January 30, 2023
Updated US list of foreign currency futures contracts - starting point for Section 1256
This Tax Alert provides an updated list of foreign currencies that traded on qualified boards or exchanges during 2022 for purposes of beginning the analysis of whether an over-the-counter contract (OTC) with respect to those currencies should be marked to market under Internal Revenue Code1 Section 1256.2 The list contained in this Alert updates the list of foreign currency futures contracts that was provided in EY Tax Alert, Updated US list of foreign currency futures contracts - starting point for IRC Section 1256, dated 3 March 2022.
This list is retrospective; currencies can begin (or cease) trading in futures at any time. Thus, it is imperative for taxpayers to examine contemporaneous futures trading to determine whether a specific contract will qualify as a Section 1256 contract.
Warning: This Alert lists all currencies for which there was a known regulated futures contract (RFC) offered for trading. A lack of actual trading (or perhaps only limited trading) in the RFC may prevent an OTC contract from qualifying as a Section 1256 contract. Therefore, the list should not be viewed as definitive, but rather as a starting point in the analysis.
Under Section 1256(a)(1), each Section 1256 contract held by a taxpayer at the close of the tax year must be marked-to-market. The term Section 1256 contract includes, among other things, any foreign currency contract,3 which is defined under Section 1256(g)(2)(A) as a contract that:
The legislative history indicates that the statutory definition is intended to describe the characteristics of bank forward contracts used for trading currencies.
The following is a list of currencies in which positions are currently listed through regulated single futures contracts, or cross-currency pairs, as of the date of this Alert. As noted later, although each of these contracts is listed, some show little or no trading in the past year.
As described previously, foreign currency contracts with respect to these currencies should be marked to market under Section 1256(a)(1), provided there is sufficient trading of these currencies through regulated futures contracts, and the additional conditions described in Section 1256(g)(2)(A) are satisfied. Certain currencies, while listed previously as being offered for trading, had very limited trading in 2022, such as the Chilean peso. While there was minimal trading in the Norwegian krone, Swedish krona, Israeli shekel, Czech koruna and Hungarian forint single futures contracts, there was active trading in cross-currency pair contracts that involved those currencies. Therefore, it is important that taxpayers understand the RFC trading environment around the time they enter into any OTC foreign currency contract, as well as the trading environment throughout the life of the contract.
As noted, this list is subject to change on an ongoing basis as new foreign currencies begin to trade in the regulated futures market and as trading in other foreign currencies becomes thin or nonexistent. Accordingly, taxpayers ought to consult with their tax advisors when analyzing whether a foreign currency contract will qualify as a Section 1256 contract.
Please note that this list does not immediately reflect changes in the status of foreign currencies but is instead generally updated only annually. Taxpayers ought to consult with their tax advisors when considering whether Section 1256 applies to a particular currency.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (United States), International Tax and Transaction Services
Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor