Today, in Wright v. Commissioner, the US Court of Appeals for the Sixth Circuit reversed and remanded a US Tax Court opinion that disallowed the taxpayers’ losses on a transaction using a euro put option. The IRS argued successfully before the Tax Court that a euro put option was not a foreign currency contract, and therefore that the taxpayers’ claimed losses should be disallowed. The Sixth Circuit stated that this interpretation was contrary to the plain language of the statute. The court also stated that even though the IRS’s interpretation might constitute good tax policy, that alone was insufficient to reform the statutory language for two reasons: (1) it could “unintentionally permit other tax-avoidance schemes” and (2) the IRS could challenge the transaction under the economic substance doctrine. The Sixth Circuit referenced the codified economic substance doctrine in its opinion, but did not specify whether the Tax Court should consider the common law economic substance of the transaction (which occurred before the codification of the economic substance doctrine) on remand. The Sixth Circuit’s opinion is available by clicking here.