§988 — Treatment of certain foreign currency transactions
57 cases·5 followed·3 distinguished·49 cited—9% support
Statute Text — 26 U.S.C. §988
Notwithstanding any other provision of this chapter—
Except as otherwise provided in this section, any foreign currency gain or loss attributable to a section 988 transaction shall be computed separately and treated as ordinary income or loss (as the case may be).
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).
To the extent provided in regulations, any amount treated as ordinary income or loss under paragraph (1) shall be treated as interest income or expense (as the case may be).
Except as otherwise provided in regulations, in the case of any amount treated as ordinary income or loss under paragraph (1) (without regard to paragraph (1)(B)), the source of such amount shall be determined by reference to the residence of the taxpayer or the qualified business unit of the taxpayer on whose books the asset, liability, or item of income or expense is properly reflected.
For purposes of this subpart—
The residence of any person shall be—
in the case of an individual, the country in which such individual’s tax home (as defined in section 911(d)(3)) is located,
in the case of any corporation, partnership, trust, or estate which is a United States person (as defined in section 7701(a)(30)), the United States, and
in the case of any corporation, partnership, trust, or estate which is not a United States person, a country other than the United States.
In the case of a qualified business unit of any taxpayer (including an individual), the residence of such unit shall be the country in which the principal place of business of such qualified business unit is located.
To the extent provided in regulations, in the case of a partnership, the determination of residence shall be made at the partner level.
If an individual does not have a tax home (as so defined), the residence of such individual shall be the United States if such individual is a United States citizen or a resident alien and shall be a country other than the United States if such individual is not a United States citizen or a resident alien.
Except to the extent provided in regulations, in the case of a loan by a United States person or a related person to a 10-percent owned foreign corporation which is denominated in a currency other than the dollar and bears interest at a rate at least 10 percentage points higher than the Federal mid-term rate (determined under section 1274(d)) at the time such loan is entered into, the following rules shall apply:
For purposes of section 904 only, such loan shall be marked to market on an annual basis.
Any interest income earned with respect to such loan for the taxable year shall be treated as income from sources within the United States to the extent of any loss attributable to clause (i).
For purposes of this subparagraph, the term “related person” has the meaning given such term by section 954(d)(3), except that such section shall be applied by substituting “United States person” for “controlled foreign corporation” each place such term appears.
The term “10-percent owned foreign corporation” means any foreign corporation in which the United States person owns directly or indirectly at least 10 percent of the voting stock.
For purposes of this section—
The term “foreign currency gain” means any gain from a section 988 transaction to the extent such gain does not exceed gain realized by reason of changes in exchange rates on or after the booking date and before the payment date.
The term “foreign currency loss” means any loss from a section 988 transaction to the extent such loss does not exceed the loss realized by reason of changes in exchange rates on or after the booking date and before the payment date.
In the case of any section 988 transaction described in subsection (c)(1)(B)(iii), any gain or loss from such transaction shall be treated as foreign currency gain or loss (as the case may be).
For purposes of this section—
The term “section 988 transaction” means any transaction described in subparagraph (B) if the amount which the taxpayer is entitled to receive (or is required to pay) by reason of such transaction—
is denominated in terms of a nonfunctional currency, or
is determined by reference to the value of 1 or more nonfunctional currencies.
For purposes of subparagraph (A), the following transactions are described in this subparagraph:
The acquisition of a debt instrument or becoming the obligor under a debt instrument.
Accruing (or otherwise taking into account) for purposes of this subtitle any item of expense or gross income or receipts which is to be paid or received after the date on which so accrued or taken into account.
Entering into or acquiring any forward contract, futures contract, option, or similar financial instrument.
The Secretary may prescribe regulations excluding from the application of clause (ii) any class of items the taking into account of which is not necessary to carry out the purposes of this section by reason of the small amounts or short periods involved, or otherwise.
In the case of any disposition of any nonfunctional currency—
such disposition shall be treated as a section 988 transaction, and
any gain or loss from such transaction shall be treated as foreign currency gain or loss (as the case may be).
For purposes of this section, the term “nonfunctional currency” includes coin or currency, and nonfunctional currency denominated demand or time deposits or similar instruments issued by a bank or other financial institution.
