988 transaction

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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]

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

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]

• International taxation
• Foreign tax credit

• IRS publication