Proposed Rule2024-18281
Guidance Regarding Elections Relating to Foreign Currency Gains and Losses
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 20, 2024
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations regarding the time for making and revoking certain elections relating to foreign currency gain or loss.
Full Text
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<title>Federal Register, Volume 89 Issue 161 (Tuesday, August 20, 2024)</title>
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[Federal Register Volume 89, Number 161 (Tuesday, August 20, 2024)]
[Proposed Rules]
[Pages 67336-67341]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-18281]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-111629-23]
RIN 1545-BM80
Guidance Regarding Elections Relating to Foreign Currency Gains
and Losses
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking; partial withdrawal of proposed
rulemaking.
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SUMMARY: This document contains proposed regulations regarding the time
for making and revoking certain elections relating to foreign currency
gain or loss.
DATES: Written or electronic comments and requests for a public hearing
must be received by October 18, 2024. As of August 20, 2024, proposed
Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii) and proposed Sec. 1.988-7(c)
through (e), contained in the notice of proposed rulemaking published
in the Federal Register of December 19, 2017 (82 FR 60135), are
withdrawn.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at
<a href="http://www.regulations.gov">www.regulations.gov</a> (indicate IRS and REG-111629-23) by following the
online instructions for submitting comments. Once submitted to the
Federal eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (``Treasury Department'') and the IRS will
publish for public availability any comments submitted to the IRS's
public docket. Send hard copy submissions to: CC:PA:01:PR (REG-111629-
23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning proposed Sec. 1.954-
2(g)(3)(ii) and (iii) and (g)(4)(iii), Edward Tracy at (202) 317-6934;
concerning proposed Sec. 1.988-7(c) and (d), Shane Ward at (202) 317-
6938; concerning submissions of comments or requests for a public
hearing, Vivian Hayes at (202) 317-6901 (not toll free numbers) or
<a href="/cdn-cgi/l/email-protection#80f0f5e2ece9e3e8e5e1f2e9eee7f3c0e9f2f3aee7eff6"><span class="__cf_email__" data-cfemail="bdcdc8dfd1d4ded5d8dccfd4d3dacefdd4cfce93dad2cb">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Background
I. Elections Under Sec. 1.954-2(g)
In general, section 954(c)(1)(D) of the Internal Revenue Code and
Sec. 1.954-2(g) provide that foreign personal holding company income
(``FPHCI'') includes the excess of foreign currency gains over foreign
currency losses attributable to any section 988 transactions. Under
Sec. 1.954-2(g)(3) and (4), two different elections are available to
United States shareholders (``U.S. shareholders'') that are controlling
United States shareholders (``controlling U.S. shareholders'') of a
controlled foreign corporation (``CFC'') with respect to the CFC's
computation of its FPHCI. First, under Sec. 1.954-2(g)(3), controlling
U.S. shareholders may elect to exclude foreign currency gain or loss
otherwise includible in the CFC's FPHCI computation under Sec. 1.954-
2(g) and instead include such foreign currency gain or loss in the
category (or categories) of subpart F income to which such gain or loss
relates (the ``Sec. 1.954-2(g)(3) election''). Second, Sec. 1.954-
2(g)(4) provides that controlling U.S. shareholders may elect to treat
as FPHCI all foreign currency gains or losses attributable to any
section 988 transaction (except those described in Sec. 1.954-2(g)(5))
and any section 1256 contract that would be a section 988 transaction
but for section 988(c)(1)(D) (the ``Sec. 1.954-2(g)(4) election'' and,
together with the Sec. 1.954-2(g)(3) election, the ``Sec. 1.954-2(g)
elections''). A Sec. 1.954-2(g)(4) election supersedes a Sec. 1.954-
2(g)(3) election. Under Sec. 1.954-2(g)(3)(ii) and (g)(4)(ii),
controlling U.S. shareholders make either of the Sec. 1.954-2(g)
elections on behalf of the CFC by filing a statement with their
original income tax return for the ``taxable year of [the U.S.
shareholders] ending with or within the taxable year of the [CFC]'' for
which the election is made, clearly indicating that the election has
been made.
