IRS delays Section 987 currency regulations for an additional year

Tax Hot Topics newsletterThe IRS has released guidance (Notice 2018-57) delaying for an additional year the effective date of regulations on foreign currency gains or losses for foreign branches under Section 987. The regulations were identified as overly burdensome under President Donald Trump’s 2017 executive order (EO 13789), and are likely to be modified to allow an election for alternative rules before ever becoming effective.

The original proposed and temporary regulations were issued in 2016 to provide rules for translating income from branch operations in a qualified business unit (QBI) from the foreign country’s functional currency to the owner’s functional currency; calculating foreign currency gain or loss with respect to the QBI’s assets and liabilities and recognizing such gain or loss when the QBI makes a transfer to its owner.

After the regulations were identified by Notice 2017-38 as unduly burdensome under EO 13789, the IRS delayed their implementation by one year so it would have time to consider modifying them. Notice 2018-57 provides that the IRS plans to amend the regulations to delay the effective date for an additional year. The regulations would now generally be effective for taxable years beginning on or after Jan. 1, 2020, though the IRS said it is considering changes to allow taxpayers to elect alternate rules. However, taxpayer can elect to have the existing final regulations apply before the revised effective date.

Contact David Sites
Partner, International Tax Services
T +1 202 861 4104

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