[Federal Register Volume 59, Number 141 (Monday, July 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17569]
[[Page Unknown]]
[Federal Register: July 25, 1994]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[INTL-0066-92]
RIN 1545-AS68
Change From the Dollar Approximate Separate Transactions Method
(DASTM) to the Profit and Loss Method of Accounting
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed Income Tax Regulations that
would require a qualified business unit (QBU) using the dollar
approximate separate transactions method of accounting (DASTM) to
change its functional currency when the local currency ceases to be
hyperinflationary. These regulations provide rules for taxpayers to
determine when a change from DASTM is required and provide guidance on
required adjustments relating to the change in method.
DATES: Comments and requests for a public hearing must be received by
September 23, 1994.
ADDRESSES: Send submissions to: CC:DOM:CORP:T:R (INTL-0066-92), room
5228, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Jacob Feldman or Teresa B. Hughes,
(202) 622-3870 (not a toll free call).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) under section 985 of the Internal Revenue
Code of 1986. The proposed regulations would require a qualified
business unit that uses the dollar approximate separate transactions
method to change its functional currency and its method of accounting
to the profit and loss method when the QBU is no longer operating in an
environment that has a hyperinflationary currency.
Explanation of Provisions
Proposed Sec. 1.985-1(b)(2)(ii)(E) provides that a QBU required to
use the dollar as its functional currency pursuant to Sec. 1.985-
1(b)(2) or a QBU that has elected to use the dollar as its functional
currency pursuant to Sec. 1.985-2 must redetermine its functional
currency if for three consecutive taxable years the currency of the
QBU's economic environment is not a hyperinflationary currency. The
change in functional currency is treated as made with the consent of
the Commissioner, and the adjustments required under Sec. 1.985-5 must
be made in connection with the change.
The IRS believes it appropriate to require a QBU that is no longer
operating in a hyperinflationary environment to stop using the dollar
to compute its income or loss or earnings and profits because of the
general preference expressed in section 985(b) to use the currency of
the QBU's economic environment for this purpose. A three year
measurement period for determining non-hyperinflationary status was
thought desirable to avoid frequent changes in functional currency for
QBUs operating in borderline hyperinflationary environments. Comments
are requested as to whether the three year period is appropriate.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It also has been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do
not apply to these regulations, and, therefore, a Regulatory
Flexibility Analysis is not required. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (preferably a
signed original and eight (8) copies) that are submitted timely to the
IRS. All comments will be available for public inspection and copying.
A public hearing may be scheduled if requested in writing by a person
that timely submits written comments. If a public hearing is scheduled,
notice of the date, time, and place for the hearing will be published
in the Federal Register.
Drafting Information
The principal authors of these proposed regulations are Jacob
Feldman and Teresa B. Hughes of the Office of Associate Chief Counsel
(International), within the Office of Chief Counsel, IRS. Other
personnel from the IRS and Treasury Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendment to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *.
Par. 2. In Sec. 1.985-1, paragraph (b)(2)(ii)(E) is added to read
as follows:
Sec. 1.985-1 Functional currency.
* * * * *
(b) * * *
(2) * * *
(ii) * * *
(E) Change in functional currency when currency ceases to be
hyperinflationary--(1) In general. A QBU that has been required to use
the dollar as its functional currency under paragraph (b)(2) of this
section, or has elected to use the dollar as its functional currency
under paragraph (b)(2)(ii)(B)(2) of this section or Sec. 1.985-2, must
change its functional currency as of the first day of the first taxable
year that follows three consecutive taxable years in which the currency
of its economic environment, determined under paragraph (c)(2) of this
section, is not a hyperinflationary currency. The functional currency
of the QBU for such year shall be determined in accordance with
paragraph (c) of this section. For purposes of Sec. 1.985-4, the change
is considered to be made with the consent of the Commissioner. See
Sec. 1.985-5 for adjustments that are required upon a change in
functional currency.
(2) Effective date. Section 1.985-1(b)(2)(ii)(E) is effective for
taxable years beginning after the date which is 30 days after the
publication of final regulations in the Federal Register.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 94-17569 Filed 7-22-94; 8:45 am]
BILLING CODE 4830-01-U