November 21, 1989
TO: TAX COMMITTEE NO. 19-89
CLOSED-END FUND COMMITTEE NO. 51-89
INTERNATIONAL FUNDS TASK FORCE NO. 19-89
ACCOUNTING/TREASURERS COMMITTEE NO. 50-89
RE: INSTITUTE COMMENTS ON SECTION 988 REGULATIONS
__________________________________________________________
As we previously informed you, the Internal Revenue Service
recently issued temporary and proposed regulations providing
guidance under Code section 988 on the taxation of gain or loss
from certain foreign currency transactions denominated in a
nonfunctional currency. (See Institute Memorandum to Tax Members
No. 39-89, Closed-End Fund Members No. 53-89, International Funds
Task Force No. 17-89 and Accounting/Treasurers Committee No. 45-
89, dated October 10, 1989.) A subcommittee of the Tax Committee
was then formed to develop the Institute's comments on these
regulations.
The attached Institute comment letter to IRS addresses
three issues. First, the Institute proposes that the spot rate
convention in the regulations for "goods" be clarified so that it
is clearly applicable to unhedged payables and receivables
arising from the purchase and sale of foreign-currency-
denominated stock and securities by a regulated investment
company ("RIC"). Second, the Institute suggests that the hedging
rules under these regulations be expanded to encompass hedges of
payables and receivables arising from the purchase and sale of
such stock and securities. Finally, the Institute urges that
RICs that may have treated the acquisition of a foreign-currency-
denominated certificate of deposit as a recognition event be
permitted to continue that practice, or at a minimum that the
nonrecognition treatment set forth in the regulations not be
applied retroactively.
We will keep you informed of developments.
Keith D. Lawson
Assistant General Counsel
Attachment