[[Page 67337]]
II. Revocations Under Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii) and
Proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii)
Under Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii), a CFC's controlling
U.S. shareholders may revoke a Sec. 1.954-2(g) election by or with the
consent of the Commissioner. As part of the 2017 notice of proposed
rulemaking in respect of Sec. 1.988-7 (the ``2017 proposed
regulations'') (described further in sections III and IV of this
Background section of the preamble), revisions were proposed to the
rules for revoking Sec. 1.954-2(g) elections. 82 FR 60135, 60142-
60143. Under the 2017 proposed regulations, a CFC's controlling U.S.
shareholders would be permitted to revoke the CFC's Sec. 1.954-2(g)
election at any time. Proposed Sec. 1.954-2(g)(3)(iii) and
(g)(4)(iii). Further, the 2017 proposed regulations would provide that
if the election is revoked, a new election cannot be made until the
sixth taxable year following the year in which the previous election
was revoked, and the subsequent election cannot be revoked until the
sixth taxable year following the year in which the subsequent election
was made. Id. Similar to the procedure for making Sec. 1.954-2(g)
elections, a CFC's controlling U.S. shareholders would revoke Sec.
1.954-2(g) elections on behalf of the CFC under the 2017 proposed
regulations by filing a statement that clearly indicates that the
election has been revoked with their original or amended income tax
returns for ``the taxable year of [the U.S. shareholders] ending with
or within the taxable year of the [CFC] for which the election is
revoked.'' Id. The 2017 proposed regulations permitted taxpayers to
rely on proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii) to revoke
Sec. 1.954-2(g) elections for taxable years ending on or after
December 19, 2017, subject to a consistency requirement. 82 FR 60135,
60141.
III. Election Under Proposed Sec. 1.988-7(c)
Under the 2017 proposed regulations, a taxpayer, including a CFC,
would be permitted to elect to use a mark-to-market method of
accounting for section 988 gain or loss with respect to certain section
988 transactions (the ``proposed Sec. 1.988-7 election''). Proposed
Sec. 1.988-7(a). Under proposed Sec. 1.988-7(c) of the 2017 proposed
regulations, a taxpayer makes a proposed Sec. 1.988-7 election by
filing a statement that clearly indicates that the election has been
made with its timely-filed original Federal income tax return for the
taxable year for which the election is made. In the case of a CFC, the
controlling U.S. shareholders make the proposed Sec. 1.988-7 election
on behalf of the CFC by filing a statement that clearly indicates that
the election has been made with their timely-filed, original Federal
income tax returns for the ``taxable year of [the U.S. shareholders]
ending with or within the taxable year of the [CFC] for which the
election is made.'' The preamble to the 2017 proposed regulations
stated that taxpayers are permitted to rely on proposed Sec. 1.988-
7(c) to make a proposed Sec. 1.988-7 election for taxable years ending
on or after December 19, 2017, subject to a consistency requirement. 82
FR 60135, 60141.
IV. Revocation Under Proposed Sec. 1.988-7(d)
Under the 2017 proposed regulations, a taxpayer, including a CFC,
would be permitted to revoke its proposed Sec. 1.988-7 election at any
time. Proposed Sec. 1.988-7(d). Further, the 2017 proposed regulations
provided that if a proposed Sec. 1.988-7 election has been revoked, a
new proposed Sec. 1.988-7 election cannot be made until the sixth
taxable year following the year in which the previous election was
revoked, and a subsequent election cannot be revoked until the sixth
taxable year following the year in which the subsequent election was
made. Id. Under the 2017 proposed regulations, a taxpayer would revoke
a proposed Sec. 1.988-7 election by filing a statement that clearly
indicates that the election has been revoked with its original or
amended Federal income tax return for the taxable year for which the
election is revoked. Id. The preamble to the 2017 proposed regulations
stated that taxpayers are permitted to rely on proposed Sec. 1.988-
7(d) to revoke a proposed Sec. 1.988-7 election for taxable years
ending on or after December 19, 2017, subject to a consistency
requirement. 82 FR 60135, 60141.
Explanation of Provisions
I. Proposed Modification to Sec. 1.954-2(g)(3)(ii) and Withdrawal and
Re-Proposal of Proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii)
The Treasury Department and the IRS have received several inquiries
regarding the procedure for making Sec. 1.954-2(g) elections.
Specifically, practitioners have noted that the language of Sec.
