In our last column (Tax disputes, IFLR December 2007) we discussed the battle brewing over the US federal income tax treatment of exchange-traded notes (ETNs). Since then the US Internal Revenue Service (IRS) and the US Treasury Department have published Revenue Ruling 2008-1 and Notice 2008-2 and new legislation has been introduced in the US House of Representatives by Congressman Neal, all addressing the US federal income tax treatment of certain ETNs. As discussed in our previous column, most ETNs are treated as prepaid forward contracts rather than debt instruments under law. As such, investors generally adopt wait-and-see taxation – that is, they do not report income or gains until the ETNs are sold.
March 01 2008