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October 10, 1989
TO: TAX MEMBERS NO. 39-89
CLOSED-END FUND MEMBERS NO. 53-89
INTERNATIONAL FUNDS TASK FORCE NO. 17-89
ACCOUNTING/TREASURERS COMMITTEE NO. 45-89
RE: REGULATIONS ON NONFUNCTIONAL CURRENCY GAIN OR LOSS
__________________________________________________________
The attached temporary and proposed regulations issued by
the IRS provide guidance under Code section 988 on the taxation
of gain or loss from certain foreign currency transactions in a
nonfunctional currency. Other regulations regarding the foreign
currency rules of sections 985 through 989 were also recently
issued by the IRS. (See Institute Memorandum to Tax Members No.
37-89, Closed-End Fund Members No. 51-89, International Funds
Task Force No. 15-89 and Accounting/Treasurers Committee No. 43-
89, dated October 9, 1989).
These section 988 regulations define the so-called "section
988 transactions" for which exchange gain or loss is realized on
a transaction-by-transaction basis when the transaction is
denominated in or determined by reference to a nonfunctional
currency. In addition, the regulations provide rules for the
computation, timing, character and source of gain or loss that
generally is due to fluctuations in exchange rates. Rules are
also provided for certain integrated hedging transactions.
These temporary regulations are effective generally for
taxable years beginning after December 31, 1986. Many parts of
these regulations, however, have other effective dates.
Because these regulations are also issued in proposed form,
written comments and requests for a public hearing may be
submitted to IRS through November 20, 1989. Please contact the
undersigned at (202) 955-3585 by November 3, 1989 if you would
like the Institute to file comments on these regulations.
We will keep you informed of developments.
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Keith D. Lawson
Assistant General Counsel
Attachment