The US Department of Treasury and Internal Revenue Service (IRS) has released final and proposed regulations on 11 December 2024 under Section 987.

These regulations address the calculation of taxable income or loss and foreign currency gains or losses for a qualified business unit (QBU).

The final regulations (T.D. 10016) adopt the proposed November 2023 regulations with revisions based on public feedback, including comments on December 2016 proposals for which the Treasury Department and IRS reopened for comment.

The document contains final regulations relating to the determination of taxable income or loss and foreign currency gain or loss with respect to a qualified business unit. These final regulations include an election to treat all items of a qualified business unit as marked items (subject to a loss suspension rule), an election to recognize all foreign currency gain or loss with respect to a qualified business unit on an annual basis, and a new transition rule.

The final regulations are effective 10 December 2024 and will apply to tax years beginning after 31 December 2024.

The proposed regulations (REG-117213-24) introduce an election to simplify compliance by streamlining the accounting process for specific disregarded transactions between a QBU and its owner.

This document contains proposed regulations relating to the determination of taxable income or loss and foreign currency gain or loss with respect to a qualified business unit. The proposed regulations include an election that is intended to reduce the compliance burden of accounting for certain disregarded transactions between a qualified business unit and its owner. This document also includes a request for comments relating to the treatment of partnerships and controlled foreign corporations.

Once finalized, the regulations would apply to taxable years beginning after the date the Treasury Decision adopting these rules as final regulations is published in the Federal Register.

A taxpayer may rely on these proposed regulations for a taxable year in which the final regulations (that is, the final regulations that are being published concurrently with the proposed regulations) apply, provided the taxpayer and each member of its consolidated group and section 987 electing group, as applicable, consistently follow the proposed regulations in their entirety and in a consistent manner.

The proposed regulations also invite public feedback on the treatment of partnerships and controlled foreign corporations (CFCs).

Comments on the proposed regulations and requests for a public hearing, must be submitted within 90 days of their publication in the Federal Register, which is expected on 11 December 2024.