1.954-2(g)(3)(ii) is inconsistent with other filing requirements with
respect to CFCs, which generally must be filed by U.S. shareholders for
the taxable year of a CFC that ends with or within the taxable year of
the U.S. shareholders. See, e.g., Sec. Sec. 1.964-1(c)(3)(ii) and
1.951A-2(c)(7)(viii)(A)(1)(i). Additionally, the practitioners noted
that under Sec. 1.954-2(g)(3)(ii), inconsistencies in treatment can
arise between a controlling U.S. shareholder that owns a CFC with a
matching taxable year and a controlling U.S. shareholder that owns a
CFC with a short year or whose taxable year differs from the
controlling U.S. shareholder's taxable year. With respect to CFCs with
short years, a controlling U.S. shareholder will be prevented from
making Sec. 1.954-2(g) elections for those years if no year of the
controlling U.S. shareholder ends with or within the CFC's short year.
To address the issues raised by practitioners' inquiries, and to
promote consistency with other filing requirements with respect to
CFCs, these proposed regulations would revise Sec. 1.954-2(g)(3)(ii)
to provide that controlling U.S. shareholders make a Sec. 1.954-2(g)
election on behalf of a CFC by filing a statement with their original
income tax returns for the taxable years of the controlling U.S.
shareholders in which or with which the taxable year of the CFC for
which the election is made ends, clearly indicating that the election
has been made. Additionally, these proposed regulations withdraw
proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii) as included in the
2017 proposed regulations and re-propose them to provide that
controlling U.S. shareholders revoke a Sec. 1.954-2(g) election on
behalf of a CFC by filing a statement with their original income tax
returns for the taxable years of the controlling U.S. shareholders in
which or with which the taxable year of the CFC for which the
revocation is made ends, clearly indicating that the Sec. 1.954-2(g)
election has been revoked.
Under newly proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii),
however, controlling U.S. shareholders would be precluded from revoking
a Sec. 1.954-2(g) election made on behalf of a CFC (including an
initial election) until the sixth taxable year following the year in
which the election was made. Further, proposed Sec. 1.954-2(g)(3)(iii)
and (g)(4)(iii) would provide that if a CFC's controlling U.S.
shareholders revoke a Sec. 1.954-2(g) election, they may not make a
new Sec. 1.954-2(g) election on behalf of the CFC until the sixth
taxable year following the year in which the previous election was
revoked. This change to the revocation rules under proposed Sec.
1.954-2(g)(3)(iii) and (g)(4)(iii) would limit taxpayers from
opportunistically making or revoking a Sec. 1.954-2(g) election; for
example, this change would limit taxpayers' ability to selectively
recognize certain foreign currency losses. The Treasury
[[Page 67338]]
Department and the IRS request comments on this aspect of proposed
Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii).
II. Proposed Amendments to Proposed Sec. 1.988-7(c) and (d)
The Treasury Department and the IRS are of the view that the rules
for making and revoking a proposed Sec. 1.988-7 election under the
2017 proposed regulations provided an excessive amount of flexibility.
The 2017 proposed regulations would have permitted a taxpayer to make a
proposed Sec. 1.988-7 election after the end of the year to which the
election would apply, which would give the taxpayer the ability to
determine with certainty whether the election would be beneficial for
that year. For example, and as one comment noted, the ability to make
and revoke an initial election without restriction would provide a one-
time opportunity to selectively recognize foreign currency losses by
making an initial election for a particular year after the taxpayer has
determined that it has net foreign currency losses on section 988
transactions for a taxable year and then immediately revoking the
election.
Upon further consideration of the 2017 proposed regulations and the
comments received, the Treasury Department and the IRS are of the view
that the time for making and revoking a proposed Sec. 1.988-7 election
(permitting a taxpayer to use a mark-to-market method of accounting for
section 988 gain or loss with respect to section 988 transactions)
should accord with the time for making and revoking an election under
section 475(e) or (f) (a ``section 475 election'') (permitting a dealer
in commodities or a trader in securities or commodities to use the
mark-to-market method of accounting). The Treasury Department and the
IRS are of the view that aligning proposed Sec. 1.988-7 with the rules
for making a section 475 election will deter selectively recognizing
losses. The rules for making or revoking a section 475 election deter
taxpayers from selectively recognizing losses by requiring that
taxpayers generally make an election on the tax return for the year
immediately preceding the year to which the election applies, see
section 5.03 of Rev. Proc. 99-17, 1999-1 C.B. 503, 504-505, and then by
requiring taxpayers to apply that election to all subsequent years
unless the taxpayers obtain the consent of the Commissioner. See
section 475(e)(3) and (f)(3). The Treasury Department and the IRS
expect that implementing similar rules for making a proposed Sec.
1.988-7 election would also prevent selective recognition of losses.
The Treasury Department and the IRS also expect that aligning the rules
for making a proposed Sec. 1.988-7 election with the rules for making
a section 475 election will foster compliance, especially for those
taxpayers already making a section 475 election, by providing the same
procedures for making or revoking these elections to adopt a mark-to-
market method of accounting. As a result, these proposed regulations
would permit taxpayers to make and revoke a proposed Sec. 1.988-7
election under rules similar to the rules for making and revoking a
section 475 election.
Proposed Sec. 1.988-7(d) would provide that the election made
pursuant to proposed Sec. 1.988-7(c) is subject to rules similar to
those imposed on section 475 elections. The election would be effective
for the taxable year for which it is made and all subsequent years.
Proposed Sec. 1.988-7(d) also would provide that a taxpayer may revoke
the election only with the consent of the Commissioner.
To adopt a method of accounting as described in proposed Sec.
1.988-7, a taxpayer must receive the consent of the Commissioner to
implement that change of accounting method in accordance with the
applicable administrative procedures provided in the Internal Revenue
Bulletin. Section 446(e); Sec. 1.446-1(e)(2); see also Rev. Proc.
2015-13, 2015-5 I.R.B. 419; Rev. Proc. 2024-1, 2024-1 I.R.B. 1. When
these proposed regulations are finalized, the Treasury Department and
the IRS expect to issue a revenue procedure setting forth the terms and
conditions under which a change of method of accounting with respect to
the mark-to-market method under Sec. 1.988-7 will be granted. The
Treasury Department and the IRS anticipate that these terms and
conditions will address: whether this change should be subject to a
cutoff method or another method requiring a section 481(a) adjustment;
the appropriate circumstances under which a taxpayer must establish a
substantial business reason for the change; whether there are
appropriate circumstances under which an automatic change in method of
accounting should be permitted; and the extent to which these terms and
conditions should incorporate or deviate from the terms and conditions
for changing a mark-to-market method of accounting under section 475(e)
or (f), see section 24 of Rev. Proc. 2024-23.
The Treasury Department and the IRS solicit comments regarding all
aspects of the rules for making and revoking the proposed Sec. 1.988-7
election, including the terms and conditions under which a change of
method of accounting with respect to the mark-to-market method under
Sec. 1.988-7 will be granted and whether to require that related
parties apply a proposed Sec. 1.988-7 election in a consistent manner,
such as in the case of a section 987 election under proposed Sec.
1.987-1(g)(2) (88 FR 78134, 78164-78165). Comments submitted pursuant
to the 2017 proposed regulations will also be considered.
III. Other Nonsubstantive Changes
These proposed regulations would make nonsubstantive changes to
Sec. 1.954-2(g)(3)(ii) and re-proposed Sec. 1.954-2(g)(3)(iii) and
(g)(4)(iii). These changes are intended to improve the clarity of those
regulations, including by updating the cross-references to the
definition of controlling U.S. shareholders from ``Sec. 1.964-
1(c)(5)'' to ``Sec. 1.964-1(c)(5)(i)'' to more precisely reference the
definition with respect to CFCs and not other foreign corporations, and
by providing that a Sec. 1.954-2(g) election must be made on a timely-
filed, original Federal income tax return for consistency with proposed
Sec. 1.988-7 elections.
IV. Applicability Dates
These proposed regulations generally are proposed to apply to
taxable years ending on or after the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register (the ``finalization date''). See proposed Sec. Sec.
1.954-2(i)(3) and 1.988-7(e). The remainder of this section of the
preamble discusses taxpayers' ability to rely on the proposed
regulations and the treatment of certain elections, or revocation of
elections, made in earlier periods.
A. Section 954 regulations
For taxable years ending before the finalization date, taxpayers
may rely on proposed Sec. 1.954-2(g)(3)(ii) and re-proposed Sec.
1.954-2(g)(3)(iii) and (g)(4)(iii) in making and revoking Sec. 1.954-
2(g) elections, provided that they consistently apply proposed Sec.
1.954-2(g)(3)(ii) and (iii) and (g)(4)(iii) to such taxable years.
