[Federal Register Volume 87, Number 128 (Wednesday, July 6, 2022)]
[Proposed Rules]
[Pages 40168-40172]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-14318]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-130675-17]
RIN 1545-BO06


Definition of Foreign Currency Contract Under Section 1256

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations that define the 
term ``foreign currency contract'' under section 1256 of the Internal 
Revenue Code (the ``Code'') to include only foreign currency forward 
contracts. The proposed regulations affect certain holders of foreign 
currency options.

DATES: Written or electronic comments and requests for a public hearing 
must be received by September 6, 2022.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at www.regulations.gov (indicate IRS and REG-130675-
17) by following the online instructions for submitting comments. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn. The IRS expects to have limited personnel available to 
process public comments that are submitted on paper through mail. Until 
further notice, any comments submitted on paper will be considered to 
the extent practicable. The Department of the Treasury (``Treasury 
Department'') and the IRS will publish for public availability any 
comment submitted electronically, and to the extent practicable on 
paper, to its public docket.
    Send paper submissions to: CC:PA:LPD:PR (REG-130675-17), room 5203, 
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044.
    A public hearing will be scheduled if requested in writing by any 
person that timely submits written comments. If a public hearing is 
scheduled, notice of the date, time, and place for the public hearing 
will be published in the Federal Register. For those requesting to 
speak during the hearing, send an outline of topic submissions 
electronically via the Federal eRulemaking Portal at 
www.regulations.gov (indicate IRS and REG-130675-17).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, D. Peter 
Merkel or Karen Walny at (202) 317-6938; concerning submissions of 
comments or requests for a public hearing, Regina L. Johnson at (202) 
317-5177 (not toll-free numbers) or by sending an email to 
<a href="/cdn-cgi/l/email-protection#d1a1a4b3bdb8b2b9b4b0a3b8bfb6a291edb0f1b9a3b4b7ec" http: irs.gov">irs.gov</a>">publichearings@irs.gov</a>.

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed regulations that would provide that 
the term foreign currency contract as defined in section 1256(g)(2) of 
the Code applies only to a foreign currency forward contract.

I. Statutory Development of Section 1256

A. Section 1256 Generally
    Section 1256(a)(1) provides that each section 1256 contract held by 
a taxpayer at the close of the taxable year is treated as sold for its 
fair market value on the last business day of that taxable year (and 
any gain or loss is taken into account for the taxable year). Section 
1256(a)(2) provides that proper adjustment must be made in the amount 
of any gain or loss subsequently realized to take into account the gain 
or loss previously recognized under section 1256(a)(1). Generally, 
section 1256(a)(3) provides that any gain or loss on a section 1256 
contract is treated as 60 percent long-term capital gain or loss and 40 
percent short-term capital gain or loss (``60/40 treatment'').
    Section 1256(b)(1) defines a section 1256 contract as any regulated 
futures contract, any foreign currency contract, any nonequity option, 
any dealer equity option, and any dealer securities futures contract. 
Section 1256(b)(2) excludes the following contracts from the definition 
of a section 1256 contract: (1) any securities futures contract or 
option on such a contract unless it is a dealer securities futures 
contract, or (2) any interest rate swap, currency swap, basis swap, 
interest rate cap, interest rate floor, commodity swap, equity swap, 
equity index swap, credit default swap, or similar agreement.
    Section 1256(g)(2)(A) defines the term foreign currency contract as 
a contract that (1) requires delivery of, or the settlement of which 
depends on the value of, a foreign currency which is a currency in 
which positions are also traded through regulated futures contracts, 
(2) is traded in the interbank market, and (3) is entered into at arm's 
length at a price determined by reference to the price in the interbank 
market. Section 1256(g)(2)(B) grants the Secretary authority to 
prescribe regulations as may be necessary or appropriate to carry out 
the purposes of the foreign currency contract definition, including the 
authority to exclude any contract or type of contract from that 
definition if it would be inconsistent with those purposes.
    Section 1256(g)(3) defines the term nonequity option as any listed 
option (generally, an option traded on or subject to the rules of a 
qualified board or exchange) that is not an equity option.
    Section 1256(f)(2) provides that 60/40 treatment does not apply to 
gain or loss that otherwise would be ordinary. Section 988(a)(1) 
provides that if a futures contract, forward contract, option, or 
similar financial instrument is a section 988 transaction, the gains 
and losses from the transaction are treated as ordinary, absent an 
election for certain transactions. However, regulated futures contracts 
and nonequity options that are marked-to-market under section 1256 are 
not section 988 transactions unless a taxpayer makes an election to 
treat the contract as a section 988 transaction. See section 
988(c)(1)(D)(i) and (ii).
B. Scope of Section 1256 When Enacted in 1981
    When it was enacted in 1981, section 1256 applied only to regulated 
futures contracts, including regulated futures contracts involving 
foreign currency.