Clause (iii) of subparagraph (B) shall not apply to any regulated futures contract or nonequity option which would be marked to market under section 1256 if held on the last day of the taxable year.
The taxpayer may elect to have clause (i) not apply to such taxpayer. Such an election shall apply to contracts held at any time during the taxable year for which such election is made or any succeeding taxable year unless such election is revoked with the consent of the Secretary.
Except as provided in regulations, an election under subclause (I) for any taxable year shall be made on or before the 1st day of such taxable year (or, if later, on or before the 1st day during such year on which the taxpayer holds a contract described in clause (i)).
In the case of a partnership, an election under subclause (I) shall be made by each partner separately. A similar rule shall apply in the case of an S corporation.
This subparagraph shall not apply to any income or loss of a partnership for any taxable year if such partnership made an election under subparagraph (E)(iii)(V) for such year or any preceding year.
In the case of a qualified fund, clause (iii) of subparagraph (B) shall not apply to any instrument which would be marked to market under section 1256 if held on the last day of the taxable year (determined after the application of clause (iv)).
If any partnership made an election under clause (iii)(V) for any taxable year and such partnership has a net loss for such year or any succeeding year from instruments referred to in clause (i), the rules of clauses (i) and (iv) shall apply to any such loss year whether or not such partnership is a qualified fund for such year.
For purposes of this subparagraph, the term “qualified fund” means any partnership if—
at all times during the taxable year (and during each preceding taxable year to which an election under subclause (V) applied), such partnership has at least 20 partners and no single partner owns more than 20 percent of the interests in the capital or profits of the partnership,
the principal activity of such partnership for such taxable year (and each such preceding taxable year) consists of buying and selling options, futures, or forwards with respect to commodities,
at least 90 percent of the gross income of the partnership for the taxable year (and for each such preceding taxable year) consisted of income or gains described in subparagraph (A), (B), or (G) of section 7704(d)(1) or gain from the sale or disposition of capital assets held for the production of interest or dividends,
no more than a de minimis amount of the gross income of the partnership for the taxable year (and each such preceding taxable year) was derived from buying and selling commodities, and
an election under this subclause applies to the taxable year.
Except as provided in regulations, in the case of a qualified fund, any bank forward contract, any foreign currency futures contract traded on a foreign exchange, or to the extent provided in regulations any similar instrument, which is not otherwise a section 1256 contract shall be treated as a section 1256 contract for purposes of section 1256.
In the case of any instrument treated as a section 1256 contract under subclause (I), subparagraph (A) of section 1256(a)(3) shall be applied by substituting “100 percent” for “40 percent” (and subparagraph (B) of such section shall not apply).
The interest of a general partner in the partnership shall not be treated as failing to meet the 20-percent ownership requirements of clause (iii)(I) for any taxable year of the partnership if, for the taxable year of the partner in which such partnership taxable year ends, such partner (and each corporation filing a consolidated return with such partner) had no ordinary income or loss from a section 988 transaction which is foreign currency gain or loss (as the case may be).
For purposes of clause (iii)(I), any income allocable to a general partner as incentive compensation based on profits rather than capital shall not be taken into account in determining such partner’s interest in the profits of the partnership.
Except as provided in regulations, the interest of a partner in the partnership shall not be treated as failing to meet the 20-percent ownership requirements of clause (iii)(I) if none of the income of such partner from such partnership is subject to tax under this chapter (whether directly or through 1 or more pass-thru entities).
In determining whether the requirements of clause (iii)(I) are met with respect to any partnership, except to the extent provided in regulations, any interest in such partnership held by another partnership shall be treated as held proportionately by the partners in such other partnership.
For purposes of this subparagraph—
Interests in the partnership held by persons related to each other (within the meaning of sections 267(b) and 707(b)) shall be treated as held by 1 person.
References to any partnership shall include a reference to any predecessor thereof.
Rules similar to the rules of section 7704(e) shall apply.
For purposes of clause (iii)(IV), any debt instrument which is a section 988 transaction shall be treated as a commodity.
