[Federal Register Volume 81, Number 236 (Thursday, December 8, 2016)]
[Proposed Rules]
[Pages 88882-88884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28377]



[[Page 88881]]

Vol. 81

Thursday,

No. 236

December 8, 2016

Part V





Department of the Treasury





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Internal Revenue Service





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26 CFR Part 1





Recognition and Deferral of Section 987 Gain or Loss; Proposed Rule

Federal Register / Vol. 81 , No. 236 / Thursday, December 8, 2016 / 
Proposed Rules

[[Page 88882]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-128276-12]
RIN 1545-BL11


Recognition and Deferral of Section 987 Gain or Loss

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations.

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SUMMARY: Published elsewhere in this issue of the Federal Register, the 
Treasury Department and the IRS are issuing temporary regulations under 
section 987 of the Code relating to the recognition and deferral of 
foreign currency gain or loss under section 987 with respect to a 
qualified business unit (QBU) in connection with certain QBU 
terminations and certain other transactions involving partnerships. The 
temporary regulations also contain rules providing: An annual deemed 
termination election for a section 987 QBU; an elective method, 
available to taxpayers that make the annual deemed termination 
election, for translating all items of income or loss with respect to a 
section 987 QBU at the yearly average exchange rate; rules regarding 
the treatment of section 988 transactions of a section 987 QBU; rules 
regarding QBUs with the U.S. dollar as their functional currency; rules 
regarding combinations and separations of section 987 QBUs; rules 
regarding the translation of income used to pay creditable foreign 
income taxes; and rules regarding the allocation of assets and 
liabilities of certain partnerships for purposes of section 987. 
Finally, the temporary regulations contain rules under section 988 
requiring the deferral of certain section 988 loss that arises with 
respect to related-party loans. The text of the temporary regulations 
serves as the text of these proposed regulations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by March 8, 2017.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-128276-12), Room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
128276-12), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at http://www.regulations.gov (IRS REG-128276-12).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Steven D. Jensen at (202) 317-6938; concerning submissions of comments 
or requests for a public hearing, Regina Johnson, (202) 317-6901 (not 
toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

     The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:CAR:MP:T:T:SP, 
Washington, DC 20224. Comments on the collection of information should 
be received by February 6, 2017. Comments are specifically requested 
concerning:
     Whether the proposed collection of information is necessary for 
the proper performance of the Internal Revenue Service, including 
whether the information will have practical utility;
     The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
     How the quality, utility, and clarity of the information to be 
collected may be enhanced;
     How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
     Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of service to provide information.
     The collection of information in this proposed regulation is in: 
(1) Sec. Sec.  1.987-1(b)(6)(iii)(A) and 1.987-1(g)(3)(i)(E); (2) 
Sec. Sec.  1.987-3(b)(4)(iii)(C) and 1.987-1(g)(3)(i)(F); (3) 
Sec. Sec.  1.987-3(d) and 1.987-1(g)(3)(i)(G); and (4) Sec. Sec.  
1.987-8(d) and 1.987-1(g)(3)(i)(H). Sections 1.987-1(b)(6)(iii)(A) and 
1.987-1(g)(3)(i)(E) allow a controlled foreign corporation to elect to 
apply section 987 and the regulations thereunder (with certain 
exceptions) to a dollar QBU. Sections 1.987-3(b)(4)(iii)(C) and 1.987-
1(g)(3)(i)(F) allow a taxpayer to elect to apply a foreign currency 
mark-to-market method of accounting for qualified short-term section 
988 transactions. Sections 1.987-3(d) and 1.987-1(g)(3)(i)(G) allow a 
taxpayer to elect to translate all items of income, gain, deduction, 
and loss of the section 987 QBU at the yearly average exchange rate. 
Sections 1.987-8(d) and 1.987-1(g)(3)(i)(H) allow a taxpayer to elect 
to deem all of its section 987 QBUs to terminate on the last day of 
each taxable year. The preceding elections are to be made pursuant to 
Sec.  1.987-1(g). The collection of information is voluntary to obtain 
a benefit. The likely respondents are business or other for-profit 
institutions.
    Estimated total annual reporting burden: 1,000 hours.
    Estimated average annual burden hours per respondent: 1 hour.
    Estimated number of respondents: 1,000.
    Estimated annual frequency of responses: On occasion.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background and Explanation of Provisions

