Proposed regulations from the IRS and Treasury would define foreign currency contracts subject to the Sec. 1256 mark-to-market rules as only including forward contracts.
The proposed regulations (REG-130675-17), issued Tuesday, July 5, would define a foreign currency contract within the meaning of Sec. 1256 as one that requires the delivery of, or the settlement of which depends on the value of, a foreign currency traded in the interbank market.
The past 38 years of development in foreign currency trading and Sec. 1256m which provides mark-to-market tax treatment of specified contracts, needs more definition, the proposed regulation explains.
The IRS also lists certain transactions involving foreign currency options it considers erroneously treated as Sec. 1256 (g)(2) contracts. Read more about the proposed regulations here.