An election under subclause (V) for any taxable year shall be made on or before the 1st day of such taxable year (or, if later, on or before the 1st day during such year on which the partnership holds an instrument referred to in clause (i)). Any such election shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Secretary.
The term “booking date” means—
in the case of a transaction described in paragraph (1)(B)(i), the date of acquisition or on which the taxpayer becomes the obligor, or
in the case of a transaction described in paragraph (1)(B)(ii), the date on which accrued or otherwise taken into account.
The term “payment date” means the date on which the payment is made or received.
The term “debt instrument” means a bond, debenture, note, or certificate or other evidence of indebtedness. To the extent provided in regulations, such term shall include preferred stock.
If the taxpayer takes or makes delivery in connection with any section 988 transaction described in paragraph (1)(B)(iii), any gain or loss (determined as if the taxpayer sold the contract, option, or instrument on the date on which he took or made delivery for its fair market value on such date) shall be recognized in the same manner as if such contract, option, or instrument were so sold.
To the extent provided in regulations, if any section 988 transaction is part of a 988 hedging transaction, all transactions which are part of such 988 hedging transaction shall be integrated and treated as a single transaction or otherwise treated consistently for purposes of this subtitle. For purposes of the preceding sentence, the determination of whether any transaction is a section 988 transaction shall be determined without regard to whether such transaction would otherwise be marked-to-market under section 475 or 1256 and such term shall not include any transaction with respect to which an election is made under subsection (a)(1)(B). Sections 475, 1092, and 1256 shall not apply to a transaction covered by this subsection.
For purposes of paragraph (1), the term “988 hedging transaction” means any transaction—
entered into by the taxpayer primarily—
to manage risk of currency fluctuations with respect to property which is held or to be held by the taxpayer, or
to manage risk of currency fluctuations with respect to borrowings made or to be made, or obligations incurred or to be incurred, by the taxpayer, and
identified by the Secretary or the taxpayer as being a 988 hedging transaction.
The preceding provisions of this section shall not apply to any section 988 transaction entered into by an individual which is a personal transaction.
If—
nonfunctional currency is disposed of by an individual in any transaction, and
such transaction is a personal transaction,
no gain shall be recognized for purposes of this subtitle by reason of changes in exchange rates after such currency was acquired by such individual and before such disposition. The preceding sentence shall not apply if the gain which would otherwise be recognized on the transaction exceeds $200.
For purposes of this subsection, the term “personal transaction” means any transaction entered into by an individual, except that such term shall not include any transaction to the extent that expenses properly allocable to such transaction meet the requirements of—
section 162 (other than traveling expenses described in subsection (a)(2) thereof), or
section 212 (other than that part of section 212 dealing with expenses incurred in connection with taxes).
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.988-0 Taxation of gain or loss from a section 988 transaction; Table of Contents
- Treas. Reg. §Treas. Reg. §1.988-0(a) In general.
- Treas. Reg. §Treas. Reg. §1.988-0(b) Instruments described in paragraph (a)(1)(i) of this section.
- Treas. Reg. §Treas. Reg. §1.988-0(c) Examples.
- Treas. Reg. §Treas. Reg. §1.988-0(d) Multicurrency debt instruments.
- Treas. Reg. §Treas. Reg. §1.988-0(e) Instruments issued for nonpublicly traded property.
- Treas. Reg. §Treas. Reg. §1.988-0(f) Rules for nonfunctional currency tax exempt obligations described in § 1.
- Treas. Reg. §Treas. Reg. §1.988-0(g) Effective date.
- Treas. Reg. §Treas. Reg. §1.988-0(h) Effective date.
- Treas. Reg. §Treas. Reg. §1.988-0(i) §1.988-0(i)
- Treas. Reg. §Treas. Reg. §1.988-1 Certain definitions and special rules
- Treas. Reg. §Treas. Reg. §1.988-1(a) Section 988 transaction—(1) In general.
- Treas. Reg. §Treas. Reg. §1.988-1(b) Spot contract.
- Treas. Reg. §Treas. Reg. §1.988-1(c) Nonfunctional currency.
- Treas. Reg. §Treas. Reg. §1.988-1(d) Spot rate—(1) In general.
- Treas. Reg. §Treas. Reg. §1.988-1(e) Exchange gain or loss.