[[Page 40169]]

See Economic Recovery Tax Act of 1981 (``ERTA''), Public Law 97-34 (95 
Stat. 172, section 503(a) (1981)). One of the hallmarks of regulated 
futures contracts is the daily cash settlement, mark-to-market system 
employed by U.S. futures exchanges to determine margin requirements. In 
contrast to U.S. futures exchanges, the interbank market and other 
over-the-counter (``OTC'') markets did not employ a daily cash 
settlement, mark-to-market system for margin requirements.
C. Technical Corrections Act of 1982
    As originally enacted, section 1256 applied to regulated futures 
contracts requiring the delivery of foreign currency, but not to 
similar foreign currency forward contracts that were traded in the OTC 
market rather than on an exchange. In 1983, Congress extended the 
application of the statute to foreign currency contracts traded in the 
interbank market and provided a definition in section 1256(g)(1) for 
the term foreign currency contract. See Technical Corrections Act of 
1982, Public Law 97-448, section 105(c)(5)(B) and (C) (96 Stat. 2365 
(1983)). In adding section 1256(g)(1), Congress specified that the term 
foreign currency contract included only a contract that requires 
delivery of the foreign currency.
    The legislative history explains that this expansion was grounded 
in the economic comparability of trading foreign currency through 
forward contracts in the interbank market to trading foreign currency 
through regulated futures contracts and the interchangeability of the 
two types of contracts by traders. H.R. Rep. No. 97-794, at 23 (1982). 
In addition, the pricing of these foreign currency forward contracts 
was readily available because they trade through the larger, liquid 
interbank market. Id. Nothing in the statute or legislative history 
indicates Congress intended to include option contracts, which are not 
generally economically comparable to regulated futures contracts. 
Moreover, while the definition of foreign currency contract enacted in 
1983 required the delivery of foreign currency, option contracts will 
not always result in settlement (either by physical delivery or 
delivery of the cash equivalent value).
D. Deficit Reduction Act of 1984
    In 1984, Congress further expanded the types of contracts to which 
section 1256 applied to include nonequity options and dealer equity 
options. See Deficit Reduction Act of 1984, Public Law 98-369 at 
section 102(a)(3) (98 Stat. 494 (1984)). It also amended the definition 
of a foreign currency contract to allow for cash settlement. Id. The 
Deficit Reduction Act of 1984 also added section 1256(g)(2)(B), which 
provides the Treasury Department with authority to issue regulations 
that are necessary or appropriate to carry out the purposes of the 
foreign currency contract definition. Id.
    Before this 1984 amendment, the term foreign currency contract 
applied only to contracts that required the physical delivery of the 
foreign currency. However, the futures contract and forward contract 
market had developed in a manner that no longer required physical 
delivery. Instead, contracts permitted the parties to settle contracts 
for their cash equivalent value. The definition of regulated futures 
contract was amended in 1983 to remove the requirement of delivery of 
personal property. See H.R. Conf. Rep. 97-986, at 26-27 (1982). The 
amendment to the definition of foreign currency contract in 1984 was 
intended similarly to treat the delivery requirement as met where the 
contract provides for a settlement determined by reference to the value 
of foreign currency. Specifically, the House Report explained the 
reason for the 1984 amendment as follows:

Present Law

    The Technical Corrections Act of 1982 provided that certain 
foreign currency contracts entered into after May 11, 1982 (or 
earlier, if certain elections were made) will be treated as 
regulated futures contracts and therefore be taxed on the marked-to-
market system with a maximum tax rate of 32 percent. In order for a 
contract to qualify as a foreign currency contract, the contract 
must require delivery of a foreign currency which is a currency in 
which positions are also traded through regulated futures contracts.

