Wednesday, July 22, 2015
HMB's Marilyn Wethekam Quoted in State Tax Notes on a Proposed
Regulation Regarding the Use of Hedging Transactions in
"Illinois DOR Proposes Reg on Using Hedging Transactions in
The Illinois Department of
Revenue on July 17 issued a proposed regulation that would
set forth its policy on when taxpayers may include in the
sales factor income derived from hedging
The proposed regulation
addresses three types of hedging transactions, stating that two
of these must be entirely excluded from a taxpayer's sales factor.
The third type, however, would be included in both the numerator
and denominator of the sales factor to the extent that inclusion
reflects the marketplace for the taxpayer's goods and services.
The regulation does not, however,
address the treatment of hedging transactions a company may use
purely as part of its treasury function...
To clarify which hedges should be
included in the sales factor, the department's proposed regulation
includes several examples. One stipulates that the gain or loss
from a hedge of raw material used by a manufacturer would not be
included in the sales factor...
Wethekam of Horwood Marcus &
Berk Chtd. questioned whether the issues addressed by
the regulation are so prevalent or troubling that they warrant such
detailed and technical guidance.
She added that the regulation would
be included under the alternative apportionment section of the
Illinois Administrative Code, implying that the standard
apportionment method does not accurately reflect these types of
transactions. "I am not sure that has actually been shown,"
Finally, she said, while it is
clear from the examples that taxpayers would be required to treat
hedged transactions as a single transaction, it is not clear how a
gain recognized on the hedging transaction will be treated for tax
"If that gain is in the tax base
then it would appear that it should be included in the factor.
Similarly, if the loss is adjusting the receipts in the factor,
that loss should adjust the tax base as well," Wethekam said.
Copyright 2015 Tax Analysts. Reprinted with