- Treas. Reg. §Treas. Reg. §1.988-1(f) Hyperinflationary currency—(1) Definition—(i) General rule.
- Treas. Reg. §Treas. Reg. §1.988-1(g) Fair market value.
- Treas. Reg. §Treas. Reg. §1.988-1(h) Interaction with sections 1092 and 1256.
- Treas. Reg. §Treas. Reg. §1.988-1(i) Applicability date—(1) In general.
- Treas. Reg. §Treas. Reg. §1.988-1(v) Time for making the election.
- Treas. Reg. §Treas. Reg. §1.988-1T Certain definitions and special rules
- Treas. Reg. §Treas. Reg. §1.988-1T(a) §1.988-1T(a)
- Treas. Reg. §Treas. Reg. §1.988-1T(j) Effective/applicability date.
- Treas. Reg. §Treas. Reg. §1.988-1T(k) Expiration date.
57 Citing Cases
We hold that they do.
988 provides that foreign currency gain or loss shall be computed separately and treated as ordinary income or loss.
Form 4797, Sales of Business Property, attached to the Form 1040, reported the CARDS transaction generally in the following terms: On December 5, 2000, petitioners acquired property in a foreign currency transaction pursuant to section 988 at a cost or other basis of - 17 - $11,739,258,8 and they sold it, on December·21, 2000, for $1, 800 , 934 , ' generating an ordinary loss of $9, 938 , 324 .
The taxpayer may argue that the loss is characterized as ordinary if the transaction also qualifies as a section 988 transaction.
Exchange gain or loss with respect to a contract described in § 1 .988-2(d)(1) [i .e ., foreign currency forward contracts, futures contracts, and options] shall be determined by subtracting the amount paid (or deemed paid), if any, for or with respect to the contract (including any amount paid upon termination of the contract) from the amount received (or deemed received), if any, for or with respect to the contract (including any amount received upon termination of the contract) . Any .gain or
ss equal to the long option premiums of $8,400,000 and treated the expiration of the short options as causing the realization of a gain equal to the premiums of $8,316,000. Highwood attached a statement to its return describing the $84,000 loss as a section 988 loss. However, Highwood did not disclose that the net loss resulted from the expiration of the long and short options and did not separately report the $8,400,000 loss from the long options and the $8,316,000 gain from the short options.
The problem for Putanec is that section 988 doesn't apply to "personal transaction[s]." See sec.
The problem for Putanec is that section 988 doesn't apply to "personal transaction[s]." See sec.
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
nterest in the lower tier partnership. The lower tier partnership entered into offsetting option contracts with Deutsche Bank. Each option contract purported to be a foreign 4Mr. Beer testified that POPS was designed to exploit the straddle rules in section 988. He believed that these rules were designed to prevent a taxpayer from closing the loss leg ofa straddle and deferring the gain leg to a subsequent tax period. POPS accordingly switched the order ofthese events: investors closed the gain
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
nd Notice ofDeficiency Chenery timely filed Form 1120S for its tax year 2000. Petitioners attached to that return Form 4797, in which Chenery claimed a net loss of$4,334,456 from the "Sale ofEUR Deposit".2° Chenery treated the loss as ordinary under section 988. The ordinary loss substantially offset Chenery's income for 2000, reducing it from $4,346,254 to $11,798. Ms. Montgomery prepared Chenery's Form 1120S for its tax year 2000. Mr. Hahn signed that return. Petitioners filed Form 1040, U.S.