    The temporary regulations (published in the Rules and Regulations 
section of this issue of the Federal Register) contain rules relating 
to the recognition and deferral of section 987 gain or loss with 
respect to a QBU. The temporary regulations also contain rules 
regarding an annual deemed termination election, an elective method for 
translating taxable income or loss with respect to a QBU, section 988 
transactions of a section 987 QBU, QBUs with the U.S. dollar as their 
functional currency, combinations and separations of section 987 QBUs, 
translation of income used to pay creditable foreign income taxes, the 
allocation of assets and liabilities of certain partnerships for 
purposes of section 987, and the deferral of section 988 loss with 
respect to certain related-party loans. The text of the temporary 
regulations also serves as the text of these proposed regulations. The 
preamble to the temporary regulations

[[Page 88883]]

explains those regulations and these proposed regulations.

Special Analyses

    Certain IRS regulations, including these, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact assessment is 
not required. It is hereby certified that these regulations will not 
have a significant economic impact on a substantial number of small 
entities within the meaning of section 601(6) of the Regulatory 
Flexibility Act (5 U.S.C. chapter 6). Accordingly, a regulatory 
flexibility analysis is not required. This certification is based on 
the fact that these regulations will primarily affect U.S. corporations 
that have foreign operations, which tend to be larger businesses. 
Pursuant to section 7805(f) of the Code, these regulations have been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the Addresses heading. 
The Treasury Department and the IRS request comments on all aspects of 
the proposed rules. In addition, the Treasury Department and the IRS 
request comments on the application of section 987 to entities and QBUs 
described in Sec.  1.987-1(b)(1)(ii) to which the final regulations are 
not applicable (excluded entities and QBUs). Comments are requested on 
whether the Treasury Department and the IRS should issue regulations 
applying the foreign exchange exposure pool methodology described in 
Sec. Sec.  1.987-3 and -4 to excluded entities and QBUs. Comments are 
also requested on the modifications, if any, that should be made to the 
foreign exchange exposure pool methodology adopted in the final 
regulations with respect to excluded entities and QBUs. All comments 
will be available at www.regulations.gov or upon request. A public 
hearing will be scheduled if requested in writing by any 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 author of these regulations is Mark E. Erwin of the 
Office of Associate Chief Counsel (International). However, other 
personnel from the IRS and the Treasury Department participated in 
their development.

List of Subjects

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1, as amended elsewhere in this issue of 
the Federal Register, is proposed to be further amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

     Authority:  26 U.S.C. 985, 987, 989(c) and 7805 * * *

0
 Par. 2. Section 1.987-1 is amended by adding paragraphs (b)(1)(iii), 
(b)(6), (c)(1)(ii)(B), (c)(3)(i)(E), (d)(3), (f), (g)(2)(i)(B) and (C), 
and (g)(3)(i)(E) through (H) to read as follows:


Sec.  1.987-1  Scope, definitions, and special rules.

