In light of the proposed NPC regulations discussed in the prior piece, we noted with interest a comment by Steve Larson, IRS Associate Chief Counsel (Financial Institutions and Products) last week in New York reported in Tax Notes.7 Mr. Larson said that the IRS will issue revised regulations for contingent payment notional principal contracts (proposed regulations were issued in 2005) and for prepaid forward contracts. He also said the rules for prepaid forwards will be “roughly similar” to the rules for contingent notional principal contracts. Coupled with the proposed regulations’ treatment of payment “fixing” as a payment under the notional principal contract definition, this all points to an expanded current accrual regime for non-option financial instruments possibly including certain “bullet” swaps, as well as prepaid forward contracts and non-debt structured notes.8 Right now, current law generally gives these instruments “wait and see” capital gain and loss tax treatment. The timing of such guidance (and exactly how the new regime will work) is currently unknown (and it may not happen all at once) but it appears the wheels are starting to turn in Washington, DC on the issue.