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
nterest in the lower tier partnership. The lower tier partnership entered into offsetting option contracts with Deutsche Bank. Each option contract purported to be a foreign 4Mr. Beer testified that POPS was designed to exploit the straddle rules in section 988. He believed that these rules were designed to prevent a taxpayer from closing the loss leg ofa straddle and deferring the gain leg to a subsequent tax period. POPS accordingly switched the order ofthese events: investors closed the gain
nterest in the lower tier partnership. The lower tier partnership entered into offsetting option contracts with Deutsche Bank. Each option contract purported to be a foreign 4Mr. Beer testified that POPS was designed to exploit the straddle rules in section 988. He believed that these rules were designed to prevent a taxpayer from closing the loss leg ofa straddle and deferring the gain leg to a subsequent tax period. POPS accordingly switched the order ofthese events: investors closed the gain
nterest in the lower tier partnership. The lower tier partnership entered into offsetting option contracts with Deutsche Bank. Each option contract purported to be a foreign 4Mr. Beer testified that POPS was designed to exploit the straddle rules in section 988. He believed that these rules were designed to prevent a taxpayer from closing the loss leg ofa straddle and deferring the gain leg to a subsequent tax period. POPS accordingly switched the order ofthese events: investors closed the gain
nterest in the lower tier partnership. The lower tier partnership entered into offsetting option contracts with Deutsche Bank. Each option contract purported to be a foreign 4Mr. Beer testified that POPS was designed to exploit the straddle rules in section 988. He believed that these rules were designed to prevent a taxpayer from closing the loss leg ofa straddle and deferring the gain leg to a subsequent tax period. POPS accordingly switched the order ofthese events: investors closed the gain
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
nterest in the lower tier partnership. The lower tier partnership entered into offsetting option contracts with Deutsche Bank. Each option contract purported to be a foreign 4Mr. Beer testified that POPS was designed to exploit the straddle rules in section 988. He believed that these rules were designed to prevent a taxpayer from closing the loss leg ofa straddle and deferring the gain leg to a subsequent tax period. POPS accordingly switched the order ofthese events: investors closed the gain
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
nterest in the lower tier partnership. The lower tier partnership entered into offsetting option contracts with Deutsche Bank. Each option contract purported to be a foreign 4Mr. Beer testified that POPS was designed to exploit the straddle rules in section 988. He believed that these rules were designed to prevent a taxpayer from closing the loss leg ofa straddle and deferring the gain leg to a subsequent tax period. POPS accordingly switched the order ofthese events: investors closed the gain
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
They say this generated a portion ofthe section 988 loss GG Capital claimed in 2000.
Riverboat Services claimed a "section 988 Currency Loss" ofnearly $4 million.
Lawrence On its Form 4797, 466 reported a $14,300 ordinary gain from a "yen currency option (section 988)." The acquisition date ofthe foreign-currency- option was reported as November 1, 2001, and the disposition date was reported as December 10, 2001.
-20- [*20] On the 2003 Form 1065, Buyuk also claimed an ordinary loss deduction, identified as "Sale ofDebt Instruments - Section 988", of$4,458,816 on the purported sale ofthe Buyuk receivables computed as follows: Basis Proceeds Gain (Loss) $4,528,0471 $69,231 ($4,458,816) iThe Buyuk receivables took a basis in the amount ofthe receivables' face value using the RUB/USD exchange rate applicable on the alleged dates of origination.
-20- [*20] On the 2003 Form 1065, Buyuk also claimed an ordinary loss deduction, identified as "Sale ofDebt Instruments - Section 988", of$4,458,816 on the purported sale ofthe Buyuk receivables computed as follows: Basis Proceeds Gain (Loss) $4,528,0471 $69,231 ($4,458,816) iThe Buyuk receivables took a basis in the amount ofthe receivables' face value using the RUB/USD exchange rate applicable on the alleged dates of origination.
Lawrence On its Form 4797, 466 reported a $14,300 ordinary gain from a "yen currency option (section 988)." The acquisition date ofthe foreign-currency- option was reported as November 1, 2001, and the disposition date was reported as December 10, 2001.
Lawrence On its Form 4797, 466 reported a $14,300 ordinary gain from a "yen currency option (section 988)." The acquisition date ofthe foreign-currency- option was reported as November 1, 2001, and the disposition date was reported as December 10, 2001.
egulations were proposedto be effective for debt instruments issued on or after 60 days after publication offinal regulations. The 1994 proposed regulations would not apply to debt instruments that had a dual currency feature and would be subject to sec. 988. Final regulations were issued on June 14, 1996, T.D. 8674, 1996-2 C.B. 84, relating to certain contingent payment debt obligations. Those regulations applied to debt instruments issued on or after August 13, 1996. Those regulations did not
988 and preexisting law, s_ee_Nat'l- Standard Co. v. Commissioner, 80 T.C. 551, 558 (1983), aff'd, 749 F.2d 369 (6th Cir. 1984), foreign currency is generally considered property other than money for Federal income tax purposes. -30- received the paired foreign currency options as contributions and assignments from the option partners (the Lo
The disclosure statement further revealed that M&S realized an ordinary loss of$3,866,242 under the provisions ofsection 988 and that petitioners incurred business expenses of$500,000 paid to Chenery that were to be applied against anticipatedtransaction costs.
