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. Forex - FX

    The market in which currencies are traded. The forex market is ...
  4. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  5. Nominal Effective Exchange Rate ...

    The unadjusted weighted average value of a country's currency ...
  6. Economic Justice

    Economic justice is a component of social justice. It's a set ...
Related Articles
  1. The Impact Of Currency Conversions
    Forex Education

    The Impact Of Currency Conversions

  2. Capital Gains Tax 101
    Taxes

    Capital Gains Tax 101

  3. Give Your Taxes Some Credit
    Taxes

    Give Your Taxes Some Credit

  4. How do I file taxes for income from ...
    Retirement

    How do I file taxes for income from ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center