FROM THE OFFICE OF PUBLIC AFFAIRS

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Today the Treasury Department issued proposed regulations providing detailed rules on the tax treatment of contingent payment debt instruments that are denominated in a foreign currency.

Existing regulations provide guidance on the tax treatment of non-contingent debt instruments denominated in foreign currency, and on contingent payment debt instruments not denominated in foreign currency. The proposed regulations fill the regulatory gap between these two existing sets of rules.

In general, the proposed regulations apply the so-called “non-contingent bond method” provided in regulations under section 1275 to the debt instrument in the currency in which it is denominated. The resulting amounts then are translated into the taxpayer’s functional currency, and gain or loss determined, under rules similar to the existing rules for non-contingent foreign currency-denominated debt instruments. The proposed regulations generally follow the methodology that was described in Announcement 99-76.

Related Documents:

• The text of the proposed regulations