Section 988

AAA

DEFINITION of 'Section 988'

A financial transaction involving a capital loss or gain on an investment held in a foreign currency. A Section 988 transaction relates to IRS Section 988, which was applied to all tax years after December 31, 1986. Per IRS rules, most gains from foreign currency transactions are to be treated as ordinary income, whether earned by an individual or a corporation. Gains and losses from these transactions are typically viewed outside of any gain or loss due to exchange rate changes between the U.S. dollar and the foreign currency. 988 Transactions include those surrounding holders of foreign bonds (who will receive interest and principle in a domestically "nonfunctional" currency), foreign currency futures or other derivatives, as well as accrued expenses or receipts in a foreign currency.

INVESTOPEDIA EXPLAINS 'Section 988'

The most common securities affected include: futures positions, foreign exchange positions and international bonds. For instance, if a U.S. bank issues a bond that is denominated in the euro, it is considered a 988 transaction. If an investor makes an election before the transaction is entered into, he or she may be able to classify the gain or loss on a specific investment as a capital gain rather than ordinary income. This most often applies to forward contract transactions, options and futures.

RELATED TERMS
  1. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  2. Currency Forward

    A binding contract in the foreign exchange market that locks ...
  3. Nominal Effective Exchange Rate ...

    The unadjusted weighted average value of a country's currency ...
  4. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  5. Forex - FX

    The market in which currencies are traded. The forex market is ...
  6. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
RELATED FAQS
  1. How do I file taxes for income from foreign sources?

    If you are a U.S. citizen or resident alien, your income (except for amounts exempt under federal law), including that which ... Read Full Answer >>
  2. In what types of economies are regressive taxes common?

    Regressive taxation systems are more likely to be found in developing countries or emerging market economies than in the ... Read Full Answer >>
  3. What's the difference between regressive and progressive taxes?

    The U.S. federal tax system and local and state tax systems are complex in that they combine progressive, regressive and ... Read Full Answer >>
  4. If a long call is owned on the record date of a stock, is the owner of the option ...

    The owner of a long call for a stock is entitled to a dividend only if the option is exercised prior to the ex-dividend date, ... Read Full Answer >>
  5. What are the differences between regressive, proportional and progressive taxes?

    Tax systems fall into three main categories within the tax code: regressive, proportional and progressive taxes. Regressive ... Read Full Answer >>
  6. What causes politicians or governments to begin "pork barrel" spending?

    Pork barrel spending occurs when the government taxes the general population to hand out concentrated benefits to special ... Read Full Answer >>
Related Articles
  1. Forex Education

    The Impact Of Currency Conversions

    Will a rising or falling dollar hurt you or your company? In this article we explore the impact of currency converisons on consumers, comanies, and countries.
  2. Taxes

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  3. Taxes

    Give Your Taxes Some Credit

    A few tax credits can greatly increase the amount of money you get back on your return.
  4. Economics

    How The GDP Of The US Is Calculated

    The US GDP may not be a perfect economic measure, but the ability to compare it to prior periods and other countries makes it the most applicable.
  5. Taxes

    Are Taxes the Solution for Income Inequality?

    Income inequality continues to increase. Why? And are taxes the solution?
  6. Mutual Funds & ETFs

    The Top 3 Silver ETFs

    Like any tradable asset, silver and silver ETF prices are governed by the fundamental market economic forces of supply and demand.
  7. Options & Futures

    How To Trade Orange Juice Options

    How do orange juice options work and which factors determine the orange juice valuations? Here's a sneak peak into the world of orange juice options.
  8. Active Trading Fundamentals

    Invest In Gold Through ETFs

    The mystique of the yellow metal captivates market players seeking hedges against inflationary pressure, safe haven in turbulent times and opportunities for speculative trading opportunities. ...
  9. Taxes

    Presidential Candidates And Wall Street In 2016

    Wall Street's influence will play a large role in the 2016 presidential race. As election season begins, candidates are showing their true colors.
  10. Economics

    Presidential Candidates For Students In 2016

    Early 2016 Presidential candidates are already making clear their intended strategies for solving the country's growing student loan debt issues.

You May Also Like

Hot Definitions
  1. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  2. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  4. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  5. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center