Explanation of Provision

    Because certain contracts may call for a cash settlement by 
reference to the value of the foreign currency rather than actual 
delivery of the currency, the bill provides that the delivery of a 
foreign currency requirement is met where the contract provides for 
a settlement determined by reference to the value of the foreign 
currency.

    H.R. Rep. 98-432 Part 2, at 1646 (1984). At the same time, Congress 
addressed foreign currency options by adding nonequity options to the 
list of section 1256 contracts, as described above. Consequently, 
listed foreign currency options became subject to section 1256 by 
explicit Congressional action. While the legislative history expressly 
stated that Congress amended the definition of a foreign currency 
contract to include cash-settled foreign currency forward contracts, 
the legislative history does not indicate that Congress intended also 
to expand the scope of section 1256 to include OTC foreign currency 
options regardless of whether they may be cash-settled.
E. Technical and Miscellaneous Revenue Act of 1988
    The legislative history with respect to a 1988 amendment to section 
988 also indicates that Congress understood that a foreign currency 
contract, as defined by section 1256(g)(2), does not include a foreign 
currency option. Section 988 generally applies to forward contracts, 
futures contracts, options, and similar financial instruments if the 
amount that a taxpayer is entitled to receive or is required to pay is 
denominated in terms of a nonfunctional currency or determined by 
reference to the value of one or more nonfunctional currencies. See 
section 988(c)(1)(A) and (B)(iii); see also section 988(c)(1)(D) 
(providing an exception to section 988(c)(1)(B)(iii) for certain 
regulated futures contracts and nonequity options). In 1988, Congress 
amended section 988 to add section 988(c)(1)(E). Technical and 
Miscellaneous Revenue Act of 1988, Public Law 100-647, at section 
6130(b) (102 Stat. 3342 (1988)). Section 988(c)(1)(E) provides that any 
instrument described in section 988(c)(1)(B)(iii) (that is, any forward 
contract, futures contract, option, or similar financial instrument) is 
not a section 988 transaction if it is held by certain partnerships 
(each, a ``qualified fund'') and would be marked to market under 
section 1256. Section 988(c)(1)(E)(iv)(I) further provides that any 
bank forward contract, any foreign currency futures contract traded on 
a foreign exchange, or any similar instrument to the extent provided in 
regulations that is not otherwise a section 1256 contract is treated as 
a section 1256 contract for purposes of section 1256 when held by a 
qualified fund.
    The legislative history indicates that Congress believed that the 
term foreign currency contract generally meant bank forward contracts 
on foreign currency, and that OTC foreign currency options were not 
already section 1256 contracts. See H.R. Conf. Rep. No. 100-1104 (Vol. 
2), at 189, reprinted in 1988-3 C.B. 473, 679 (``[T]he [conference] 
agreement expands the definition of section 1256 contracts to generally 
include . . . bank forwards: that is, foreign currency contracts (as 
that term is defined in section 1256(g)(2) of the Code), and [certain 
other contracts] . . . . [T]he [conference] agreement provides the 
Treasury with regulatory authority to treat other similar instruments 
(for example, options) held by qualified

[[Page 40170]]

funds as section 1256 contracts.'') (emphasis added).

