable to disregard of rules and regulations, if the return position was taken subsequent to the issuance of the notice or revenue ruling. The accuracy-related penalty for disregard of rules and regulations will not be imposed on any portion of underpayment due to a position contrary to rules and regulations if: (1) the position is disclosed on a properly completed Form 8275 or Form 8275-R (the latter is used for a position contrary to regulations) and (2) in the case of a position contrary to a regulation, the position represents a good faith challenge to the validity of a regulation. 5 Treas. रेग। 1.6662-3(c). This adequate disclosure exception applies only if the taxpayer has a reasonable basis for the position and keeps adequate records to substantiate items correctly. Treas. रेग। 1.6662-3(c)(1). Moreover, a taxpayer who takes a position contrary to a revenue ruling or a notice has not disregarded the ruling or notice if the contrary position has a realistic possibility of being sustained on its merits. Treas. रेग। 1.6662-3(b)(2). The taxpayer has the ultimate burden of overcoming the presumption that the Service8217s determination of negligence is correct. Marcello v. Commissioner . 380 F.2d 499, 507 (5th Cir. 1967). With respect to examinations commencing after July 22, 1998, however, the Service must first meet the burden of production with respect to negligence. I. R.C. 7491(c) Higbee v. Commissioner . 116 T. C. 438, 446 (2002). Substantial Understatement A substantial understatement of income tax exists for a taxable year if the amount of the understatement exceeds the greater of 10 percent of the tax required to be shown on the return or 5,000 (10,000 for a corporation, other than an S corporation or a personal holding company). I. R.C. 6662(d)(1). Specific rules apply to the calculation of the understatement when any portion of the understatement arises from an item attributable to a tax shelter. For purposes of I. R.C. 6662(d)(2)(C), a tax shelter is a partnership or other entity, an investment plan or arrangement, or other plan or arrangement where a significant purpose of such partnership, entity, plan or arrangement is the avoidance or evasion of federal income tax. I. R.C. 6662(d)(2)(C)(iii). Because a significant purpose of the Notice 2003-81 transaction is tax avoidance, it is a tax shelter pursuant to I. R.C. 6662(d)(2)(C). Different rules, however, apply depending upon whether the taxpayer is a corporation or an individual or entity other than a corporation. In the case of any item of a taxpayer other than a corporation, which is attributable to a tax shelter, understatements are generally reduced by the portion of the understatement attributable to: (1) the tax treatment of items for which there was substantial autho rity for such treatment, and (2) the taxpayer reasonably believed that the tax treatment of the item was more likely than not the proper treatment. I. R.C. 6662(d)(2)(C)(i). 6 The substantial authority standard is an objective standard involving an analysis of the law and application of the law to relevant facts. Treas. रेग। 1.6662-4(d)(1). Here, there was no substantial authority for the tax treatment of this transaction. A taxpayer is considered to have reasonably believed that the tax treatment of an item is more likely than not the proper tax treatment if (1) the taxpayer analyzes the pertinent facts and authorities, and based on that analysis reasonably concludes, in good faith, that there is a greater than 50 likelihood that the tax treatment of the item will be upheld if the Service challenges it, or (2) the taxpayer reasonably relies, in good faith, on the opinion of a professional tax advisor, which clearly states (based on the advisor8217s analysis of the pertinent facts and authorities) that the advisor concludes there is a greater than 50 likelihood the tax treatment of the item will be upheld if the Service challenges it. Treas. रेग। 1.6662-4(g)(4). However, a taxpayer cannot claim to have reasonably relied in good faith on the opinion of a professional tax advisor if the requirements of Treas. रेग। 1.6664-4(c)(1) are not met. Treas. रेग। 1.6662-4(g)(4)(ii). (As a practical matter, the requirement that the opinion take into account the particular motivations and circumstances of the taxpayer makes reliance on a 8220canned8221 opinion inherently questionable.) This is discussed further under 8220Reasonable Cause Exception8221 below. If the item is attributable to a tax shelter and the taxpayer is a corporation, the understatement cannot be reduced. 