If a CDS is a notional principal contract, pre-default periodic and nonperiodic payments on the swap are deductible and included in ordinary income. If a payment is a termination payment, or a payment received on a sale of the swap to a third party, however, its tax treatment is an open question. In 2004, the Internal Revenue Service announced that it was studying the characterization of CDS in response to taxpayer confusion. As the outcome of its study, the IRS issued proposed regulations in 2011 specifically classifying CDS as notional principal contracts, and thereby qualifying such termination and sale payments for favorable capital gains tax treatment. These proposed regulations—which are yet to be finalized—have already been subject to criticism at a public hearing held by the IRS in January 2012, as well as in the academic press, insofar as that classification would apply to Naked CDS.