NYSBA reports on inconsistencies in currency gain and loss subpart F issues

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The New York State Bar Association’s (NYSBA’s) Tax Section has recently published a report highlighting that, in a variety of commonplace circumstances where a controlled foreign corporation (CFC) engages in certain routine treasury centre and hedging activities, the application of existing subpart F rules can frequently lead to tax results that are inconsistent with the CFC’s economic position.

These inconsistencies stem from the treatment of currency gains as subpart F income. The report explores whether the relevant existing rules can be interpreted under current law to minimise unpredictable or adverse consequences or, alternatively, how the rules might be modified to reduce the likelihood of unpredictable or unreasonable tax consequences.

After analysing tax and economic inconsistencies, the report concludes by requesting that the Internal Revenue Service clarify the application of existing subpart F exceptions to currency gains…

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