The Internal Revenue Service and the Treasury Department said Wednesday they intend to issue proposed regulations under Section 987 of the Tax Code regarding the determination of taxable income or loss and foreign currency gain or loss with respect to a qualified business unit.
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Notice 2026-17 also signals that proposed regulations will be forthcoming to provide an election under which controlled foreign corporations would not compute or recognize foreign currency gain or loss under Section 987(3), except in connection with certain inbound transactions.
The proposed rules would aim to simplify the operation of the regulations under Section 987, reduce compliance burdens, and refine the scope of certain rules under that section of the Tax Code to limit their effect on ordinary course transactions.
In particular, the proposed rules would permit taxpayers to determine taxable income or loss and foreign currency gain or loss with respect to a qualified business unit using a method that’s substantially similar to the method provided in regulations proposed back in 1991.
In addition, the proposed rules would:
- Narrow the scope of the loss suspension rules;
- Simplify the loss-to-the-extent-of-gain rule under which suspended Section 987 loss is recognized;
- Clarify the definition of a successor for purposes of the deferral rules; and,
- Expand the definition of a Section 987 hedging transaction.
The proposed rules would also provide an election under which controlled foreign corporations would not need to compute or recognize a foreign currency gain or loss under Section 987(3), except in connection with certain inbound transactions.
“The rules relating to this election will be described more fully in future guidance,” said the notice. “The Treasury Department and the IRS also intend to issue additional guidance relating to the treatment of frequently recurring disregarded transactions and net investment hedges for purposes of Section 987.”
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