* * * * *
    (b) * * *
    (1) * * *
    (iii) [The text of the proposed amendment to Sec.  1.987-
1(b)(1)(iii) is the same as the text of Sec.  1.987-1T(b)(1)(iii) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (6) [The text of the proposed amendment to Sec.  1.987-1(b)(6) is 
the same as the text of Sec.  1.987-1T(b)(6) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (c) * * *
    (1) * * *
    (ii) * * *
    (B) [The text of the proposed amendment to Sec.  1.987-
1(c)(1)(ii)(B) is the same as the text of Sec.  1.987-1T(c)(1)(ii)(B) 
published elsewhere in this issue of the Federal Register]
* * * * *
    (c) * * *
    (3) * * *
    (i) * * *
    (E) [The text of the proposed amendment to Sec.  1.987-
1(c)(3)(i)(E) is the same as the text of Sec.  1.987-1T(c)(3)(i)(E) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (d) * * *
    (3) [The text of the proposed amendment to Sec.  1.987-1(d)(3) is 
the same as the text of Sec.  1.987-1T(d)(3) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (f) [The text of the proposed amendment to Sec.  1.987-1(f) is the 
same as the text of Sec.  1.987-1T(f) published elsewhere in this issue 
of the Federal Register].
* * * * *
    (g) * * *
    (2) * * *
    (i) * * *
    (B) [The text of the proposed amendment to Sec.  1.987-
1(g)(2)(i)(B) is the same as the text of Sec.  1.987-1T(g)(2)(i)(B) 
published elsewhere in this issue of the Federal Register].
    (C) [The text of the proposed amendment to Sec.  1.987-
1(g)(2)(i)(C) is the same as the text of Sec.  1.987-1T(g)(2)(i)(C) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (3) * * *
    (i) * * *
    (E) [The text of the proposed amendment to Sec.  1.987-
1(g)(3)(i)(E) is the same as the text of Sec.  1.987-1T(g)(3)(i)(E) 
published elsewhere in this issue of the Federal Register].
    (F) [The text of the proposed amendment to Sec.  1.987-
1(g)(3)(i)(F) is the same as the text of Sec.  1.987-1T(g)(3)(i)(F) 
published elsewhere in this issue of the Federal Register].
    (G) [The text of the proposed amendment to Sec.  1.987-
1(g)(3)(i)(G) is the same as the text of Sec.  1.987-1T(g)(3)(i)(G) 
published elsewhere in this issue of the Federal Register].
    (H) [The text of the proposed amendment to Sec.  1.987-
1(g)(3)(i)(H) is the same as the text of Sec.  1.987-1T(g)(3)(i)(H) 
published elsewhere in this issue of the Federal Register].
* * * * *
0
 Par. 3. Section 1.987-2 is amended by adding paragraph (c)(9) to read 
as follows:


Sec.  1.987-2  Attribution of items to eligible QBUs; definition of a 
transfer and related rules.

* * * * *
    (c) * * *
    (9) [The text of the proposed amendment to Sec.  1.987-2(c)(9) is 
the same as the text of Sec.  1.987-2T(c)(9) published elsewhere in 
this issue of the Federal Register].
* * * * *
0
 Par. 4. Section 1.987-3 is amended by adding paragraphs (b)(2)(ii), 
(b)(4), (c)(2)(ii) and (v), (d), and Example 9 through Example 14 of 
paragraph (e) to read as follows:

[[Page 88884]]

Sec.  1.987-3  Determination of section 987 taxable income or loss of 
an owner of a section 987 QBU.

* * * * *
    (b) * * *
    (2) * * *
    (ii) [The text of the proposed amendment to Sec.  1.987-3(b)(2)(ii) 
is the same as the text of Sec.  1.987-3T(b)(2)(ii) published elsewhere 
in this issue of the Federal Register].
* * * * *
    (4) [The text of the proposed amendment to Sec.  1.987-3(b)(4) is 
the same as the text of Sec.  1.987-3T(b)(4) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (c) * * *
    (2) * * *
    (ii) [The text of the proposed amendment to Sec.  1.987-3(c)(2)(ii) 
is the same as the text of Sec.  1.987-3T(c)(2)(ii) published elsewhere 
in this issue of the Federal Register].
* * * * *
    (v) [The text of the proposed amendment to Sec.  1.987-3(c)(2)(v) 
is the same as the text of Sec.  1.987-3T(c)(2)(v) published elsewhere 
in this issue of the Federal Register].
    (d) [The text of the proposed amendment to Sec.  1.987-3(d) is the 
same as the text of Sec.  1.987-3T(d) published elsewhere in this issue 
of the Federal Register].
    (e) Examples. * * *