Furthermore, with respect to any taxpayer that made a Sec. 1.954-2(g)
election in the manner set forth in proposed Sec. 1.954-2(g)(3)(ii) of
these proposed regulations for a taxable year beginning after November
6, 1995 (as provided in TD 8618, 60 FR 46517, 46527), and ending before
August 19, 2024, and any taxpayer that revoked a Sec. 1.954-2(g)
election in the manner set forth in proposed Sec. 1.954-2(g)(3)(iii)
or (g)(4)(iii) of these proposed regulations for a taxable year ending
on or after
[[Page 67339]]
December 19, 2017, and before August 19, 2024, the IRS will respect
such election or revocation as having been timely made for the relevant
taxable year. As of August 19, 2024, taxpayers may no longer rely on
proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii) included in the 2017
proposed regulations.
B. Section 988 regulations
For taxable years ending before the finalization date, taxpayers
may rely on proposed Sec. 1.988-7(c) and (d) in making and revoking
the proposed Sec. 1.988-7 election, provided that they consistently
apply proposed Sec. 1.988-7(c) and (d) to such taxable years.
Furthermore, if a taxpayer made or revoked a proposed Sec. 1.988-7
election on behalf of a CFC pursuant to the reliance provided by 82 FR
60135, 60141, but filed the election or revocation in the manner set
forth in proposed Sec. 1.988-7(c)(3)(ii), the IRS will respect such
election or revocation as having been timely made for the relevant
taxable year. However, as of August 19, 2024, taxpayers may no longer
rely on proposed Sec. 1.988-7(c) and (d) included in the 2017 proposed
regulations.
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (``PRA'')
generally requires that a Federal agency obtain the approval of the
Office of Management and Budget (``OMB'') before collecting information
from the public, whether the collection of information is mandatory,
voluntary, or required to obtain or retain a benefit. 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 OMB.
The collections of information included in these proposed
regulations are in proposed Sec. 1.954-2(g)(3)(ii) and (iii) and
(g)(4)(iii) and proposed Sec. 1.988-7(c). The information provided
will generally be used by the IRS for tax compliance purposes or by
taxpayers to report making or revoking elections.
The collection of information in these proposed regulations is for
taxpayers to make or revoke an election as detailed in proposed Sec.
1.954-2(g)(3)(ii) and (iii) and (g)(4)(iii) and proposed Sec. 1.988-
7(c). Taxpayers must inform the IRS of these elections and revocations
by attaching a statement to their tax return. The information is
required to be provided by taxpayers that are U.S. shareholders of CFCs
and shareholders of certain foreign corporations that make or revoke an
election with respect to the treatment of a foreign corporation's
foreign currency gains and losses. The likely respondents are
individual, business, and trust and estate filers.
For purposes of the PRA, the reporting and recordkeeping burden
associated with the collections of information in proposed Sec. 1.954-
2(g)(3)(ii) and (iii) and (g)(4)(iii) and proposed Sec. 1.988-7(c)
will be accounted for in OMB control number 1545-0074 for individual
filers and 1545-0123 for business filers.
The IRS will seek OMB approval under a new OMB Control Number
(1545-NEW) for trust and estate filers.
Estimated total annual reporting and recordkeeping burden for
trusts and estates filers: 61 hours.
Estimated average annual burden per respondent: 1 hour.
Estimated number of respondents: 61.
Estimated frequency of responses: one-time election or revocation.
The collections of information contained in these proposed
regulations have been submitted to OMB for review in accordance with
the PRA. Commenters are strongly encouraged to submit public comments
electronically. Written comments and recommendations for the proposed
information collection should be sent to <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>, with copies to the IRS. Find this particular information
collection by selecting ``Currently under Review--Open for Public
Comments,'' then by using the search function. Submit electronic
submissions for the proposed information collection to the IRS via
email at <a href="/cdn-cgi/l/email-protection#d4a4a6b5fab7bbb9b9b1baa0a794bda6a7fab3bba2"><span class="__cf_email__" data-cfemail="136361723d707c7e7e767d6760537a61603d747c65">[email protected]</span></a> (indicate REG-111629-23 on the Subject
line). Comments on the collection of information should be received by
September 19, 2024. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility; the accuracy of the estimated
burden associated with the proposed collection of information; 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 services to provide
information.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6)
(``RFA''), it is hereby certified that these proposed regulations would
not have a significant economic impact on a substantial number of small
entities within the meaning of section 601(6) of the RFA (``small
entities'').
