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