The U.S. Treasury Department and IRS today released for publication in the Federal Register three sets of regulations—final, temporary, and proposed regulations—concerning the taxable income or loss of a taxpayer with respect to a “qualified business unit” (QBU) subject to section 987.
The purpose of this report is to provide text of the regulations and a brief overview of today’s releases.
The final regulations [PDF 479 KB]—T.D. 9794—as originally released were 161 pages, and the preamble explains that the temporary and proposed regulations are being issued to address aspects of section 987 that are not addressed in today’s final regulations.
In brief, while maintaining the overall structure of the proposed regulations, the final regulations are a significant departure from regulations proposed in 1991. Whereas the 1991 proposed regulations used a profit and loss method that compared the value of the earnings when earned, and capital when contributed, to the those items when remitted on a pooled basis, today’s final regulations prescribe a balance sheet method of accounting requiring that taxpayers maintain the historic exchange rate of certain assets attributable to a qualified business unit in the currency of the home office. The final regulations uses a complex, seven-step method with the goal to isolate foreign currency gain or loss to financial assets and liabilities.
Today’s temporary regulations [PDF 349 KB]—T.D. 9795—as originally released were 106 pages and, by cross-reference to, the proposed regulations [PDF 199 KB] (REG-128276-12) address 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 other transactions involving partnerships.
The preamble explains that the temporary regulations also contain rules providing relief with respect to some of the administrative complexities of regulations proposed in 2006, including:
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