Close
Close

Final regulations address recognition, deferral of QBU foreign currency gain or loss

RFP
Tax Hot Topics newsletterThe IRS finalized temporary regulations (T.D. 9857) on May 10 relating to combinations and separations of qualified business units (QBUs) subject to Section 987 and the recognition and deferral of their foreign currency gain or loss in connection with certain QBU terminations and certain other transactions involving partnerships. The final regulations revised and adopted Temp. Regs. 1.987-2T and 4T and Temp. Reg. 1.987-12T. Additionally, Temp. Reg. 1.987-7T, relating to the allocation of assets and liabilities of certain partnerships, was withdrawn.

In December 2016, the IRS issued final, temporary and proposed regulations under Section 987. The final regulations generally contain guidance relating to the determination of taxable income or loss (or earnings and profits) of a taxpayer with respect to a QBU subject to Section 987, as well as the timing, character and source of any Section 987 gain or loss. The temporary regulations provide guidance relating to the recognition and deferral of foreign currency gain or loss under Section 987 with respect to a QBU in connection with certain QBU terminations and certain other transactions involving partnerships, as well as other elections and operating rules. The IRS has since twice delayed the effective date of the final regulations issued in 2016. However, the effective date of the temporary regulations, finalized in the May 2019 package, were not delayed and generally apply to any deferral event or outbound loss event that occurs on or after Jan. 6, 2017, (30 days after the date that Treas. Reg. 1.987–12T was filed with the Federal Register). See our prior coverage on the regulations here, and on the delay of the 2016 final regulations here.

After receiving only a few comments, Treasury decided to finalize the regulations. The comments generally indicated that the final and temporary regulations were “unduly complex and present significant financial and compliance burdens for taxpayers.” According to the IRS, the other currency regulations, the effect of which has been delayed, are still under consideration and may be modified or withdrawn.

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

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

Cory Perry
Senior Manager
Washington National Tax Office
T +1 202 521 1509

Mike Del Medico
Manager
Washington National Tax Office
T +1 202 521 1522


Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.