Tax News

CCH (cch.taxgroup.com) reports:

The IRS and the Treasury Department have requested comments from the public regarding issues that arise with respect to certain financial transactions often referred to, in the marketplace, as "prepaid forward contracts," or, in other circumstances, as "exchange traded notes." These transactions are similar to typical forward contracts, which are bilateral, executory contracts in which one party agrees to buy an asset on a future date for a specific forward purchase price, payable at that future time. However, in "prepaid forward contract" transactions, the purchase price is paid in advance of future delivery or cash settlement. Therefore, these transactions usually involve an initial payment by one party in exchange for a promise of either (1) a future delivery of a particular asset or group of assets (such as stocks or commodities) or (2) a future payment determined solely by reference to the value of such assets.
The IRS provided a list of issues associated with "prepaid forward contract" transactions. In particular, the IRS and the Treasury Department are looking for comments regarding whether the parties to these types of transactions should be required to accrue income/expense during the term of the transaction, in the event the transaction is not otherwise indebtedness for U.S. federal income tax purposes. With respect to this issue, the IRS referred to Rev. Rul. 2008-1, I.R.B. 2008-2, released in conjunction with Notice 2008-2, in which an instrument resembling, in form, a prepaid forward contract, was determined to be debt.
Comments regarding the enumerated issues pertaining to "prepaid forward contract" transactions must be submitted by May 13, 2008.
Notice 2008-2, 2007FED ¶46,747
Other References:
Code Sec. 988
CCH Reference - 2007FED ¶28,907.60
Code Sec. 1260
CCH Reference - 2007FED ¶31,145.01
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