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A 988 transaction is a transaction described in section 988(c)(1) of the Internal Revenue Code ^[1] in the United States of America. This transaction occurs when a taxpayer enters into or acquires any debt instrument, forward contract, futures contract, option, or similar financial instrument held in a non-functional currency. ^[1] The rules for 988 transactions do not apply to any regulated futures contract or non-equity options which would be marked to market under 26 USCA § 1256 ^[2] (1256 contract) if held on the last day of the taxable year. ^[1]

History

The provisions covering 988 transactions were enacted as part of the Tax Reform Act of 1986. ^{[3] [4]}

Application

The foreign currency gain or loss on a 988 transaction is treated as ordinary income or loss unless an election is made to treat it as a capital gain or loss. ^[1]

See also

• International taxation
• Foreign tax credit

References

External links

• IRS publication