99782 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Proposed Rules 

129See 14 CFR 399.73. 

130See 40 CFR 1508.4. 

131 Id. 

significantly or uniquely affect the 

communities of the Indian Tribal 

governments or impose substantial 

direct compliance costs on them, the 

funding and consultation requirements 

of Executive Order 13175 do not apply. 

D. Regulatory Flexibility Act 

When a Federal agency is required to 

publish a notice of proposed rulemaking 

(5 U.S.C. 553), the Regulatory Flexibility 

Act of 1980 (5 U.S.C. 601 et seq.) 

requires the agency to conduct an initial 

regulatory flexibility analysis (IRFA). 

An IRFA describes the impact of the 

rule on small entities (5 U.S.C. 603). An 

IRFA is not required if the agency head 

certifies that a rule will not have a 

significant economic impact on a 

substantial number of small entities (5 

U.S.C. 605). Under the Regulatory 

Flexibility Act, carriers that exclusively 

provide air transportation with aircraft 

originally designed to have a maximum 

passenger capacity of 60 seats or less or 

a maximum payload capacity of 18,000 

pounds or less are small businesses.129

If the Department proposes to adopt the 

consumer protections discussed in this 

ANPRM, it is possible that it may have 

some impact on small entities. We 

invite comment to facilitate DOT’s 

assessment of the potential impact of 

adopting the possible regulatory 

requirements discussed in this ANPRM 

on small entities. 

E. Paperwork Reduction Act 

Under the Paperwork Reduction Act 

(44 U.S.C. 3501 et seq.), no person is 

required to respond to a collection of 

information unless it displays a valid 

OMB control number. This ANPRM is 

not covered by the Paperwork 

Reduction Act because it does not 

propose any new information collection 

burdens. If the Department proposes to 

adopt information collections in a 

NPRM, the burdens associated with 

such a collection will be analyzed at 

that time. 

F. Unfunded Mandates Reform Act 

The Department has determined that 

the requirements of Title II of the 

Unfunded Reform Act of 1995 do not 

apply to this document. 

G. National Environmental Policy Act 

The Department has analyzed the 

environmental impacts of this ANPRM 

pursuant to the National Environmental 

Policy Act of 1969 (NEPA) (42 U.S.C. 

4321 et seq.) and has determined that it 

is categorically excluded pursuant to 

DOT Order 5610.1C, Procedures for 

Considering Environmental Impacts (44 

FR 56420, Oct. 1, 1979). Categorical 

exclusions are actions identified in an 

agency’s NEPA implementing 

procedures that do not normally have a 

significant impact on the environment 

and therefore do not require either an 

environmental assessment (EA) or 

environmental impact statement 

(EIS).130 In analyzing the applicability 

of a categorical exclusion, the agency 

must also consider whether 

extraordinary circumstances are present 

that would warrant the preparation of 

an EA or EIS.131 Paragraph 4(c)(6)(i) of 

DOT Order 5610.1C provides that 

‘‘actions relating to consumer 

protection, including regulations’’ are 

categorically excluded. The Department 

does not anticipate any environmental 

impacts, and there are no extraordinary 

circumstances present in connection 

with this rulemaking. 

Signed this 3rd day of December, 2024, in 

Washington, DC. 

Peter Paul Montgomery Buttigieg, 

Secretary of Transportation. 

[FR Doc. 2024–28930 Filed 12–10–24; 8:45 am] 

BILLING CODE 4910–9X–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–117213–24] 

RIN 1545–BR37 

Accounting for Disregarded 

Transactions Between a Qualified 

Business Unit and Its Owner 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations relating to the 

determination of taxable income or loss 

and foreign currency gain or loss with 

respect to a qualified business unit. The 

proposed regulations include an 

election that is intended to reduce the 

compliance burden of accounting for 

certain disregarded transactions 

between a qualified business unit and 

its owner. This document also includes 

a request for comments relating to the 

treatment of partnerships and controlled 

foreign corporations. 

DATES: Written or electronic comments 

and requests for a public hearing must 

be received by March 11, 2025. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically via the Federal 

eRulemaking Portal at https://

www.regulations.gov (indicate IRS and 

REG–117213–24) by following the 

online instructions for submitting 

comments. Requests for a public hearing 

must be submitted as prescribed in the 

‘‘Comments and Requests for a Public 

Hearing’’ section. 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 paper submissions to: 

CC:PA:01:PR (REG–117213–24), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Adam G. Province at (865) 329–4546; 

concerning submissions of comments, 

requests for a public hearing, and access 

to a public hearing, Publications and 

Regulations Section at (202) 317–6901 

(not toll-free numbers) or by email to 

publichearings@irs.gov (preferred). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document contains proposed 

additions and amendments to 26 CFR 

part 1 (Income Tax Regulations) 

addressing the application of section 

987 of the Internal Revenue Code (Code) 

and related provisions (the ‘‘proposed 

regulations’’). The additions and 

amendments are issued under sections 

987 and 989, pursuant to the express 

delegations of authority provided under 

those sections. The express delegations 

relied upon are referenced in the 

Background section of this preamble. 

