Interested in training for your team? Click here to learn more

Section 988 Foreign Currency Transaction Reporting Rules for Options, Straddles and Hedges

Utilizing Elections and Avoiding Traps in Foreign Currency Options, Section 1092 Contracts, and Other Transactions

Recording of a 110-minute CPE webinar with Q&A

This program is included with the Strafford CPE Pass. Click for more information.
This program is included with the Strafford CPE+ Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Conducted on Thursday, November 15, 2018

Recorded event now available

or call 1-800-926-7926

This course will provide a comprehensive guide to reporting foreign currency transactions. The panel will outline the ground rules under IRC Section 988 and discuss scenarios where the taxpayer may elect out of ordinary income treatment. The presenters will also give practical tools to navigating the complex rules governing foreign currency. The event will discuss the U.S. federal income tax consequences of individuals who hold foreign currency, invest in foreign stock and bonds, foreign currency futures or other derivatives, and will offer guidance on when a taxpayer might need to complete Form 8886 to disclose a reportable transaction arising from a foreign currency loss.


The mechanics of reporting foreign currency transactions presents significant complexity for U.S. taxpayers whose functional currency is the U.S. dollar, as well as planning opportunities for their advisers.

This panel will discuss the tax consequences of various transactions involving foreign currency, including the tax treatment of investments in and dispositions of foreign currency; the tax treatment of debt instruments denominated in or the value of which is determined by foreign currency; and the tax consequences of derivative transactions involving foreign currency.

The Service issued proposed regulations in Dec. 2017 that may offer significant relief to some taxpayers engaged in foreign currency transactions, allowing taxpayers to elect mark-to-market treatment for foreign currency gain or loss attributable to Section 988 transactions. The proposed regulations also permit the controlling U.S. shareholders of a CFC to automatically revoke certain elections concerning the treatment of foreign currency gain or loss.

The panel will also discuss the “reportable transaction” rules about foreign currency transactions. Tax advisers serving clients with foreign currency assets should be well-versed in the shelter rules to avoid costly tax penalties and unnecessary IRS scrutiny of foreign currency losses.

Listen as the panel discusses the tax consequences of such instruments through examples and explanation approach.



  1. Background to transactions involving foreign currency
  2. Section 988 transactions
    1. Exceptions, limitations and qualifications to Section 988 transactions
    2. Character rules
    3. Sourcing rules
  3. Proposed REG–119514–15 allowing mark-to-market election
  4. Reportable transaction rules
  5. Examples and explanations


The panel will discuss these and other essential questions:

  • How was foreign currency taxed before Section 988?
  • How is foreign currency taxed after the enactment of Section 988?
  • What is functional currency?
  • If an individual buys foreign currency for personal transactions, do these rules apply?
  • How are debt instruments denominated in foreign currency taxed?
  • How are derivative instruments the value of which is linked to foreign currency taxed?
  • What is the character of gain or loss attributable to fluctuations in foreign currency?
  • When and how can you elect out of the default character rules?
  • What are the sourcing rules about foreign currency?
  • What is a qualifying hedging transaction?
  • How do these rules intersect with other Code provisions such as Sections 1256, 1092 or 475?
  • When do the reportable transaction rules apply?


Gray, Armin
Armin Gray

Managing Partner
Gray Tolub

Mr. Gray's practice is focused on tax controversy, IRS Offshore Voluntary Disclosure programs, FATCA, and...  |  Read More

Hsu, Doris
Doris S. Hsu

The Hsu Law Firm

Ms. Hsu has counseled clients for almost 20 years on the appropriate structures for their businesses and personal...  |  Read More

Smith, Dean
Dr. Dean Smith

Cadesky Tax

Dr. Smith's practice focuses on international tax and corporate tax. He is President of The British Canadian...  |  Read More

Access Anytime, Anywhere

CPE credit is not available on downloads.