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Final Regulations Issued on Recognition and Deferral of Code Sec. 987 Gain or Loss


Lisa Varela

Final Regulations Issued on Recognition and Deferral of Code Sec. 987 Gain or Loss

Final regulations have been issued on transactions of U.S. taxpayers that have qualified business units (QBUs) with functional currency other than the U.S. dollar. Specifically, the final regulations:

  • cover combinations and separations of QBUs subject to Code Sec. 987 (Reg. 1.987-2 and Reg. 1. 987-4),
  • cover recognition and deferral of foreign currency gain or loss with respect to a QBU subject to Code Sec. 987 in connection with certain QBU terminations and other transactions involving partnerships (Reg. 1. 987-12), and 
  • withdraw Temporary regulations that determine a partner’s share of assets and liabilities of a Code Sec. 987 aggregate partnership (Temporary Reg. 1.987-7T). In general, the regulations prevent the selective recognition of Code Sec. 987 gain or loss.

Applicability Dates

The IRS declined to extend the applicability of these provisions. The final regulations retain the applicability dates of the temporary regulations, as extended by IRS guidance. The final regulations under Reg. 1.987-2 and Reg. 1. 987-4 generally apply to tax years beginning on or after the day that is three years after the first day of the first tax year following December 7, 2016. The final regulations under Reg. 1. 987-12 generally apply to any deferral event or outbound loss event that occurs on or after January 6, 2017.