Abstract
This article is thus intended to: (1) develop a set of rules governing the taxation of prepaid forward contracts, with particular emphasis on prepaid forward contracts that are settled in cash; and (2) develop a set of rules that accords identical tax treatment to those forward contracts and derivatives, such as equity swaps and certain CDIs, that are economically equivalent to prepaid forward contracts.
This article is divided into five parts. Part II will provide the reader with a brief overview and critique of the tax treatment of capital assets, option contracts, and forward contracts. Part III will: (1) explore the past and present tax treatment of CDIs; and (2) analyze the tax treatment of notional principal contracts, which is the class of derivatives into which equity swaps fall. Part IV will analyze the equivalencies in economic characteristics and the discrepancies in tax treatment among the financial instruments discussed in Parts II and III. Part V will: (1) offer recommendations as to the proper tax treatment of prepaid forward contracts, certain CDIs, and equity swaps; (2) analyze the effects of these recommendations; and (3) address their shortcomings.
Recommended Citation
David F. Levy,
Towards Equal Tax Treatment of Economically Equivalent Financial Instruments: Proposals for Taxing Prepaid Forward Contracts, Equity Swaps, and Certain Contingent Debt Instruments,
3 Fla. Tax Rev.
(1998).
Available at: https://scholarship.law.ufl.edu/ftr/vol3/iss1/9