Section 988 Foreign Currency Gains and Losses: Identifying and Reporting Transactions, Elections, and Exceptions

Section 988 rules cover transactions taking place in nonfunctional currency. Foreign currency transactions covered by IRC Section 988 include more than money. For businesses, accounts receivable and payable, derivative, and debt instrument transactions can trigger these gains and losses. For often unwary individuals living abroad, exchanges for stock, cars, and other assets can invoke these gains. Even according to the IRS, "determining whether all IRC 988 transactions due to the disposition of nonfunctional currency have been identified by the taxpayer can be difficult. It is based on the individual facts and circumstances of the case."

At the same time, the consequences of Section 988 are real. These gains and losses are treated as ordinary income and sourced to the residence of the taxpayer. Identifying and reporting CFC Section 988 gains and losses is particularly complex. These gains can be immediately taxable to the U.S. shareholder. For individual taxpayers, IRC Section 988(e)(2)(B) provides an exception for some personal transactions. However, the exception only applies to transactions with gains above $200.

Listen as our panel of international tax experts explains the taxation of foreign currency gains and losses under Section 988. Tax advisers working with multinational businesses and individuals working abroad need to understand the nuances of Section 988.

1. IRC Section 988: an overview
2. Transactions covered under Section 988
3. Applicable taxpayers
   1. Individuals
   2. Businesses
   3. CFCs
4. Exceptions
5. Elections
6. Notable cases

The panel will review these and other key issues:

• Common scenarios subject to Section 988 treatment
• Elections available for Subpart F income subject to Section 988
• Exceptions to Section 988 treatment of gains and losses
• Mark-to-market treatment of gains and losses from foreign currency exchanges
• Reporting Section 988 gains and losses

Learning Objectives

After completing this course, you will be able to:

• Identify certain accounts receivable transactions subject to Section 988
• Determine when a full inclusion election into Subpart F income may benefit a CFC
• Ascertain when the business needs exception is applicable
• Decide when specific activities could trigger Section 988 gains for an individual taxpayer

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of international taxation including residency determination, foreign entity classifications, application of treaty benefits, as well as GILTI, Subpart F, and the related Section 250 deductions.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).