7 I. R.C. 6662(d)(2)(C)(ii). Therefore, if a corporate taxpayer has a substantial understatement that is attributable to a tax shelter item, the accuracy related penalty applies to the underpayment arising from the understatement unless the reasonable cause and good faith exception applies. Reasonable Cause Exception I. R.C. 6664(c) provides an exception, applicable to all types of taxpayers, to the imposition of any accuracy-related penalty if the taxpayer shows that there was reasonable cause and the taxpayer acted in good faith. Special rules apply to items of a corporation attributable to a tax shelter resulting in a substantial understatement. The determination of whether the taxpayer acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all relevant facts and circumstances. See Treas. रेग। 1.6664-4(b)(1) and Treas. रेग। 1.6664-4(f)(1). All relevant facts, including the nature of the tax investment, the complexity of the tax issues, issues of independence of a tax advisor, the competence of a tax advisor, the sophistication of the taxpayer, and the quality of an opinion, must be developed to determine whether the taxpayer was reasonable and acted in good faith. Generally, the most important factor in determining whether the taxpayer has reasonable cause and acted in good faith is the extent of the taxpayer8217s effort to assess the proper tax liability. See Treas. रेग। 1.6664-4(b)(1) see also Larson v. Commissioner . T. C. Memo. 2002-295 Estate of Simplot v. Commissioner . 112 T. C. 130, 183 (1999) (citing Mandelbaum v. Commissioner . T. C. Memo. 1995-255), rev8217d on other grounds . 249 F.3d 1191 (9th Cir. 2001). For example, reliance on erroneous information reported on an information return indicates reasonable cause and good faith, provided that the taxpayer did not know or have reason to know that the information was incorrect. Similarly, an isolated computational or transcription error is not inconsistent with reasonable cause and good faith. Treas. रेग। 1.6664-4(b)(1). Circumstances that may suggest reasonable cause and good faith include an honest misunderstanding of fact or law that is reasonable in light of the facts, including the experience, knowledge, sophistication and education of the taxpayer. Treas. रेग। 1.6664-4(b)(1). The taxpayer8217s mental and physical condition, as well as sophistication with respect to the tax laws, at the time the return was filed, are relevant in deciding whether the taxpayer acted with reasonable cause. See Kees v. Commissioner . T. C. Memo. 1999-41. If the taxpayer is misguided, unsophisticated in tax law, and acts in good faith, a penalty is not warranted. See Collins v. Commissioner . 857 F.2d 1383, 1386 (9th Cir. 1988) cf. Spears v. Commissioner, T. C. Memo. 1996-341, aff8217d, 98-1 USTC 50,108 (2d Cir. 1997)Court was unconvinced by the claim of highly sophisticated, able, and successful investors that they acted reasonably in failing to inquire about their investment and simply relying on offering circulars and accountant, despite warnings in offering materials and explanations by accountant about limitations of accountant8217s investigation. Reliance upon a tax opinion provided by a professional tax advisor may serve as a basis for the reasonable cause and good faith exception to the accuracy-related penalty. The reliance, however, must be objectively reasonable, as discussed more fully below. For example, the taxpayer must supply the professional with all the necessary information to assess the tax matter. The advice also must be based upon all pertinent facts and circumstances and the law as it relates to those facts and circumstances. The advice must not be based on unreasonable factual or legal assumptions (including assumptions as to future events) and must not unreasonably rely on the representations, statements, findings, or agreements of the taxpayer or any other person. For example, the advice must not be based upon a representation or assumption which the taxpayer knows, or has reason to know, is unlikely to be true, such as an inaccurate representation or assumption as to the taxpayer8217s purposes for entering into a transaction or for structuring a transaction in a particular manner. See Treas. रेग। 1.6664-4(c)(1)(ii). In Long Term Capital Holdings v. United States . 330 F. Supp.2d 122 (D. Conn. 2004), the court concluded that a legal opinion did not provide a taxpayer with reasonable cause where (1) the taxpayer did not receive the written opinion prior to filing its tax return, and the record did not establish the taxpayer8217s receipt of an earlier oral opinion upon which it would have been reasonable to rely (2) the opinion was based upon unreasonable assumptions (3) the opinion did not adequately analyze the applicable law and (4) the taxpayer8217s partners did not adequately review the opinion to determine whether it would be reasonable to rely on it. In addition, the court concluded that the taxpayer8217s lack of good faith was evidenced by its decision to attempt to conceal the losses reported from the transaction by netting them against gains on its return. Where a tax benefit depends on nontax factors, the taxpayer has a duty to investigate the underlying factors rather than simply relying on statements of another person, such as a promoter. See Novinger v. Commissioner . T. C. Memo. 1991-289. Further, if the tax advisor is not versed in these nontax matters, mere reliance on the tax advisor does not suffice. See Addington v. United States . 