Reading Code Section 988, it seems as if "spot FX" trades; e.g. selling GBP for USD is only a Section 988 Transaction, if didn't have GBP in your account to sell and you were borrowing the GBP (with the obligation to repay it). Conversion of GBP owned in your account to USD it seems would not constitute a Section 988 Transaction and would be a Capital Gain/(Loss). Do you agree?
See definition of Section 988 Transaction in link below. It refers (i) acquition of debt, (ii) accruing expense/income to be paid/received later, or (iii) forward, future or option contract. All these have the feature of some kind of settlement in the future, not conversion of currency.
I am far from knowledgeable in tax law, so genuinely seeking guidance. Appreciate any views...