Generally, the proposed regulations affect certain U.S. taxpayers
that have foreign operations. Specifically, the proposed regulations
affect U.S. shareholders that make or revoke certain elections with
respect to the computation of their CFCs' foreign currency gains and
losses. The number of small entities potentially affected by the
proposed regulations is unknown and cannot be reliably estimated;
however, it is unlikely to be a substantial number because taxpayers
with foreign operations are typically larger businesses. Due to the low
expected number of potentially affected taxpayers, and the fact that
the proposed regulations only amend the timing of these elections and
revocations that taxpayers may already be making, the Treasury
Department and the IRS believe the proposed regulations should not
materially impact a substantial number of small entities within the
meaning of the RFA.
Accordingly, the Secretary certifies that the proposed regulations
will not have a significant economic impact on a substantial number of
small entities, and a regulatory flexibility analysis is not required.
IV. Section 7805(f)
Pursuant to section 7805(f), these proposed regulations have been
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small businesses. The
Treasury Department and the IRS also request comments from the public
on the analysis in part III of the Special Analyses.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may
[[Page 67340]]
result in expenditures in any one year by a State, local, or Tribal
government, in the aggregate, or by the private sector, of $100 million
in 1995 dollars, updated annually for inflation. This proposed rule
does not include any Federal mandate that may result in expenditures by
State, local, or Tribal governments, or by the private sector in excess
of that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These proposed regulations do not
have federalism implications and do not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
Comments and Requests for 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 section.
The Treasury Department and the IRS request comments on all aspects of
these proposed regulations, including the procedures for making and
revoking a proposed Sec. 1.988-7 election. Any comments submitted will
be made available at <a href="http://www.regulations.gov">www.regulations.gov</a> or upon request.
A public hearing will be scheduled if requested in writing by any
person who timely submits written comments. Requests for a public
hearing are also encouraged to be made electronically. If a public
hearing is scheduled, notice of the date and time for the public
hearing will be published in the Federal Register.
Drafting Information
The principal authors of these regulations are Edward Tracy and
Shane Ward of the Office of Associate Chief Counsel (International).
However, other personnel from the Treasury Department and the IRS
participated in their development.
Statement of Availability of IRS Documents
IRS Revenue Procedures, Revenue Rulings, Notices, and other
guidance cited in this document are published in the Internal Revenue
Bulletin or Cumulative Bulletin and are available from the
Superintendent of Documents, U.S. Government Publishing Office,
Washington, DC 20402, or by visiting the IRS website at <a href="http://www.irs.gov">www.irs.gov</a>.
Partial Withdrawal of Proposed Regulations
Under the authority of 26 U.S.C. 7805, proposed Sec. 1.954-
2(g)(3)(iii) and (g)(4)(iii) and proposed Sec. 1.988-7(c) through (e),
contained in the notice of proposed rulemaking that was published in
the Federal Register on December 19, 2017 (82 FR 60135), are withdrawn.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 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. Section 1.954-2 is amended by:
0
1. Revising the first sentence of paragraph (g)(3)(ii) introductory
text;
0
2. Revising paragraphs (g)(3)(iii) and (g)(4)(iii); and
0
3. Adding two sentences to the end of paragraph (i)(3).
The revisions and additions read as follows:
Sec. 1.954-2 Foreign personal holding company income.
* * * * *
(g) * * *
(3) * * *
(ii) * * * The controlling United States shareholders, as defined
in Sec. 1.964-1(c)(5)(i), make the election on behalf of the
controlled foreign corporation by filing a statement with their timely-
filed, original Federal income tax returns for the taxable year of the
United States shareholders in which or with which the taxable year of
the controlled foreign corporation for which the election is made ends,
clearly indicating that the election has been made. * * *
(iii) Revocation of election. An election under this paragraph
(g)(3) is effective for the taxable year of the controlled foreign
corporation for which it is made and all subsequent taxable years of
such corporation unless revoked by the Commissioner or as provided in
this paragraph (g)(3)(iii) by the controlling United States
shareholders (as defined in Sec. 1.964-1(c)(5)(i)) of the controlled
foreign corporation. Once made, an election under this paragraph (g)(3)
cannot be revoked by the controlled foreign corporation's controlling
United States shareholders (as defined in Sec. 1.964-1(c)(5)(i)) until
the sixth taxable year following the year in which the previous
election was made. Further, if an election has been revoked under this
paragraph (g)(3)(iii), a new election may not be made until the sixth
taxable year following the year in which the previous election was
revoked. The controlling United States shareholders revoke an election
on behalf of a controlled foreign corporation by filing a statement
that clearly indicates such election has been revoked with their
original or amended income tax returns for the taxable year of such
United States shareholders in which or with which the taxable year of
the controlled foreign corporation for which the election is revoked
ends.