II. Listed Transactions Using Offsetting Foreign Currency Options

    Taxpayers entered into tax avoidance transactions that relied upon 
treating OTC foreign currency options, in a currency in which regulated 
futures were traded, as section 1256(g)(2) foreign currency contracts. 
On December 22, 2003, the IRS published Notice 2003-81, 2003-51 I.R.B. 
1223, which identified a tax avoidance transaction involving offsetting 
foreign currency options. This transaction is often referred to as a 
``major-minor'' transaction because it involved the taxpayer purchasing 
call and put options in a ``major'' foreign currency (one in which 
regulated futures contracts traded) and writing call and put options in 
a ``minor'' currency (one in which regulated futures contracts were not 
traded). The purchased and written foreign currency options were in two 
different currencies that historically had a high positive correlation, 
such that the taxpayer could be reasonably certain to have offsetting 
gains and losses in the options. The taxpayer treated its major 
currency options as foreign currency contracts under section 1256(g)(2) 
and treated its options on the minor currency as not subject to section 
1256. When there was unrecognized gain and loss on the options, the 
taxpayer assigned the purchased major currency option with a loss to a 
charity, and the charity assumed the offsetting written minor currency 
option from the taxpayer (the taxpayer, however, retained the premium 
received on the written option). The taxpayer treated the assignment of 
the major currency option as a mark-to-market recognition event under 
section 1256(c), claiming a loss upon the assignment. However, the 
taxpayer did not report the recognition of gain on the offsetting minor 
currency option assumed by the charity because the option was a non-
section 1256 contract and the taxpayer treated the assumption as a non-
recognition event. The ``Facts'' section of Notice 2003-81 stated, 
without legal analysis, that the purchased major currency options were 
foreign currency contracts within the meaning of section 1256(g)(2)(A) 
because the major currency was traded through regulated futures 
contracts. Notice 2003-81 identified this transaction as a listed 
transaction and indicated that the taxpayer would be required under the 
Code to account for the gain attributable to the premium originally 
received by the taxpayer for writing the minor currency option.
    On August 27, 2007, the IRS published Notice 2007-71 (2007-35 
I.R.B. 472), which modified and supplemented Notice 2003-81. Notice 
2007-71 explained that ``foreign currency options, whether or not the 
underlying currency is one in which positions are traded through 
regulated futures contracts, are [not] foreign currency contracts as 
defined in Sec.  1256(g)(2).'' Notice 2007-71 explained that the 
``Facts'' section of Notice 2003-81 included ``an erroneous conclusion 
of law.'' Notice 2007-71 corrected this error in the ``Facts'' section 
of Notice 2003-81, stating that the pertinent sentence should have read 
as follows: `` `The taxpayer takes the position that the purchased 
options are `foreign currency contracts' within the meaning of Sec.  
1256(g)(2)(A) of the Internal Revenue Code and Sec.  1256 contracts 
within the meaning of Sec.  1256(b).' ''

III. Judicial Interpretations of Section 1256(g)(2)

    The IRS challenged taxpayers' characterization of the major-minor 
transactions in several cases before the United States Tax Court (``Tax 
Court''). In a series of rulings on motions for partial summary 
judgment, the Tax Court held that foreign currency options were not 
``foreign currency contracts'' under section 1256. In one case, 
however, the Sixth Circuit disagreed and held that a foreign currency 
option could be a foreign currency contract.
A. Summitt v. Commissioner
    The IRS successfully challenged the listed transactions described 
in Notice 2003-81 in Summitt v. Commissioner, 134 T.C. 248 (2010). The 
Tax Court held that a foreign currency option is not a foreign currency 
contract as defined by section 1256(g)(2).
    Explaining that the plain meaning of the statutory language 
controls the decision, the Tax Court held that the term foreign 
currency contract does not include an option contract and that the 
major currency option was not subject to the mark-to-market rules of 
section 1256. Id. at 264, 266. The court noted that forwards and 
options confer different rights and obligations to the parties to these 
contracts. Id. at 264. The court found that it was clear that the words 
``or the settlement of which depends on the value of'' in section 
1256(g)(2)(A)(i) meant that a foreign currency contract must require 
settlement at expiration and that the reference in the statute to 
settlements was included to permit a foreign currency contract to be 
physically settled or cash-settled. Id. at 265. In contrast, an option 
may expire without any settlement occurring. The court further observed 
that ``[t]here is no evidence in the legislative history that a literal 
reading of the statute will defeat Congress' purpose in enacting it.'' 
Id.
    Subsequently, the Tax Court followed its decision in Summitt in two 
other cases. See Garcia v. Commissioner, T.C. Memo. 2011-85; Wright v. 
Commissioner, T.C. Memo. 2011-292. In both cases, the Tax Court noted 
that the taxpayers did not show a material factual difference between 
their cases and the earlier Tax Court opinion on the same issue. 
Garcia, T.C. Memo. 2011-85; Wright, T.C. Memo. 2011-292.
B. Wright v. Commissioner
    The taxpayer appealed the Tax Court's decision in Wright. The Sixth 
Circuit reversed the Tax Court, holding that a foreign currency option 
could be a foreign currency contract based on the plain meaning of 
section 1256(g)(2). Wright v. Commissioner, 809 F.3d 877, 885 (6th Cir. 
2016). Specifically, the Sixth Circuit found that the plain language of 
section 1256(g)(2)(A)(i) (``which requires delivery of, or the 
settlement of which depends on the value of, a foreign currency which 
is a currency in which positions are also traded through regulated 
futures contracts'') does not require settlement. Id. at 883. The court 
reasoned that the plain meaning of section 1256(g)(2)(A)(i) provides 
that a ``foreign currency contract'' is ``(1) `a contract . . . which 
requires delivery of . . . a foreign currency' or (2) `a contract . . . 
the settlement of which depends on the value of . . . a foreign 
currency.' '' Id. Therefore, it found that a contract is a ``foreign 
currency contract'' if the settlement of the contract depends on the 
value of a foreign currency, even if the contract does not mandate 
settlement. Id. In concluding that the statutory language in section 
1256(g)(2)(A) was unambiguous, the Sixth Circuit noted that the 
Treasury Department and the IRS had express authority to change this 
result for future taxpayers. Id. at 885.