205 F.3d 54, 58 (2d Cir. 2000) Collins v. Commissioner . 857 F.2d 1383, 1386 (9th Cir. 1988) Freytag v. Commissioner . 89 T. C. 849, 888 (1987), aff8217d,904 F.2d 1011 (5th Cir. 1990). Although a professional tax advisor8217s lack of independence is not alone a basis for rejecting a taxpayer8217s claim of reasonable cause and good faith, the fact that a taxpayer knew or should have known of the advisor8217s lack of independence is strong evidence that the taxpayer may not have relied in good faith upon the advisor8217s opinion. See Neonatology Associates, P. A. v. Commissioner . 115 T. C. 43, 98 (2001), aff8217d 299 F.3d 221 (3rd Cir. 2002) 8220Reliance may be unreasonable when it is placed upon insiders, promoters, or their offering materials, or when the person relied upon has an inherent conflict of interest that the taxpayer knew or should have known about8221 Goldman v. Commissioner . 39 F.3d 402, 408 (2d Cir. 1994) aff8217g T. C. Memo. 1993-480 8220Appellants cannot reasonably rely for professional advice on someone they know to be burdened with an inherent conflict of interest8221 Marine v. Commissioner . 92 T. C. 958, 992-93 (1989), aff8217d without published opinion, 921 F.2d 280 (9th Cir. 1991). Such reliance is especially unreasonable when the advice would seem to a reasonable person to be 8220too good to be true.8221 Pasternak v. Commissioner . 990 F.2d 893, 903 (6th Cir. 1993), aff8217g Donahue v. Commissioner . T. C. Memo. 1991-181 Gale v. Commissioner . T. C. Memo. 2002-54 Elliot v. Commissioner . 90 T. C. 960, 974 (1988), aff8217d without published opinion . 899 F.2d 18 (9th Cir. 1990) Treas. रेग। 1.6662-3(b)(2). Similarly, the fact that a taxpayer consulted an independent tax advisor is not, standing alone, conclusive evidence of reasonable cause and good faith if additional facts suggest that the advice is not dependable. Edwards v. Commissioner . T. C. Memo. 2002-169 Spears v. Commissioner . T. C. Memo. 1996-341, aff8217d, 98-1 USTC 50,108 (2d Cir. 1997). For example, a taxpayer may not rely on an independent tax adviser if the taxpayer knew or should have known that the tax adviser lacked sufficient expertise, the taxpayer did not provide the advisor with all necessary information, or the information the advisor was provided was not accurate.8221 Baldwin v. Commissioner . T. C. Memo. 2002- 162 Spears v. Commissioner . T. C. Memo. 1996-341, aff8217d, 98-1 USTC 50,108 (2d Cir. 1997). Observations Regarding Application of Penalty to This Shelter When it appears that imposing the accuracy-related penalty is warranted, the examiner needs to carefully evaluate the application of the penalty for each taxpayer that is audited. This review is made somewhat easier by the fact that taxpayers must satisfy more stringent standards to avoid application of the penalty where the substantial understatement is in connection with a tax shelter transaction. From a practical standpoint, it will be critical for the examiner to focus upon whether the taxpayer based its return position on a more likely than not legal opinion of a professional tax advisor that considered all pertinent facts and lines of legal authority. Based on the review of the limited materials gathered to date in connection with this shelter transaction, it may be quite difficult for taxpayers to show that they satisfied that standard. As an initial matter, the examiner should determine whether the taxpayer obtained or relied upon a signed and dated legal opinion that unambiguously concludes that the taxpayer8217s return positions were more likely than not to be sustained if challenged. If the taxpayer has not reasonably relied on such an opinion, then the accuracy-related penalty should be asserted. Moreover, while all facts would still have to be considered, the accuracy-related penalty should also apply if the taxpayer simply relied on a 8220canned8221 legal opinion that does not address that taxpayer8217s particular circumstances. Almost by definition, such a 8220canned opinion could not be reasonably relied upon because it would not address the taxpayer8217s particular motivations and other pertinent circumstances. Even if the taxpayer could have reasonably relied on a 8220canned8221 legal opinion or one that is directed to the taxpayer, it will be necessary to evaluate whether the opinion took into account all pertinent facts and lines of legal authority. If the draft Shelter Memorandum is a good barometer of the quality of the opinions, if any, provided to taxpayers, the examiner may find that highly pertinent facts were overlooked or misstated. For instance, it