SECTION 2. BACKGROUND

The Internal Revenue Service and the Treasury Department are considering the tax policy issues raised by certain financial transactions frequently referred to in the marketplace as prepaid forward contracts (or in certain circumstances as exchange traded notes). These transactions resemble typical forward contracts (that is, bilateral, executory contracts in which one party agrees to purchase an asset on a future date for a specific forward purchase price, payable at that future time), but the purchase price is paid in advance of future delivery or cash settlement. Thus, these transactions typically involve an initial payment by one party in exchange for a promise of either (i) a future delivery of a particular asset or group of assets (for example, stocks or commodities), or (ii) a future payment determined exclusively by reference to the value of such assets.

In particular, the Internal Revenue Service and the Treasury Department are considering whether the parties to such a transaction should be required to accrue income/expense during the term of the transaction, if the transaction is not otherwise indebtedness for U.S. federal income tax purposes. See Rev. Rul. 2008–1, 2008–2

January 14, 2008 252 2008–2 I.R.B.

DRAFTING INFORMATION

Various personnel from the IRS and the Treasury Department participated in the development of this notice. For further information regarding this notice, contact Nina E. Chowdhry of the Office of Associate Chief Counsel (International) at (202) 622–3880 (not a toll-free call).

Claims Submitted to the IRS Whistleblower Office Under Section 7623

Notice 2008–4