. -13- December 28, 2001 for a cost basis of$9,480,7131° and sold on the same day for $1,839,007. The loss purportedly resulted from Murus exchanging the CHF 3,105,267 for $1,839,007 in the swap transaction. Murus treated the loss as ordinary under section 988. The ordinary loss substantially offset Murus' shared fees income for 2001. Edwin Nakumura, CPA, prepared Murus' tax returns for 2001. Petitioner filed Form 1040, U.S. Individual Income Tax Return, for 2001 reporting $3,244 offlowthrough i
egulations were proposedto be effective for debt instruments issued on or after 60 days after publication offinal regulations. The 1994 proposed regulations would not apply to debt instruments that had a dual currency feature and would be subject to sec. 988. Final regulations were issued on June 14, 1996, T.D. 8674, 1996-2 C.B. 84, relating to certain contingent payment debt obligations. Those regulations applied to debt instruments issued on or after August 13, 1996. Those regulations did not
Credits, Deductions, etc., page 3, of the partnership return). These line items were described in greater detail in Statements 1 and 2 of the return, reproduced below. Statement 1, which attributes the negative figure -257,857 to “ordinary loss from sec. 988 transactions”, thereby indicates that this negative figure included the net loss claimed by Tigers Eye on the termination or unwinding of the contributed paired options, as well as the results of other foreign currency transactions. The part
The taxpayer may argue that a loss is characterized as ordinary if the transaction also qualifies as a section 988 transaction." Section 1256(b) defines a "section 1256 contract" to include: (1) Any regulated futares contract; (2) any foreign currency contract; (3) any noneguity option; (4) any dealer equity option; and (5) any dealer securities futures contract.
1. 988-3 (a) , Income Tax Regs . (Unless we say otherwise, all section refe ences are to the Internal Revenue Code ià effect for the year 'lat issue.) ' ' -7- right--was not entirely comprehensible. But Garza's tutorials never really got Palmlund interested in the theory of how to make foreign-currency options trading profitable
The los-s from the exchange and sale of the loan assets was a foreign currency loss under section 988 because it was an acquisition of a "nonfunctional" currency.
6226(a).1 Respondent's principal adjustment was to disallow Rovakat's claim to section 988 ordinary losses of $130,766 for 2002, $890,485 for 2003, and $2,479,991 for 2004.
) - 16 - characterized as ordinary if the transaction also qualifies as a section 988 transaction.
; (4) alternatively, whether the MLD contracts should be treated as a single integrated transaction with a net tax .basis of $55,00.0 under the substance over form doctrine and section 988 ; and (5) whether any underpayment of tax attributable to the adjustments to partnership items is subject to the section 6662 accuracy-related penalty, as determined at the partnership level .
Section 1 .988- 1(a)(1), Income Tax Regs ., provides that disposition of a nonfunctional currency is a section 988 transaction .
ated Federal income tax return, however, petitioner treated the overdraft amount as a loan by Citibank Tokyo to Intergraph, not as a loan to Nihon Intergraph, and petitioner treated Intergraph's transfer of the ¥823,943,385 - 11 - into Nihon Intergraph's checking account at Citibank Tokyo as giving rise to a $1,923,103 foreign currency loss under section 988 and to a $520,432 interest deduction under section 163(a).
consolidated Federal income tax return, however, petitioner treated the overdraft amount as a loan by Citibank Tokyo to Intergraph, not as a loan to Nihon Intergraph, and petitioner treated Intergraph’s transfer of the ¥823,943,385 into Nihon Intergraph’s checking account at Citibank Tokyo as giving rise to a $1,923,103 foreign currency loss under section 988 and to a $520,432 interest deduction under section 163(a).