is plainly troubling that the draft Shelter Memorandum reached its conclusions regarding section 1092 by assuming that the assigned foreign currency options were not substantially offsetting positions even though separate promotional documents clearly tout the positions as being almost completely offsetting. Moreover, the legal memorandum virtually ignores all discussion of the economics and legal effects of the assignments. In addition, it will be critical to examine whether the legal opinion addressed all relevant lines of legal authority. As a guide, the examiner should determine if each of the legal issues raised in this CIP were meaningfully considered. The draft Shelter Memorandum was clearly deficient in that regard. For instance, the legal memorandum failed to consider any authority that addresses the tax accounting for options and failed to consider whether the form of assignment caused gain or loss to be recognized under the open transaction doctrine. Though section 988 was considered, the draft memorandum also failed to consider the anti-abuse rules of Treas. रेग। 1.988-2(f). 8. The agent examining the taxable entity should forward all information gathered about the involvement of the charity to the Exempt Organizations Division of TEGE through the process established by the Notice 2003-81 Issue Management Team. Through IDRs and otherwise, the agent examining a taxable entity that entered into one of these transactions will obtain information about the involvement of the charity. In all cases, the agent should forward that information to the Exempt Organizations Division of TEGE through the process established by the Notice 2003-81 Issue Management Team. Examiners should refer to the Notice 2003-81 toolkit for the most current EO contact information, including contact person, address, phone and fax numbers. Information provided by the examiners to Exempt Organizations will be helpful in alerting Examination and Determination Agents so they may identify issues and take appropriate actions. Exempt Organizations will need to exercise discretion in determining how to proceed with the information that it receives because the nature of the charity8217s involvement in these transactions may vary. In some cases, a 8220charity8221 may have been created by the promoter or someone affiliated with the promoter specifically to facilitate these transactions. The custom-made charity may purport to engage in appropriate charitable activities, but evidence could show substantial andor repeated involvement as the accommodation party in the transaction. Other cases may involve charities that are well-established in their appropriate charitable endeavors but that appear as accommodation parties in these or other abusive tax transactions. Their involvement may appear on the books simply as a donation, as a net donation from offsetting options or property, or as part of an investment portfolio. The Service will apply the full array of enforcement tools to those entities whose focus is on accommodating abusive tax transactions. Playing that role does not further a charitable or other tax-exempt purpose. If this role is apparent in the application process for exemption, the Service will not recognize the entity as exempt. If the Service discovers this abusive behavior after having already recognized the entity as exempt, the Service will move to revoke the entity8217s exemption, possibly back to its inception. Where the Service learns that an otherwise compliant charity has become involved in an abusive transaction as an accommodating party, whether booked as a donation, fee, investment, or otherwise, the charity may expect to be contacted by the Service. The charity may be requested to provide the details of its involvement, information about the transaction and other parties, etc. Depending on the circumstances, this contact may be made by the Exempt Organizations Division as a compliance check with respect to the Form 990 or other return, or as part of an inquiry into the charity8217s own taxation and exemption status or other associated tax issues. In the alternative, it may arise as a third-party request for information relating to the examination of a promoter or taxable party. Prior to any contact being made to charity, coordination must first be made with the Exempt Organizations Division. While these transactions, at a minimum, raise questions about an organization8217s governance, if significant levels or types of involvement come to light, the Service will take the tax-exempt entity8217s involvement into account in determining whether to continue to recognize the entity8217s exemption or to apply an appropriate tax. FOOTNOTES In the transactions examined thus far, the strategy consists of the purchase and sale of a series of foreign currency option contracts denominated in both the euro and a currency of a European