The proposed regulations are also 

issued under the express delegation of 

authority under section 7805 of the 

Code. 

Background 

This document contains proposed 

regulations under section 987 of the 

Code. Section 987 applies to any 

taxpayer that has a qualified business 

unit (QBU) with a functional currency 

other than the dollar. Section 987(1) and 

(2) provide rules for determining and 

translating taxable income or loss 

(‘‘section 987 taxable income or loss’’) 

with respect to the QBU. In addition, 

foreign currency gain or loss must be 

determined under section 987(3) 

(‘‘section 987 gain or loss’’), which 

requires proper adjustments (as 

prescribed by the Secretary) for transfers 

of property between QBUs of the 


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1The reference to ‘‘this subpart’’ refers to subpart 

J of part III of subchapter N of chapter 1 of the Code, 

which includes section 987. 

taxpayer having different functional 

currencies. 

Sections 987 and 989 provide several 

explicit grants of regulatory authority. 

The statute does not specify how the 

proper adjustments should be made 

under section 987(3), but instead directs 

the Secretary to prescribe the proper 

adjustments needed to determine the 

taxable income of the owner of a section 

987 QBU. Section 989(c) directs the 

Secretary to ‘‘prescribe such regulations 

as may be necessary or appropriate to 

carry out the purposes of this subpart.’’ 1

The grants of authority in section 989(c) 

include regulations providing for the 

appropriate treatment of related party 

transactions (including transactions 

between QBUs of the same taxpayer). 

Section 989(c)(5). 

Concurrently with the publication of 

these proposed regulations, the Treasury 

Department and the IRS are publishing 

in the rules and regulations section of 

this edition of the Federal Register (RIN 

1545–BO07) final regulations under 

sections 861, 985, 987 through 989, and 

1502 of the Code (the ‘‘final 

regulations’’). On November 14, 2023, 

the Treasury Department and the IRS 

published proposed regulations (REG– 

132422–17) under those same sections 

of the Code (the ‘‘2023 proposed 

regulations’’) in the Federal Register (88 

FR 78134). The comments received in 

response to the 2023 proposed 

regulations, and the revisions made in 

response to those comments, are 

summarized in the Summary of 

Comments and Explanation of Revisions 

in the preamble to the final regulations. 

In response to certain comments, the 

Treasury Department and the IRS are 

publishing this notice of proposed 

rulemaking to provide additional 

proposed rules under section 987 and to 

request comments relating to the 

application of section 987 to 

partnerships and controlled foreign 

corporations (‘‘CFCs’’). 

Explanation of Provisions 

The proposed regulations provide an 

election under which, in certain cases, 

taxpayers can translate a group of 

frequently recurring transfers between a 

section 987 QBU and its owner using 

the yearly average exchange rate (rather 

than the spot rate applicable on the date 

of each transfer). The proposed 

regulations also would simplify the 

computation of unrecognized section 

987 gain or loss under § 1.987–4 for 

taxpayers that make this election. 

I. Rules of the Final Regulations 

Relating to Disregarded Transactions 

A. Accounting for Disregarded 

Transactions Between a Section 987 

QBU and Its Owner 

Under the final regulations, an asset is 

treated as transferred to a section 987 

QBU from its owner if, because of a 

disregarded transaction, the asset is 

reflected on the books and records of the 

section 987 QBU. See § 1.987–2(c)(2)(i). 

Similarly, an asset is treated as 

transferred from a section 987 QBU to 

its owner if, because of a disregarded 

transaction, the asset ceases to be 

reflected on the books and records of the 

section 987 QBU. Thus, for example, if 

a section 987 QBU purchases inventory 

from its owner (or another eligible QBU 

of its owner) in a disregarded 

transaction, the section 987 QBU is 

treated as distributing cash to its owner, 

and the owner is treated as contributing 

the inventory to the section 987 QBU. 

Disregarded transactions, however, do 

not give rise to items of income, gain, 

deduction, or loss that are taken into 

account in determining section 987 

taxable income or loss under § 1.987–3. 

See § 1.987–2(c)(2)(iii). 

