SECTION 2. BACKGROUND

.01 Final and Temporary Regulations .

(1) The 2016 Final Regulations and the Temporary Regulations .

On December 8, 2016, the Treasury Department and the IRS published Treasury Decision 9794 (81 Fed. Reg. 88806), which contains final regulations relating to the determination of the taxable income or loss of a taxpayer with respect to a qualified business unit (QBU) subject to section 987 (a section 987 QBU); the timing, amount, character, and source of any section 987 gain or loss; and amendments to existing regulations under sections 861, 985, 988 and 989 (the 2016 final regulations). On that same date, the Treasury Department and the IRS also published Treasury Decision 9795 (81 Fed. Reg. 88854), which contains temporary regulations under section 987, including the following: rules relating to the recognition and deferral of foreign currency gain or loss under section 987 in connection with certain QBU terminations and certain other transactions; 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 section 987 aggregate partnerships (the temporary section 987 regulations). Treasury Decision 9795 also contains temporary regulations under section 988 requiring the deferral of certain section 988 loss that arises with respect to related-party loans (the temporary section 988 regulations, and with the temporary section 987 regulations, the temporary regulations). The Treasury Department and the IRS concurrently published a notice of proposed rulemaking by cross-ref

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ginning on or after one year after the first day of the first taxable year following December 7, 2016. See §§1.861-9T(g)(2) (vi); 1.985-5(g); 1.988-1(i); 1.988-4(b) (2)(ii); 1.989(a)-1(b)(4); 1.989(a)-1(d) (4). Following the amendments to such regulations described in Notice 2017-57 and Notice 2018-57, the 2016 final regulations would apply to taxable years beginning on or after the first day of the first taxable year following December 7, 2019.

(2) The Temporary Regulations .

Similarly, §§1.987-1T (other than §§1.987-1T(g)(2)(i)(B) and (g)(3)(i)(H)), 1.987-3T, 1.987-6T, 1.988-1T, and 1.9882T(i) (the related temporary regulations) apply to taxable years beginning on or after one year after the first day of the first taxable year following December 7, 2016. See §§1.987-1T(h); 1.987-3T(f); 1.9876T(d); 1.988-1T(j); 1.988-2T(j). Following the amendments described in Notice 2017-57 and Notice 2018-57, the related temporary regulations and the portions of the notice of proposed rulemaking that cross-referenced the related temporary regulations (the related proposed regulations) would apply to taxable years beginning on or after the first day of the first taxable year following December 7, 2019. All other provisions in the temporary regulations are subject to different applicability dates. See §§1.987-1T(h) (concerning §§1.987-1T(g)(2)(i)(B) and (g)(3)(i)(H)); 1.987-8T(g); 1.988-2T(j).

(3) The 2019 Final Regulations .

The 2019 final regulations were effective on May 13, 2019. Dates of applicability for the 2019 final regulations are provided in §§1.987-2(e), 1.987-4(h), and 1.987-12(j). Specifically, §§1.987-2(e)(2) and 1.987-4(h)(2) provide that §§1.9872(c)(9), 1.987-4(c)(2), and 1.987-4(f) apply to taxable years beginning on or after the day that is three years after the first day of the first taxable year following December 7, 2016. Thus, §§1.987-2(c)(9), 1.9874(c)(2), and 1.987-4(f) of the 2019 final regulations would also apply to taxable years beginning on or after the first day of the first taxable year following December 7, 2019.

Section 1.987-12(j) generally provides that, subject to certain exceptions, §1.987-12 applies to any deferral event or outbound loss event that occurs on or after January 6, 2017 and to any deferral event or outbound loss event that occurs as a result of an entity classification election made under §301.7701-3 filed on or after January 6, 2017, and that is effective before January 6, 2017.

(4) Early Application .

A taxpayer may apply the 2016 final regulations, the related temporary regulations, the related proposed regulations, and §§1.987-2(c)(9), 1.987-4(c)(2), and 1.987-4(f) of the 2019 final regulations to taxable years beginning after December 7, 2016, provided the taxpayer consistently applies those regulations to such taxable years with respect to all section 987 QBUs directly or indirectly owned by the taxpayer on the transition date as well as all section 987 QBUs directly or indirectly owned on the transition date by members that file a consolidated return with the taxpayer or by any controlled foreign corporation, as defined in section 957, in which a member owns more than 50 percent of the voting power or stock value, as determined under section 958(a). See §§1.861-9T(g)(2)(vi); 1.985-5(g); 1.987-1T(h); 1.987-2(e)(2); 1.987-3T(f); 1.987-4(h)(2); 1.987-6T(d); 1.987-11(b); 1.988-1(i); 1.988-1T(j); 1.988-2T(j); 1.988-4(b)(2)(ii); 1.989(a)1(b)(4); 1.989(a)-1(d)(4). The transition date is the first day of the first taxable year to which §§1.987-1 through 1.987-10 are applicable with respect to a taxpayer under §1.987-11. Section 1.987-11(c).