IRS PLR: Tax Treatment Determined for Hedge of Subsidiary’s Currency Exposure in Target Acquisition (IRC §988)

The IRS has published a letter ruling on Section 988 and Treasury Regulation Section 1.988 concerning a hedge of a subsidiary’s foreign currency exposure with respect to the acquisition of all issued and outstanding equity interests in a target pursuant to the target share acquisition. The IRS determined that: 1) an option from a bank to hedge against the anticipated currency exposure resulting from an offer announcement would be treated as two distinct transactions; 2) the target share acquisition would be integrated with the hedge and the principles of Treasury Regulation Section 1.988-5(b) would apply to the integrated transaction, treating ...