The final regulations provide rules for 

determining the basis of an asset or the 

amount of a liability that has been 

transferred by an owner to a section 987 

QBU. In general, marked items are 

translated into the section 987 QBU’s 

functional currency at the spot rate 

applicable on the date of the transfer, 

while historic items are translated at the 

applicable historic rate. See § 1.987– 

2(d). Similarly, when an asset or 

liability is transferred from a section 987 

QBU to its owner, marked items are 

translated into the owner’s functional 

currency at the spot rate applicable on 

the date of transfer, while historic items 

are translated at the applicable historic 

rate. See § 1.987–5(f). These rules apply 

to all transfers of assets and liabilities 

between a section 987 QBU and its 

owner, including transfers made in 

connection with ordinary course 

disregarded transactions (for example, 

sales of inventory). 

The definition of a marked item under 

the final regulations includes an asset or 

liability denominated in, or determined 

by reference to, the functional currency 

of the section 987 QBU that would be 

a section 988 transaction if it were held 

or entered into directly by the owner of 

the section 987 QBU; it also includes 

several other categories of assets and 

liabilities. See § 1.987–1(d)(1). However, 

the final regulations provide an election 

to treat all items of a section 987 QBU 

as marked items (the ‘‘current rate 

election’’). See § 1.987–1(d)(2). 

B. Determination of Unrecognized 

Section 987 Gain or Loss With Respect 

to a Section 987 QBU 

Section 1.987–4 provides rules for 

computing net unrecognized section 987 

gain or loss with respect to a section 987 

QBU. Under § 1.987–4(b), net 

unrecognized section 987 gain or loss is 

equal to the sum of (i) the unrecognized 

section 987 gain or loss for the current 

taxable year and (ii) net accumulated 

unrecognized section 987 gain or loss 

for all prior taxable years. 

Section § 1.987–4(d) provides a tenstep formula for computing 

unrecognized section 987 gain or loss 

for the current taxable year. The first 

step of this formula is to determine the 

change in owner functional currency net 

value (‘‘OFCNV’’) of the section 987 

QBU for the taxable year, computed 

using end-of-year exchange rates for 

marked items and historic rates for 

historic items. See § 1.987–4(d)(1) and 

(e). The other steps adjust for amounts 

comprising the separate components of 

the annual change in OFCNV (other 

than changes in the exchange rate). 

Steps 2 through 5 relate to transfers of 

assets and liabilities between a section 

987 QBU and its owner, and steps 6 

through 9 relate to items of income or 

loss of the section 987 QBU. See 

§ 1.987–4(d)(2) through (9). Step 10 is a 

residual adjustment for any remaining 

increase or decrease to the section 987 

QBU’s functional currency balance 

sheet. This residual adjustment is 

translated into the owner’s functional 

currency using the yearly average 

exchange rate for the taxable year. See 

§ 1.987–4(d)(10). 

In applying steps 2 through 5, an 

owner must account for all transfers of 

assets and liabilities between a section 

987 QBU and its owner, including 

transfers made in connection with 

ordinary course disregarded 

transactions. See § 1.987–4(d)(2) 

through (5). For this purpose, marked 

items are translated into the owner’s 

functional currency at the spot rate 

applicable on the date of the transfer, 

while historic items are translated at the 

applicable historic rate. 

II. Proposed Rules Relating to 

Disregarded Transactions 

A. Comment Concerning the 

Compliance Burden of Accounting for 

Disregarded Transactions 

A comment to the 2023 proposed 

regulations asserted that it is 

burdensome for taxpayers to track and 

translate disregarded transactions 

between a section 987 QBU and its 

owner (or between different section 987 

QBUs of the same owner) that arise in 


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99784 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Proposed Rules 

the ordinary course of a section 987 

QBU’s trade or business. The comment 

recommended that, for taxpayers that 

make a current rate election, 

unrecognized section 987 gain or loss 

for the taxable year should be computed 

by applying only two of the steps 

provided in § 1.987–4(d): step 1 

(determining the change in OFCNV) and 

step 10 (reducing or increasing the 

amount determined in step 1 by the 

change in QBU net value, translated into 

the owner’s functional currency at the 

yearly average exchange rate). The 

comment asserted that, under this 

approach, it would not be necessary to 

track ordinary course disregarded 

transactions between a section 987 QBU 

and its owner (or different section 987 

QBUs of the same owner), because those 

transactions would be eliminated from 

the computation of unrecognized 

section 987 gain or loss. 

As explained in the preamble to the 

final regulations, the effect of the 

comment’s recommended rule would be 

to translate the net amount of all 

transfers between a section 987 QBU 

and its owner at the yearly average 

exchange rate under step 10. See part 

V.A.3 of the Summary of Comments and 

Explanation of Revisions in the 

preamble to the final regulations. By 

contrast, § 1.987–4(d) requires each 

transfer to be translated at the 

appropriate exchange rate in applying 

steps 2 through 5. Under the final 

regulations, if a current rate election is 

in effect, the basis of each asset and the 

amount of each liability transferred is 

translated at the spot rate applicable on 

the date of transfer (because all assets 

and liabilities are treated as marked 

items). The final regulations do not 

adopt the rule recommended by the 

comment because the applicable spot 

rate could be significantly higher or 

lower than the yearly average exchange 

rate, in which case the comment’s 

recommended rule could substantially 

distort the computation of unrecognized 

section 987 gain or loss. 

