How do you report a 988 transaction on a tax return (on which IRS form) and how do you elect it as ordinary income/loss vs. capital gain/loss?
I believe its covered in: 26 U.S. Code § 988 - Treatment of certain foreign currency transactions
The foreign currency gain or loss on a 988 transaction is treated as ordinary income or loss unless an election is made to treat it as a capital gain or loss.