Explanation of Provisions

    Under the authority of section 1256(g)(2)(B), and to carry out the 
purposes of section 1256(g)(2)(A), these proposed regulations provide 
that only a forward contract on foreign currency is a ``foreign 
currency contract'' as defined in section 1256(g)(2). The legislative 
history to section 1256, as discussed in part I of this preamble, 
indicates that Congress's purpose in amending the definition of foreign 
currency contract in 1984 was merely to include cash-settled foreign 
currency

[[Page 40171]]

forward contracts within the definition of foreign currency contract. 
It would be inconsistent with this purpose to construe the term foreign 
currency contract as including options or other derivatives.
    These proposed regulations do not change the status of foreign 
currency options that otherwise qualify as section 1256 contracts. 
Specifically, nonequity options are separately listed as section 1256 
contracts in section 1256(b)(1)(C). Section 1256(g)(3) provides that a 
nonequity option is any listed option which is not an equity option. 
Section 1256(g)(5) defines a listed option as ``any option . . . which 
is traded on (or subject to the rules of) a qualified board or 
exchange.'' Therefore, a foreign currency option that is listed on a 
qualified board or exchange is a ``nonequity option'' and remains 
subject to section 1256.
    These proposed regulations do not define the term forward contract. 
For purposes of these proposed regulations, whether a derivative 
contract is properly characterized as a forward contract for U.S. 
federal income tax purposes is determined under current law. In 
addition, the IRS may consider applying existing anti-abuse rules and 
judicial doctrines to a contract and any related transactions in order 
to evaluate whether a transaction is properly characterized as a 
forward contract or whether a transaction characterized as some other 
type of derivative contract should be treated as a forward contract.

Proposed Applicability Date

    These proposed rules are proposed to apply to contracts entered 
into on or after the date that is 30 days after the date of publication 
of the Treasury decision adopting these proposed rules as final 
regulations in the Federal Register (the ``proposed applicability 
date''). This proposed applicability date is intended to provide 
taxpayers in the Sixth Circuit with time to transition from the holding 
in Wright v. Commissioner to the rule described in these proposed 
regulations. However, for contracts entered into before the proposed 
applicability date by taxpayers in other circuits, the IRS intends to 
continue to adhere to its prior published position that foreign 
currency options are not foreign currency contracts under section 
1256(g)(2). See Notice 2007-71, 2007-35 I.R.B. 472. A taxpayer may rely 
on these proposed regulations for taxable years ending on or after July 
6, 2022, provided the taxpayer and its related parties, within the 
meaning of sections 267(b) (determined without regard to section 
267(c)(3)) and 707(b)(1), consistently follow the proposed regulations 
for all contracts entered into during the taxable year ending on or 
after July 6, 2022 through the proposed applicability date of the final 
regulations.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    This regulation is not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Department of the Treasury and the Office of 
Management and Budget regarding review of tax regulations.

