JPMorgan Chase & Co.'s Notes Spark Tax Characterization Concerns

JPMorgan Chase & Co. has issued notes that have raised questions about their characterization for U.S. federal income tax purposes.

The company states that no statutory, judicial or administrative authority directly addresses this issue, and a ruling from the IRS is not being requested.

Assuming an 'open transaction' treatment, any gain or loss on the notes would be treated as long-term capital gain or loss if held for more than a year. However, this treatment may not be respected by the IRS or a court, and the timing and character of income or loss could be affected.

The notes could potentially be treated as contingent payment debt instruments, which would result in ordinary income being treated as gain on the notes, and the requirement to accrue original issue discount. The company's special tax counsel is of the opinion that Section 871(m) should not apply to the notes with regard to Non-U.S. Holders.