CME currency futures & Section 988

saxon · Mar 20, 2004

I am trading some CME currency futures (all settled in US dollars) and I am wondering if these transactions are subject to the separate reporting requirements of IRS Sec. 988, or if the gains and losses can be lumped together with other financial futures like stock indexes and bonds.

Thanks,
saxon

saxon · Mar 21, 2004

I think I found the answer to my own question:

http://www.greencompany.com/EducationCenter/GTTRecCurrency.shtml
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IRC Â§ 988 does not affect RFCs on currencies:

Currency traders who trade RFCs are not affected by IRC Â§ 988, because they are not trading in actual currencies. RFCs based on currencies are just like any other RFC on an organized exchange.

Additionally, since RFCs are marked-to-market at the close of each day (and year), in accordance with IRC section 1256, the economic and taxable gain or loss are the same. IRC 988 specifically mentions that RFCs and other mark-to-market instruments are exempt transactions. Here is an excerpt.
Exception for certain instruments marked to market.

(i) In general. 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.