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December 20, 2018 The Tax Lawyer

The Section 871(m) Qualified Index Rules

Vol. 72, No. 1 - Fall 2018

By Jeffrey D. Hochberg


     This Article examines the portion of the section 871(m) Regulations that addresses when a financial contract that references an index should be treated for section 871(m) purposes as referencing the components of the index and when it should be treated as referencing a notional index that is independent of the index components. Aside from their importance in implementing section 871(m), these Regulations are of particular significance because they represent the first time that the Service has issued rules that address the tax treatment of modern financial indices. The tax treatment of financial indices has become increasingly important in recent years in light of the very significant increase in the number and scope of financial indices and the amount of financial instruments that are linked to such indices. This Article examines the policy, interpretive, and practical issues that arise under the Regulations and considers the application of the Regulations to many common financial transactions.

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