country (usually the Danish krone) that participates in the ERM II for fixing the participating currency exchange rate against the euro within a narrow fluctuation band. I. R.C. 170(e) may also affect the amount of the donation. Because only an obligation is transferred, there is no need to consider whether the premium would be taxed to the taxpayer under the assignment of income doctrine. It stands to reason, however, that if the assignment of income doctrine applies to certain transfers of income rights to charities, it should have been more than obvious to the promoters of this shelter that transferring the obligation but not the premium to a charity would not cause the responsibility for paying tax on the premium to be shifted to the charity. The American Jobs Creation Act of 2004, P. L. 108-357, 118 Stat. 1418 (the 8220Act8221), was enacted on October 22, 2004. The Act created 6662A, which imposes an accuracy related penalty on understatements with respect to reportable transactions, and amended 6662. I. R.C. 6662A and the amendments to 6662 apply only to tax years ending after October 22, 2004. Thus, this CIP does not discuss 6662A and references 6662 before amendment by the Act. For returns filed after December 31, 2002, if the position relates to a reportable transaction, adequate disclosure also requires disclosure in accordance with Treas. रेग। 1.6011-4. Treas. रेग। 1.6662-3(c)(1). It should be noted that the AJCA amendments to I. R.C. 6662, for tax years ending after October 22, 2004, eliminated reduction of the understatement for all taxpayers if the item is attributable to a tax shelter. See above note for changes made by the AJCA. Part III 8211 Administrative, Procedural and Miscellaneous Tax Avoidance Using Offsetting Foreign Currency Option Contracts Notice 2003-81 The Internal Revenue Service and the Treasury Department are aware of a type of transaction, described below, in which a taxpayer claims a loss upon the assignment of a section 1256 contract to a charity but fails to report the recognition of gain when the taxpayer8217s obligation under an offsetting non-section 1256 contract terminates. This notice alerts taxpayers and their representatives that these transactions are tax avoidance transactions and identifies these transactions, and those that are substantially similar to these transactions, as listed transactions for purposes of 1.6011-4(b)(2) of the Income Tax Regulations and 301.6111-2(b)(2) and 301.6112-1(b)(2) of the Procedure and Administration Regulations. This notice also alerts parties involved with these transactions of certain responsibilities that may arise from their involvement with these transactions. A taxpayer pays premiums to purchase a call option and a put option (the purchased options) on a foreign currency. The following sentence is an erroneous conclusion of law. The currency is one in which positions are traded through regulated futures contracts, and the purchased options, therefore, are foreign currency contracts within the meaning of section 1256(g)(2)(A) of the Internal Revenue Code and section 1256 contracts within the meaning of section 1256(b). This sentence should have stated: The taxpayer takes the position that the purchased options are foreign currency contracts within the meaning of 1256(g)(2)(A) of the Internal Revenue Code and 1256 contracts within the meaning of 1256(b). The purchased options are reasonably expected to move inversely in value to one another over a relevant range, thus ensuring that, as the value of the underlying foreign currency changes, the taxpayer will hold a loss position in one of the two section 1256 contracts. The taxpayer also receives premiums for writing a call option and a put option (the written options) on a different foreign currency in which positions are not traded through regulated futures contracts. Thus, the written options are not foreign currency contracts within the meaning of section 1256(g)(2)(A), nor are they section 1256 contracts within the meaning of section 1256(b). The written options are reasonably expected to move inversely in value to one another over a relevant range, thus ensuring that, as the value of the underlying foreign currency changes, the taxpayer will hold a gain position in one of the two non-section 1256 contracts. The values of the two currencies underlying the purchased and written options (i) historically have demonstrated a very high positive correlation with one another, or (ii) officially have been linked to one another, such as through the European Exchange Rate Mechanism (ERM II). Thus, as the currencies change in value, the taxpayer reasonably expects to have the following potential gains and losses in substantially offsetting positions: (1) a loss in a purchased option and a gain in a written option and (2) a gain in a purchased option and a loss in a written option. At any time, the taxpayer8217s loss in the purchased option position that has declined in value may be more or less than the taxpayer8217s gain in the offsetting written option position that has appreciated in value. Similarly, the taxpayer8217s gain in the remaining purchased option position may be more or less than the taxpayer8217s loss in the remaining written option position. A material pre-tax profit or rate of return, or both, on the transaction is possible but unlikely. The taxpayer assigns to a charity the purchased option that has a loss. The charity also assumes the taxpayer8217s obligation under the offsetting written option that has a gain. As with all written options, the amount of gain on the option is limited to the premium received for the option. In the same tax year, the taxpayer may dispose of the remaining purchased option and offsetting written option. Because the purchased option assigned to the charity is a section 1256 contract, the taxpayer relies on section 1256(c) and Greene v. United States . 79 F.3d 1348 (2d Cir. 1996), to mark to market the purchased option when the option is assigned to the charity and to recognize a loss at that time. In contrast, because the assumed written option is not a section 1256 contract, the taxpayer claims not to recognize gain attributable to the option premium. Specifically, the taxpayer claims that the charity8217s assumption of the option obligation does not cause the taxpayer to recognize gain and that the taxpayer also does not recognize gain either at the time the option expires or terminates or at any other time. Rev. Rul. 58-234, 1958-1 C. B. 279, clarified by Rev. Rul. 68-151, 1968-1 C. B. 363, holds that an option writer does not recognize income or gain with respect to a premium received for writing an option until the option is terminated, without exercise, or otherwise. Accord Rev. Rul. 78-182, 1978-1 C. B. 265 Koch v. Commissioner . 67 T. C. 71 (1976), acq . 1980-2 C. B. 1. Rev. Rul. 58-234 explains that this is the treatment for the option writer because the option writer assumes a burdensome and continuing obligation, and the transaction therefore stays open without any ascertainable income or gain until the writer8217s obligation is finally terminated. When the option writer8217s obligation terminates, the transaction closes, and the option writer must recognize any income or gain attributable to the prior receipt of the option premium. In some cases, the option writer8217s obligation under the option contract may terminate on the charity8217s assumption of the written option obligation. In other cases, the writer will have a continuing obligation because the writer may be called upon to perform if the charity fails to perform or to reimburse the charity for any losses or expenses it may incur if called upon to perform. If an assumption terminates the option writer8217s obligation under the option contract, the option writer must recognize gain when the option obligation is assumed. If the assumption does not terminate the option writer8217s obligation under the option contract, the option writer must recognize the premium when the option writer8217s obligation under the option contract terminates (other than through an exercise of the option against, and performance by, the option writer). These general principles remain applicable even if the assumption of the option writer8217s obligation is part of what the taxpayer claims is a donative transaction. Cf . Diedrich v. Commissioner . 457 U. S. 191 (1982) (noting that if a donee pays a gift tax obligation arising from a donative transfer, the donative nature of the transaction does not preclude income recognition by the donor on the obligation assumed). Here, the taxpayer has made a transfer to the charity of the purchased option, and the charity has assumed the burden of the written option. No aspect of the taxpayer8217s transfer or the charity8217s assumption (or their combination) relieves the taxpayer from its duty under the Code to account for the gain attributable to the premium originally received by the taxpayer for assuming the burden of writing the option. See Lucas v. Earl . 