* * * * *
(4) * * *
(iii) Revocation of election. An election under this paragraph
(g)(4) is effective for the taxable year of the controlled foreign
corporation for which it is made and all subsequent taxable years of
such corporation unless revoked by the Commissioner or as provided in
this paragraph (g)(4)(iii) by the controlling United States
shareholders (as defined in Sec. 1.964-1(c)(5)(i)) of the controlled
foreign corporation. Once made, an election under this paragraph (g)(4)
cannot be revoked by the controlled foreign corporation's controlling
United States shareholders (as defined in Sec. 1.964-1(c)(5)(i)) until
the sixth taxable year following the year in which the previous
election was made. Further, if an election has been revoked under this
paragraph (g)(4)(iii), a new election may not be made until the sixth
taxable year following the year in which the previous election was
revoked. The controlling United States shareholders revoke an election
on behalf of a controlled foreign corporation by filing a statement
that clearly indicates such election has been revoked with their
original or amended income tax returns for the taxable year of such
United States shareholders in which or with which the taxable year of
the controlled foreign corporation for which the election is revoked
ends.
* * * * *
(i) * * *
[[Page 67341]]
(3) * * * Paragraphs (g)(3)(ii) and (iii) and (g)(4)(iii) of this
section apply to taxable years of controlled foreign corporations
ending on or after [DATE OF PUBLICATION OF FINAL RULE]. For taxable
years of controlled foreign corporations ending before [DATE OF
PUBLICATION OF FINAL RULE], see Sec. 1.954-2(g)(3)(ii) and (iii) and
(g)(4)(iii) as in effect and contained in 26 CFR part 1, as revised
April 1, 2024.
Par. 3. Section 1.988-7, as proposed to be added at 82 FR 60143
(December 19, 2017), is amended by adding paragraphs (c) through (e) to
read as follows:
Sec. 1.988-7 Election to mark-to-market foreign currency gain or loss
on section 988 transactions.
* * * * *
(c) Time and manner of election--(1) In general. Except as
otherwise provided in this paragraph (c), a taxpayer makes the election
under paragraph (a) of this section by filing a statement that clearly
indicates that the election has been made with the taxpayer's timely-
filed (excluding extensions) original Federal income tax return for the
taxable year immediately preceding the year for which the election is
made.
(2) New taxpayers. In the case of a taxpayer for which no Federal
income tax return was required to be filed for the taxable year
immediately preceding the year for which the election is made, the
taxpayer makes the election under paragraph (a) of this section by
preparing a statement that clearly indicates the election has been made
and:
(i) Placing the statement in the taxpayer's books and records by no
later than 2 months and 15 days after the first day of the year for
which the election is made; and
(ii) Filing the statement with the taxpayer's original Federal
income tax return for the taxable year for which the election is made.
(3) Elections on behalf of CFCs. In the case of a controlled
foreign corporation, the controlling United States shareholders (as
defined in Sec. 1.964-1(c)(5)(i)) make the election under paragraph
(a) of this section on behalf of the controlled foreign corporation by
preparing a statement that clearly indicates the election has been made
and:
(i) Placing the statement in the controlled foreign corporation's
books and records by no later than 2 months and 15 days after the first
day of the year of the controlled foreign corporation for which the
election is made; and
(ii) Filing the statement with their original Federal income tax
returns for the taxable year of the United States shareholders in which
or with which the taxable year of the controlled foreign corporation
for which the election is made ends.
(d) Revocation. An election under paragraph (a) of this section is
effective for the taxable year for which it is made and all subsequent
taxable years unless the election is revoked with the consent of the
Commissioner.
(e) Applicability dates. This section applies to taxable years of
taxpayers ending on or after [DATE OF PUBLICATION OF FINAL RULE].
Paragraph (c)(3) of this section applies to taxable years of controlled
foreign corporations ending on or after [DATE OF PUBLICATION OF FINAL
RULE], and to taxable years of United States shareholders in which or
with which the taxable years of those controlled foreign corporations
end.
Heather C. Maloy,
Acting Deputy Commissioner.
[FR Doc. 2024-18281 Filed 8-19-24; 8:45 am]
BILLING CODE 4830-01-P
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