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July 11, 2022

New proposed regulations define 'foreign currency contract' for purposes of IRC Section 1256 mark-to-market rules

The IRS has published proposed regulations (REG-130675-17) that define "foreign currency contract" under IRC Section 1256 to include only foreign currency forward contracts. The regulations respond to the Sixth Circuit's 2016 decision in Wright v. Commissioner, which — counter to prior Tax Court decisions and IRS guidance — held that over-the-counter foreign currency options are subject to the mark-to-market rules of IRC Section 1256 (see Tax Alert 2016-0087). A Tax Alert is forthcoming.