Treasury And IRS Shut Down Abusive Tax Transactions

by Mike Godfrey, for LawAndTax-News.com, Washington

08 December 2003

The US Treasury Department and Internal Revenue Service (IRS) announced on Thursday that they have taken action to bar a type of transaction involving options on foreign currencies.

The transactions have now been classified as 'listed transactions', meaning that taxpayers who have entered into them must disclose them to the IRS, and promoters of such schemes will be obliged to keep a list of participants.

According to a Treasury statement:

"These transactions involve two pairs of offsetting options on foreign currencies that, collectively, are structured to have little real risk of economic gain or loss. The taxpayer assigns two offsetting options to a charity, claiming an immediate loss on one of the options and taking the position that it does not have to take into account the offsetting gain in the other assigned option. The taxpayer (then) disposes of the remaining pair of offsetting options."

"The result is a large tax benefit (the claimed tax loss on one assigned option) without recognition of the matching economic gain on the other assigned option."

Speaking on Thursday, IRS Commissioner, Mark Everson explained that:

"We are seeing increasingly creative and complex deals involving foreign currencies and charities that are designed to abuse the tax code. Today's guidance closes the door on this transaction. We are continuing to use all the tools at our disposal to combat potentially abusive transactions."

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