The Treasury may have lacked such authority prior to this change. To qualify for the statutory exemption from capital asset treatment, a hedging transaction must be clearly identified before the close of the day it was acquired, originated or entered into. The Code provides no further guidance as to the manner in which a taxpayer must satisfy its hedge identification requirements. As a result, while there are no assurances, we assume that the Treasury will incorporate most, if not all, of the hedge identification provisions currently found in Treas. Presumably this is simply intended to provide legislative support for the character whipsaw rules of Treas.
Limited relief is provided if misidentification is due to inadvertent error.
The changes made by the Act do not address hedging on behalf of related parties. Hopefully, the Treasury will simply adopt the current related party hedging regulations set forth in Treas. 1.1221-2, we expect that the Treasury will simply incorporate all of the remaining provisions of the hedging regulations as part of its regulatory authority under the statutory hedging provision. We hope that the Treasury will provide an announcement shortly indicating that, absent further regulations, taxpayers can continue to rely on all of the provisions in Treas. Until such guidance is issued, we urge our clients to continue to follow the existing hedge identification procedures that they have already implemented.