MFA Submits Comment Letter to U.S. Treasury and IRS on Definition of Foreign Currency Contract Under Section 1256

On September 6, 2022, MFA submitted comments to the Treasury Department and the Internal Revenue Service on the Proposed Regulations under section 1256 of the Internal Revenue Code of 1986, as amended.

MFA believes it is sound public policy to provide similar tax treatment for economically comparable and interchangeable instruments. We are concerned that the definition of “foreign currency contract” under the Proposed Regulations is too narrow and results in different tax treatment for economically similar contracts (more specifically, OTC foreign currency options and listed foreign currency options). While MFA welcomes Treasury’s and the IRS’s effort to provide certainty to taxpayers, MFA respectfully requests that Treasury and the IRS reconsider the Proposed Regulations, with consideration given to the legislative history’s focus on economic comparability and interchangeability, and allow OTC foreign currency options to be treated as “foreign currency contracts” under section 1256.