New IRC 987 Regs and Foreign Currency Translation: Income Calculation for Qualified Business Units

The IRS issued final and temporary regulations under IRC 987 that significantly change how corporations recognize foreign currency translation gains and losses from foreign branches defined as “qualified business units” (QBUs). For most corporations with foreign branches, the regulations will eliminate unrealized §987 gain or loss carried forward on their balance sheets.

A QBU is defined by IRC 989 as any separate and clearly identified unit of a trade or business that maintains separate books and records. Section 987 mandates how U.S. taxpayers must calculate taxable income earned through a QBU with a functional currency different than its owner’s. Although mostly applicable to foreign branches of U.S. corporations, it also applies to partnerships or individuals.

The new regulations require companies to change how they calculate and book such gains or losses when recording deferred tax assets or liabilities on balance sheets. The regulations require companies to adopt a mandatory “fresh start” that eliminates most §987 carry forward book gains and losses on the transition date.

The new guidance will affect companies with existing §987 gains or losses and will significantly impact financial reporting standards for companies with QBUs.

Listen as our experienced panel provides a practical guide to the impact on U.S. corporations with QBUs to apply the new IRS final and proposed regulations on §987 foreign currency translation gains or losses.

1. Definitions and applications of IRC 987
   1. Identifying IRC 989 qualified business units
   2. Statutory framework of §987
   3. 2006 proposed guidance
   4. Prior framework for booking §987 gains and losses
2. Final and temporary regulations
   1. “Fresh start” transition
   2. Limitation on recognizing loss when terminating existing QBUs
   3. Change in COGS calculation
   4. What happens to §987 losses on date of transition
3. Sourcing and characterization of §987 losses under new regulations
4. Financial accounting changes required by new regulations
5. Impact of Notice 2017-57 and Executive Order 13789
6. Planning and implementation of transition

The panel will discuss these and other important questions:

• What will §987 regulations require companies to do with existing deferred tax assets and liabilities on the date of the transition?
• How will a U.S. corporation have to change its GAAP financial statements under the new requirements?
• What planning opportunities are available to U.S. corporations with carry forward §987 losses?
• How do the new regulations affect corporations holding partnerships as QBUs?

Learning Objectives

After completing this course, you will be able to:

• Identify what constitutes a QBU for purposes of IRC 987 and 989
• Determine what adjustments to financial reporting the new regulations will require of companies with existing carry forward §987 gains and losses
• Discern the impact of the “fresh start transition” requirement in the new regulations
• Recognize planning opportunities prior to the transition to the new regulatory framework

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing foreign tax forms and schedules at mid-level within the organization, supervising other preparers/accountants. Specific knowledge and understanding of foreign currency translations and current rules for calculating taxable income from conversion of foreign currency.

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).