281 U. S. 111 (1930) (holding that a taxpayer may not avoid inclusion of future earned income by making a gratuitous transfer of the right to receive the income). Finally, if the taxpayer has any unrecognized gain on the written option at the end of the year in which the assumption occurs (e. g. the assumption did not terminate the option writer8217s obligation under the option contract), the mark-to-market loss on the offsetting contributed section 1256 contract will be deferred under section 1092. Transactions that are the same as, or substantially similar to, the transactions described in this notice are identified as 8220listed transactions8221 for purposes of 1.6011-4(b)(2), 301.6111-2(b)(2) and 301.6112-1(b)(2) effective December 4, 2003, the date this notice was released to the public. Variations on these transactions may include positions in other section 1256 and non-section 1256 contracts. Independent of their classification as 8220listed transactions8221 for purposes of 1.6011-4(b)(2), 301.6111-2(b)(2), and 301.6112-1(b)(2), transactions that are the same as, or substantially similar to, the transaction described in this notice may already be subject to the disclosure requirements of section 6011 (1.6011-4), the tax shelter registration requirements of section 6111 (301.6111-1T, 301.6111-2), or the list maintenance requirements of section 6112 ( 301.6112-1). Persons who are required to register these tax shelters under section 6111 but have failed to do so may be subject to the penalty under section 6707(a). Persons who are required to maintain lists of investors under section 6112 but have failed to do so (or who fail to provide those lists when requested by the Service) may be subject to the penalty under section 6708(a). In addition, the Service may impose penalties on parties involved in these transactions or substantially similar transactions, including the accuracy-related penalty under 6662. The Service and the Treasury recognize that some taxpayers may have filed tax returns taking the position that they were entitled to the purported tax benefits of the type of transaction described in this notice. These taxpayers should consult with a tax advisor to ensure that their transactions are disclosed properly and to take appropriate corrective action. The principal author of this notice is Clay Littlefield of the Office of Associate Chief Counsel (Financial Institutions and Products). For further information regarding this notice, contact Mr. Littlefield at (202) 622-3920 (not a toll-free call). Part III Administrative, Procedural, and Miscellaneous Modification of Notice 2003-81 Notice 2007-71 This Notice modifies and supplements Notice 2003-81, 2003-2 C. B. 1223, by correcting a statement in the 8220Facts8221 portion of Notice 2003-81. BACKGROUND On December 4, 2003, the Internal Revenue Service (8220Service8221) and the Treasury Department (8220Treasury8221) published Notice 2003-81, which described a tax avoidance transaction involving offsetting foreign currency options and identified such transaction and those substantially similar to it as listed transactions for purposes of 1.6011-4(b)(2) of the Income Tax Regulations and 301.6111-2(b)(2) and 301.6112-1(b)(2) of the Procedure and Administration Regulations. In the transaction described in Notice 2003-81, a taxpayer pays premiums to purchase a call option and a put option (the purchased options) on a foreign currency in which positions are traded through regulated futures contracts. The purchased options are reasonably expected to move inversely in value to one another over a relevant range, thus ensuring that, as the value of the underlying foreign currency changes, the taxpayer will hold a loss position in one of the two purchased options. The taxpayer also receives premiums for writing a call option and a put option (the written options) on a different foreign currency in which positions are not traded through regulated futures contracts. The taxpayer takes the position that the written options are neither foreign currency contracts within the meaning of 1256(g)(2)(A) nor 1256 contracts within the meaning of 1256(b). The written options are reasonably expected to move inversely in value to one another over a relevant range, thus ensuring that, as the value of the underlying foreign currency changes, the taxpayer will hold a gain position in one of the two written options. The values of the two currencies underlying the purchased and written options (i) historically have demonstrated a very high positive correlation with one another, or (ii) officially have been linked to one another, such as through the European Exchange Rate Mechanism (ERM II). Thus, as the currencies change in value, the taxpayer reasonably expects to have the following potential gains and losses in substantially offsetting positions: (1) a loss in a purchased option and a gain in a written option and (2) a gain in a purchased option and a loss in a written option. At any time, the taxpayer8217s loss in the purchased option position that has declined in value may be more or less than the taxpayer8217s gain in the offsetting written option position that has appreciated in value. Similarly, the taxpayer8217s gain in the remaining purchased option position may be more or less than the taxpayer8217s loss in the remaining written option position. A material pre-tax profit or rate of return, or both, on the transaction is possible but unlikely. The taxpayer assigns to a charity the purchased option that has a loss. The charity also assumes the taxpayer8217s obligation under the offsetting