This article originally appeared in the May 2025 issue of The Tax Adviser.
For taxpayers that have a qualified business unit (QBU) with a functional currency other than the dollar, Section 987 provides rules on how to adjust for changes in exchange rates.
On Dec. 10, 2024, Treasury and the IRS released final regulations under Section 987 (T.D. 10016, as corrected by 90 Fed. Reg. 5606 (Jan. 17, 2025)). These regulations provide guidance on the determination of taxable income or loss and foreign currency gain or loss of taxpayers with foreign branches and certain foreign disregarded entities.
The final regulations represent the latest step in a more-than-30-years effort by the government to provide a comprehensive set of rules that balance ease of administration and simplification with the objective of creating a mechanism for an appropriate recognition of currency exchange gain or loss that is not susceptible to abuses. Whether these objectives are achieved remains to be seen. However, taxpayers will welcome the enhanced flexibility and optionality the new rules provide.
BDO’s Natallia Shapel and Alison Ray provide details in the full article in The Tax Adviser.