Using Check-the-Box Regulations
IRS Notice 2007-57

In this IRS Notice, the IRS indicates that it believes that taxpayers are attempting to claim losses without taking into account the corresponding gains attributable to offsetting positions in foreign currency or other property. Essentially, the IRS believes that taxpayers are attempting to exploit the entity classification rules and IRC § 951(a), in order to claim losses without taking into account the corresponding gains attributable to offsetting positions in foreign currency.

The IRS says that it by disallow the loss or allocate the loss back to the CFC, plus assert one or more other arguments, like IRC §§ 165, 269, 482, and 988, as well as judicial doctrines such as the economic substance doctrine.

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If you believe that you may have engaged in a transaction that is the same or substantially similar to the transaction described above, Federal law may require you to disclose your and other parties’ participation in any such “listed transaction” on IRS Form 8886. For more information about Federal law requirements, please contact us.