DESIGNATING A SALES CONTRACT AS A HEDGE does not change the timing of when the seller must report income under the contract.

DESIGNATING A SALES CONTRACT AS A HEDGE does not change the timing of when the seller must report income under the contract.

December 01, 2001
DESIGNATING A SALES CONTRACT AS A HEDGE does not change the timing of when the seller must report income under the contract.

A mineral producer contracted to sell minerals over several years, but the pattern of sales varied. The seller could decide not to make sales for an extended period. It designated the contract as a hedge. The IRS said income did not have to be reported until actual sales occurred under the contract. The fact that the seller labeled the contract a “hedge” for tax purposes does not change the timing of when income had to be reported, the IRS told one of its agents in a “field service advice.” The IRS memo is FSA 200146046.

Keith Martin