IRS Issued Conflicting Rulings
THE IRS ISSUED CONFLICTING RULINGS ON PAYMENTS TO TERMINATE INTEREST RATE SWAPS.
Both rulings were released in late April. One is an old field service advice that said a payment to terminate an interest-rate swap that a borrower entered into in order to hedge his exposure on a floating-rate loan is a capital loss. However, the IRS told the IRS agent asking the question to develop the facts of the case further. The agent claimed the swap was being used as a hedge. The borrower had a more complicated explanation.
In a more recent field service advice, the IRS appeared to change course by instructing an agent that a company should be allowed to deduct its swap termination payment as an ordinary loss. The swap was entered into as a hedge