The IRS issued final regulations (T.D. 9691) on Aug. 27, 2014,
related to the application of Section 1092 and the regulations
thereunder to debt instruments.
Those regulations, known as the "straddle rules," may
defer recognition of loss attributed to offsetting positions with
respect to personal property that is actively traded. Actively
traded personal property includes any personal property for which
there is an established financial market, like publicly traded
stock, bonds, commodities and foreign currencies.
Section 1092(d)(7) provides that an obligor's interest in a
nonfunctional currency denominated debt obligation is treated as a
position in a nonfunctional currency.
The newly issued Treas. Reg. Sec. 1.1092(d)-1(d) provides that if a
taxpayer is the obligor under a debt instrument, which has one or
more payments linked to the value of personal property (or a
position with respect to personal property), the taxpayer's
obligation under the debt instrument is a position with respect to
such personal property that may be part of a straddle.
The new regulations are effective for straddles established on or
after Jan. 17, 2001, and adopts a previous temporary
regulation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.