Treasury Delays Applicability Date of Section 987 Regulations

Summary

In Notice 2018-57 (the “Notice”), the Department of the Treasury and the Internal Revenue Service (collectively, “Treasury”) announced their intention to amend the regulations under Section 987 to defer the applicability date of the final regulations under Section 987, as well as certain related final and temporary regulations, by one additional year.

 

Background

On December 8, 2016, Treasury published final, temporary and proposed regulations under Section 987. For a discussion of the final, temporary and proposed regulations under Section 987, see our December 2016 Tax Alert. 
 
Initially, the final regulations under Section 987 and amendments to existing regulations under Sections 861, 985, 988 and 989 (the “Final Regulations”), and Treas. Reg. §§ 1.987-1T (other than Treas. Reg. §1.987-1T(g)(2)(i)(B) and (g)(3)(i)(H)) through 1.987-4T, 1.987-6T, 1.987-7T, and 1.988-1T (the “Related Temporary Regulations”) applied to taxable years beginning on or after one year after the first day of the first taxable year following December 7, 2016 (i.e., calendar year 2018 for calendar year taxpayers). All other provisions in the temporary regulations, including the provisions relating to the deferral of Section 987 gain or loss and the temporary Section 988 regulations, are subject to different applicability dates.^[1] 
                                                  
The final regulations under Section 987 were identified in Notice 2017-38 as significant tax regulations requiring additional review pursuant to Executive Order 13789. For a discussion of Notice 2017-38 see our July 2017 Tax Alert.
 
Treasury issued a second report to Executive Order 13789 where Treasury stated that they are considering changes to the final regulations under Section 987 that would allow taxpayers to elect to apply alternative rules for transitioning to the final regulations under Section 987 and alternative rules for determining Section 987 gain or loss. For a discussion of the second report to Executive Order 13789, see our October 2017 Tax Alert. 
 
On October 16, 2017, Treasury published Notice 2017-57, which announced that Treasury intends to defer the applicability date of the Final Regulations and the Related Temporary Regulations by one year (i.e., calendar year 2019 for calendar year taxpayers).

 

Details

The Notice provides that Treasury intends to amend certain regulations^[2] to provide that the Final Regulations and the Related Temporary Regulations will apply to taxable years beginning on or after the date that is three years after the first day of the first taxable year following December 7, 2016 (the “Amended Applicability Date” is calendar year 2020 for calendar year taxpayers). The Related Temporary Regulations, which expire on December 6, 2019, will not become applicable. However, the Amended Applicability Date will continue to apply for purposes of the notice of proposed rulemaking by cross-reference to the Related Temporary Regulations.^[3] 
 
A taxpayer, however, may choose under Treas. Reg. §1.987-11(b) to apply the Final Regulations and the Related Temporary Regulations to a taxable year beginning after December 7, 2016 (subject to the conditions in Treas. Reg. §1.987-11(b)), and before the Amended Applicability Date.
 
The intended amendments would not affect the applicability date of the temporary regulations other than the Related Temporary Regulations.
 
Before the issuance of the amendments to the Final Regulations and the Related Temporary Regulations described in the Notice, taxpayers may rely on the provisions of the Notice regarding those proposed amendments.