Business Services Industry
Out of the ordinary: capital gain/loss from the sale of a foreign currency-denominated debt instrument.
Tax Adviser, The, July, 2007 by Ciszczon, Brian; Mou, Wei-Chin
Foreign currency gain or loss realized by a holder on foreign currency-denominated debt generally is thought to be ordinary in character. However, when a holder disposes of such an instrument, the entire gain or loss realized on the transaction is not necessarily related to exchange-rate fluctuation. Sec. 988 and its regulations acknowledge this principle by providing that the foreign currency element of a transaction must be computed and taken into account separately from gain or loss on the underlying transaction. Taxpayers and practitioners need to remember that both ordinary and capital character may result from the disposition of a foreign currency-denominated debt instrument.
Computing Overall and Foreign Currency Gain or Loss
Sec. 988(a)(1)(A)...
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