Here is a post that I wrote last year that may clear up some of the confusion that has been written on the subject.
Coordination with section 988(c)(1)(C)(ii). No exchange gain or loss is recognized with respect to the following transactions -.
(A) An exchange of units of nonfunctional currency for different units of the same nonfunctional currency;
(B) The deposit of nonfunctional currency in a demand or time deposit or similar instrument (including a certificate of deposit) issued by a bank or other financial institution if such instrument is denominated in such currency. This is referring to conversion losses.
C. Thus gains or losses are not recognized in Section 988 transactions.
CD's are considered time deposits like a savings account. You cannot report losses on savings accounts because of fluctuating interest rates or other environmental factors thus CD's are treated in the same manner in regards to currency conversions. It's a nature of the beast that we all must live with unless the tax code changes at some point.
At this time, CD conversion losses are not recognized Section 988 losses.
@Rotakie
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
