Share with your friends

Exception to “United States property” for notional principal contract swaps

Exception to “United States property”

The IRS today released an advance version of Notice 2018-46 announcing that the IRS and Treasury Department intend to issue regulations to allow taxpayers to continue to rely on the exception to the definition of “United States property” under section 956, as provided in temporary regulations that have a “sunset date” of May 7, 2018.


Related content

Notice 2018-46 [PDF 12 KB] states that future regulations will provide, similar to the rule in section 956(c)(2)(J), an exception from the definition of “United States property” for an obligation (without regard to whether the obligation arises in connection with a derivative financial instrument that is, or is not, a notional principal contract) of a United States person to the extent the principal amount of the obligation does not exceed the fair market value of cash and readily marketable securities posted or received as margin or collateral for the obligation in the ordinary course of its business by a United States or foreign person that is a dealer in securities or commodities.

Today’s IRS notice states that until the regulations are issued, taxpayers can rely on Notice 2018-46 (even for obligations arising before May 4, 2018) or on the full margin or cash collateral exception provided in the 2015 regulations (described below).


Temporary regulations (May 2012) established an exception to the definition of “United States property” (as defined under section 956(c)) for obligations of “United States persons” arising from certain upfront payments made by a controlled foreign corporation that is a dealer in securities or commodities with respect to certain contracts that are properly classified as notional principal contracts for U.S. federal income tax purposes and are cleared by a derivative clearing organization or clearing agency. Read TaxNewsFlash [PDF 390 KB]

Temporary regulations (May 2015) effectively replaced the 2012 regulations concerning the treatment of nonperiodic payments made or received under certain notional principal contracts. In pertinent part, the 2015 regulations amended the definition of “United States property” under section 956 by providing an exception. Read TaxNewsFlash [PDF 395 KB]

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal