SECTION 3. GUIDANCE

In view of the potentially anomalous results that may arise due to the application of the existing translation regulation in Treas. Reg. § 1.985–3(d)(3), the Trea

sury Department and the Internal Revenue Service intend to amend that regulation to require as follows. If the item giving rise to the adjustment would be translated under Treas. Reg. § 1.985–3(d)(5) at the exchange rate for the last translation period of the year if it were on the QBU’s yearend balance sheet, for purposes of Treas. Reg. § 1.985–3(d)(3) such item shall be translated at the exchange rate on the date the item is transferred. If the item giving rise to the adjustment would be translated under Treas. Reg. § 1.985–3(d)(5) at the exchange rate for the translation period in which the cost of the item was incurred if it were on the QBU’s year-end balance sheet, for purposes of Treas. Reg. § 1.985–3(d)(3) such item shall be translated at the same historical rate.