    Example 9 The text of the proposed amendment to Sec.  1.987-3(e) 
Example 9 is the same as the text of Sec.  1.987-3T(e) Example 9 
published elsewhere in this issue of the Federal Register].
    Example 10 [The text of the proposed amendment to Sec.  1.987-
3(e) Example 10 is the same as the text of Sec.  1.987-3T(e) Example 
10 published elsewhere in this issue of the Federal Register].
    Example 11 [The text of the proposed amendment to Sec.  1.987-
3(e) Example 11 is the same as the text of Sec.  1.987-3T(e) Example 
11 published elsewhere in this issue of the Federal Register].
    Example 12 [The text of the proposed amendment to Sec.  1.987-
3(e) Example 12 is the same as the text of Sec.  1.987-3T(e) Example 
12 published elsewhere in this issue of the Federal Register].
    Example 13 [The text of the proposed amendment to Sec.  1.987-
3(e) Example 13 is the same as the text of Sec.  1.987-3T(e) Example 
13 published elsewhere in this issue of the Federal Register].
    Example 14 [The text of the proposed amendment to Sec.  1.987-
3(e) Example 14 is the same as the text of Sec.  1.987-3T(e) Example 
14 published elsewhere in this issue of the Federal Register].

0
 Par. 5. Section 1.987-4 is amended by adding paragraphs (c)(2) and (f) 
to read as follows:


Sec.  1.987-4  Determination of net unrecognized section 987 gain or 
loss of a section 987 QBU.

* * * * *
    (c) * * *
    (2) [The text of the proposed amendment to Sec.  1.987-4(c)(2) is 
the same as the text of Sec.  1.987-4T(c)(2) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (f) [The text of the proposed amendment to Sec.  1.987-4(f) is the 
same as the text of Sec.  1.987-4T(f) published elsewhere in this issue 
of the Federal Register].
* * * * *
0
 Par. 6. Section 1.987-6 is amended by adding paragraph (b)(4) to read 
as follows:


Sec.  1.987-6  Character and source of section 987 gain or loss.

* * * * *
    (b) * * *
    (4) [The text of the proposed amendment to Sec.  1.987-6(b)(4) is 
the same as the text of Sec.  1.987-6T(b)(4) published elsewhere in 
this issue of the Federal Register].
* * * * *
0
  Par. 7. Section 1.987-7 is amended by adding paragraph (b) to read as 
follows:


Sec.  1.987-7  Section 987 aggregate partnerships.

* * * * *
    (b) [The text of the proposed amendment to Sec.  1.987-7(b) is the 
same as the text of Sec.  1.987-7T(b) published elsewhere in this issue 
of the Federal Register].
* * * * *
0
  Par. 8. Section 1.987-8 is amended by adding paragraph (d) to read as 
follows:


Sec.  1.987-8  Termination of a section 987 QBU.

* * * * *
    (d) [The text of the proposed amendment to Sec.  1.987-8(d) is the 
same as the text of Sec.  1.987-8T(d) published elsewhere in this issue 
of the Federal Register].
* * * * *
0
  Par. 9. Section 1.987-12 is revised to read as follows:


Sec.  1.987-12  Deferral of section 987 gain or loss.

    [The text of the proposed amendment to Sec.  1.987-12 is the same 
as the text of Sec.  1.987-12T published elsewhere in this issue of the 
Federal Register].
0
 Par. 10. Section 1.988-1 is amended by adding paragraph (a)(3) to read 
as follows:


Sec.  1.988-1  Certain definitions and special rules.

* * * * *
    (a) * * *
    (3) [The text of the proposed amendment to Sec.  1.988-1(a)(3) is 
the same as the text of Sec.  1.988-1T(a)(3) published elsewhere in 
this issue of the Federal Register].
* * * * *
0
  Par. 11. Section 1.988-2 is amended by revising paragraph (b)(16) and 
adding paragraph (i) to read as follows:


Sec.  1.988-2   Recognition and computation of exchange gain or loss.

* * * * *
    (b) * * *
    (16) [The text of the proposed amendment to Sec.  1.988-2(b)(16) is 
the same as the text of Sec.  1.988-2T(b)(16) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (i) [The text of the proposed amendment to Sec.  1.988-2(i) is the 
same as the text of Sec.  1.988-2T(i) published elsewhere in this issue 
of the Federal Register].

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-28377 Filed 12-7-16; 8:45 am]
 BILLING CODE 4830-01-P