Section 987 regulations applicability delayed again

Tax Hot Topics newsletter The IRS released Notice 2021-59 on Oct. 12, deferring the applicability date of final, proposed and temporary regulations published in 2016 on foreign currency gains or losses for foreign branches under Section 987 and certain related final regulations.

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

The applicability date of these regulations, which were previously deferred under prior notices, is now revised to be applicable on the first day of the taxable year following Dec. 7, 2022. For calendar year taxpayers, this means the applicability date is revised to apply to the tax year beginning on Jan. 1, 2023.

The delayed applicability dates also apply to final regulations released in 2019 dealing with QBU combinations and separations, but the applicability dates of the 2019 regulations dealing with outbound loss and deferral events are not affected.

David Sites
Managing Partner
International Tax Services
Washington National Tax Office
T +1 202 861 4104

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