IRS applies Trump order to delay foreign currency tax regulations

The US IRS today announced that it will delay by one year the start date of regulations dealing with the taxation of foreign currency gains and losses while the government considers revising the rules.

The regulations were previously identified in Notice 2017-38, issued last July, as one of eight tax regulation projects that qualify for revision under President Trump’s executive order mandating a reduction in regulatory burdens.

The regulations deal with the computation of foreign exchange gains and losses of remittances from qualified business units of US taxpayers that use a functional currency other than the US dollar.

Today’s announcement, made in Notice 2017-57, the states that the government will defer the applicability date of final regulations under section 987 (TD 9794), as well as parts of the section 987 temporary regulations (TD 9795). Both sets of regulations were published on January 9.

Specifically, amendments will be made to §§1.861-9T, 1.985-5, 1.987-11, 1.987-1T through 1.987-4T, 1.987-6T, 1.987-7T, 1.988-1, 1.988-1T, 1.988-4, and 1.989(a)-1 to provide that the regulations will apply to taxable years beginning on or after two years after the first date of the first taxable year following December 7, 2016, the IRS said.

A taxpayer may, however, elect to apply the regulations to taxable years beginning after December 7, 2016, subject to the conditions in §1.987-11(b).

The Treasury Department and the IRS also said they continue to consider changes to the final regulations that would allow taxpayers to elect to apply alternative rules for transitioning to the final regulations and for determining section 987 gain or loss.

In the July notice, the government said the regulations’ transition rules have been criticized because they disregard losses calculated by the taxpayer for years prior to the transition but not previously recognized. Also, the final regulations’ method for calculating foreign currency gain or loss has been criticized as being unduly complex and costly to comply with, particularly where the final regulations differ from financial accounting rules, the government said.

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