written option that has a gain. The premium received on that written option is not assigned but is retained by the taxpayer. As with all written options, the amount of gain on the option is limited to the premium received for the option. In the same tax year, the taxpayer may dispose of the remaining purchased option and offsetting written option. Because the taxpayer takes the position that the purchased option assigned to the charity is a 1256 contract, the taxpayer relies on 1256(c) and Greene v. United States, 79 F.3d 1348 (2d Cir. 1996) to mark to market the purchased option when the option is assigned to the charity and to recognize a loss at that time. In contrast, because the taxpayer takes the position that the assumed written option is not a 1256 contract, the taxpayer claims not to recognize gain attributable to the option premium. Specifically, the taxpayer claims that the charity8217s assumption of the option obligation does not cause the taxpayer to recognize gain and that the taxpayer also does not recognize gain either at the time the option expires or terminates or at any other time. ANALYSIS Although as a general matter the 8220Facts8221 portion of Notice 2003-81 correctly describes the transaction at issue, it includes an erroneous conclusion of law. The second sentence in the 8220Facts8221 portion of Notice 2003-81 states: 8220The currency is one in which positions are traded through regulated futures contracts, and the purchased options, therefore, are foreign currency contracts within the meaning of 1256(g)(2)(A) of the Internal Revenue Code and 1256 contracts within the meaning of 1256(b).8221 This sentence should have stated 8220The taxpayer takes the position that the purchased options are foreign currency contracts within the meaning of 1256(g)(2)(A) of the Internal Revenue Code and 1256 contracts within the meaning of 1256(b).8221 The Service and Treasury do not believe that foreign currency options, whether or not the underlying currency is one in which positions are traded through regulated futures contracts, are foreign currency contracts as defined in 1256(g)(2), and intend to challenge any such characterization by taxpayers. Section 1256(g)(2)(A) defines a foreign currency contract, in part, as a contract that requires delivery of, or the settlement of which depends on the value of, certain foreign currencies. The original statutory definition, however, did not allow for cash settlement and required actual delivery of the underlying foreign currency in all circumstances. Options, by their nature, only require delivery if the option is exercised. Section 102 of the Tax Reform Act of 1984, P. L. 98-369, 1984-3 (Vol. 1) C. B. 128, added the clause 8220or the settlement of which depends on the value of.8221 There is no indication, however, that Congress intended by this addition to extend the definition of 8220foreign currency contract8221 to foreign currency options. That conclusion is confirmed by the legislative history to 988(c)(1)(E), enacted by the Technical and Miscellaneous Revenue Act of 1988, P. L. 100-647, 1988-3 C. B. 377-380, which indicates that a foreign currency option is not a foreign currency contract as defined in 1256(g)(2). Subject to the following, 7805(b) relief is granted to taxpayers that adopted an accounting method in reasonable reliance on Notice 2003-81 to treat over-the-counter foreign currency options as foreign currency contracts as defined in 1256(g)(2). Section 7805(b) relief is not granted with respect to options entered into in transactions that are the same or substantially the same as those described in Notice 2003-81. Further, 7805(b) relief is not granted with respect to options entered into in any transaction identified as a listed transaction for purposes of 1.6011-4(b)(2), 301.6111-2(b)(2) and 301.6112-1(b)(2). The principal authors of this notice are Mark E. Erwin of the Office of Associate Chief Counsel (International) and Patrick E. White of the Office of Associate Chief Counsel (Financial Institutions and Products). For further information regarding this notice contact Mark E. Erwin at (202) 622-3870 or Patrick E. White at (202) 622-3920 (not a toll free call Chief Counsel Advice 201845022 LAW Section 1.6011-4(a)1 provides that every taxpayer that has participated, as described in 1.6011-4(c)(3), in a reportable transaction within the meaning of 1.6011-4(b) and who is required to file a tax return must file within the time prescribed in 1.6011-4(e) a disclosure statement in the form prescribed by 1.6011-4(d). 1. Whether the taxpayers in Situation 1 and Situation 2 have disclosure obligations under 1.6011-4 as a result of claiming losses under 165. 2. Whether the disclosure statements provided by the taxpayers in Situation 3 and Situation 4, described below, are complete under 1.6011-4(d). Share on Facebook Share
No comments:
Post a Comment