Do Foreign Currency Contracts Qualify as Section 1256 Contracts?

Yes, foreign currency contracts (specifically "foreign currency contracts" as defined in Section 988(c)(1)(B)) that are traded in the interbank market are treated as Section 1256 contracts if they require delivery of a foreign currency or a specified amount of US dollars. This subjects them to the 60/40 tax rule.

However, certain other foreign currency transactions may be treated differently under Section 988.