II. Regulatory Flexibility Act

    The proposed rule affects any taxpayer that enters into a foreign 
currency option contract in the interbank market and that would 
otherwise treat the option as a ``foreign currency contract'' within 
the meaning of section 1256(g), contrary to the position set forth by 
the IRS in Notice 2007-71. No data is available about the number of 
small entities that are taking such a position. However, the Secretary 
has determined that the economic impact on any small entities affected 
by the proposed rule would not be significant.
    The proposed rule clarifies that a ``foreign currency contract'' as 
defined in section 1256(g)(2) means only a foreign currency forward 
contract (and not a foreign currency option contract). The proposed 
rule does not require taxpayers to collect additional information to 
determine whether section 1256 applies to the taxpayer's option 
contracts. Taxpayers that would have otherwise reported these over-the-
counter foreign currency options on IRS Form 6781 (Gains and Losses 
from Section 1256 Contracts and Straddles) as section 1256 contracts 
may collect less information under the proposed rule since the options 
will not be treated as section 1256 contracts. In addition, the 
proposed rule does not impose any new costs on taxpayers since it 
reaffirms the IRS's published position that over-the-counter foreign 
currency options are not ``foreign currency contracts'' within the 
meaning of section 1256(g). Similarly, the proposed rule does not 
affect a taxpayer's reporting obligation with respect to over-the-
counter foreign currency options since the same amount of information 
is required to be reported.
    In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) the Secretary hereby certifies that this proposed rule, if 
adopted, will not have a significant economic impact on a substantial 
number of small entities. The Treasury Department and the IRS invite 
comment from members of the public about potential impacts on small 
entities.

III. Section 7805(f)

    Pursuant to section 7805(f), this notice of proposed rulemaking has 
been submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (``UMRA'') 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
state, local, or tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. This proposed rule does not include any Federal mandate that 
may result in expenditures by state, local, or tribal governments, or 
by the private sector in excess of that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial, direct compliance costs on state and local 
governments, and is not required by statute, or preempts state law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These proposed regulations do not 
have federalism implications and do not impose substantial direct 
compliance costs on state and local governments or preempt state law 
within the meaning of the Executive order.

Statement of Availability of IRS Documents

    IRS notices and other guidance cited in this preamble are published 
in the Internal Revenue Bulletin (or Cumulative Bulletin) and are 
available from the Superintendent of Documents, U.S. Government 
Publishing Office, Washington, DC 20402, or by visiting the IRS website 
at http://www/irs.gov.

Comments and Request for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble

[[Page 40172]]

under the ADDRESSES heading. The Treasury Department and the IRS 
request comments on all aspects of the proposed rules. Any electronic 
comments submitted, and to the extent practicable any paper comments 
submitted, will be made available at www.regulations.gov or upon 
request.
    A public hearing will be scheduled if requested in writing by any 
person that timely submits electronic or written comments. Requests for 
a public hearing are also encouraged to be made electronically by 
sending an email to <a href="/cdn-cgi/l/email-protection#e8989d8a84818b808d899a81868f9ba8d489c8809a8d8ed5" http: irs.gov">irs.gov</a>">publichearings@irs.gov</a>. If a public hearing is 
scheduled, notice of the date and time for the public hearing will be 
published in the Federal Register.
    Announcement 2020-4, 2020-17 I.R.B. 667 (April 20, 2020), provides 
that until further notice, public hearings conducted by the IRS will be 
held telephonically. Any telephonic hearing will be made accessible to 
people with disabilities.

Drafting Information

    The principal authors of these regulations are D. Peter Merkel and 
Karen Walny of the Office of Chief Counsel (International). However, 
other personnel from the Treasury Department and the IRS participated 
in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding an 
entry in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
* * * * *
    Section 1.1256(g)-2 also issued under 26 U.S.C. 1256(g)(2)(B).
* * * * *
0
Par. 2. Section 1.1256(g)-2 is added to read as follows:


Sec.  1.1256(g)-2  Foreign currency contract defined.

    (a) Foreign currency contract. For purposes of section 1256, the 
term foreign currency contract means a forward contract that--
    (1) Requires delivery of, or the settlement of which depends on the 
value of, a foreign currency that is a currency in which positions are 
also traded through regulated futures contracts;
    (2) Is traded in the interbank market; and
    (3) Is entered into at arm's length at a price determined by 
reference to the price in the interbank market.
    (b) Applicability date. This section applies to contracts entered 
into on or after [date 30 days after date of publication of the final 
rule in the Federal Register].

Paul J. Mamo,
Acting Deputy Commissioner for Services and Enforcement.
[FR Doc. 2022-14318 Filed 7-5-22; 8:45 am]
BILLING CODE 4830-01-P


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