IRS delays provisions of Section 987 regulations by one year

On Oct. 2, 2017, the IRS and Treasury announced in Notice 2017-57 that the recently issued final regulations under Section 987, as well as certain provisions of the temporary regulations under Section 987, will be delayed by one year. As a general rule, for calendar-year taxpayers, the final regulations and the related temporary regulations will now apply for the taxable year beginning on Jan. 1, 2019. Prior to the notice, the rules were effective for calendar year taxpayers on Jan. 1 2018.

The final regulations generally contain guidance relating to foreign currency translations, the determination of taxable income or loss (or earnings and profits) of a taxpayer with respect to a qualified business unit (QBU) subject to Section 987, as well as the timing, character and the source of any Section 987 gain or loss. For prior Grant Thornton coverage of the final regulations click here.

The notice states that taxpayers may still elect to apply the final regulations and the related temporary regulations to taxable years beginning after Dec. 7, 2016, provided the taxpayer consistently applies the regulations with respect to all Section 987 QBUs directly or indirectly owned by the taxpayer, a members of the taxpayer’s consolidated group, or certain related controlled foreign corporations on the transition date. The notice also states that that the IRS and Treasury are considering changes to the final regulations that would allow taxpayers to elect to apply alternative rules for transitioning to the final regulations and alternative rules for determining Section 987 gain or loss.

The Section 987 regulations, along with eight others, were identified in Notice 2017-38 by Treasury as regulations that could be subject to some reform, including modification, streamlining or potential repeal. This review was brought about by Executive Order 13789, which was issued on April 21 by President Donald Trump. The executive order required Treasury to review all “significant tax regulations” issued on or after Jan. 1, 2016, and to submit a report within 60 days. Treasury released this report on Oct. 4. The notice represents one of the first steps taken by the IRS to implement the report. For Grant Thornton coverage of the Treasury Report click here.

Contact: David Sites
Partner, Washington National Tax Office
T +1 202 861 4104

Cory Perry
Tax – Exp. Manager, Washington National Tax Office
T +1 202 521 1509

David Zaiken
Managing Director, Washington National Tax Office
T +1 202 521 1543

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