B. Recurring Transfer Group Election 

Notwithstanding the concern 

described in part II.A of this 

Explanation of Provisions, the Treasury 

Department and the IRS are of the view 

that, in certain cases, a group of 

frequently recurring transfers between a 

section 987 QBU and its owner could be 

translated using the yearly average 

exchange rate without creating 

significant distortions. Further, 

permitting taxpayers to use the yearly 

average exchange rate in lieu of the 

applicable spot rate would reduce the 

compliance burden of the section 987 

regulations. 

Therefore, the proposed regulations 

would provide that a taxpayer that has 

made a current rate election may elect 

to use the yearly average exchange rate 

to translate assets that are transferred 

between a section 987 QBU and its 

owner as part of a recurring transfer 

group (a ‘‘recurring transfer group 

election’’). Proposed § 1.987–2(f)(1). The 

recurring transfer group election would 

be subject to the general timing and 

consistency requirements provided in 

§ 1.987–1(g) of the final regulations. 

If a recurring transfer group election 

is in effect, assets transferred between a 

section 987 QBU and its owner as part 

of a recurring transfer group (‘‘grouped 

assets’’) are translated under §§ 1.987– 

2(d), 1.987–4(d)(2), and 1.987–5(f) using 

the yearly average exchange rate in lieu 

of the applicable spot rate. Proposed 

§ 1.987–2(f)(4). In addition, proposed 

§ 1.987–2(f)(5)(i) would provide that 

transfers made as part of a recurring 

transfer group are disregarded for 

purposes of § 1.987–4(d)(2) and (3) 

(steps 2 and 3). Proposed § 1.987–2(f)(5). 

That is, because all transfers that are 

part of a recurring transfer group are 

translated at the yearly average 

exchange rate, these transfers do not 

need to be separately tracked and 

translated for purposes of determining 

unrecognized section 987 gain or loss. 

Transfers that are part of a recurring 

transfer group are also disregarded 

when applying steps 2 and 3 in the 

functional currency of the section 987 

QBU for purposes of determining the 

residual increase or decrease to net 

assets under § 1.987–4(d)(10). Proposed 

§ 1.987–4(d)(10)(ii)(D). To the extent 

that these transfers increase or reduce 

the year-end net assets of the section 

987 QBU (determined in the section 987 

QBU’s functional currency), the residual 

increase or decrease to net assets will be 

translated at the yearly average 

exchange rate under § 1.987–4(d)(10) 

(step 10). 

Under the proposed regulations, if a 

recurring transfer group election is in 

effect, and the only transfers between a 

section 987 QBU and its owner are part 

of a recurring transfer group, the owner 

would determine unrecognized section 

987 gain or loss for the taxable year by 

applying only steps 1 and 10 (as 

recommended by the comment). 

Transfers that are not part of a recurring 

transfer group must be taken into 

account at the applicable spot rate 

under steps 2 through 5. However, the 

final regulations permit taxpayers to use 

a spot rate convention based on the 

average of spot rates for a reasonable 

period (which can be as long as three 

months), which should reduce the 

compliance burden of accounting for 

these transfers. See § 1.987–1(c)(1)(ii). 

The special rule for computing 

unrecognized section 987 gain or loss in 

proposed § 1.987–2(f)(5)(i) would not 

apply if the owner of a section 987 QBU 

determines QBU net value using the 

formula provided in § 1.987–4(e)(2)(iii). 

Proposed § 1.987–2(f)(5)(ii). Taxpayers 

using this formula must separately track 

each transfer for purposes of computing 

QBU net value, and therefore 

disregarding the transfers for purposes 

of § 1.987–4(d)(2) and (3) would not 

reduce the compliance burden for these 

taxpayers. 

The proposed regulations also would 

modify the recordkeeping requirements 

in § 1.987–9 to provide that taxpayers 

are not required to maintain records 

concerning amounts transferred 

between an owner and a section 987 

QBU unless the transferred amounts are 

taken into account in applying § 1.987– 

4 or § 1.987–5. Proposed § 1.987–9(b)(5) 

and (6). Therefore, if a taxpayer makes 

a recurring transfer group election and 

uses the alternative calculation 

provided in § 1.987–5(c)(2) (under 

which the remittance for a taxable year 

is determined by reference to the change 

in QBU net value, adjusted for income 

or loss of the section 987 QBU), the 

taxpayer generally would not be 

required to maintain records with 

respect to transfers of grouped assets. 

C. Definition of a Recurring Transfer 

Group 

Under the proposed regulations, a 

recurring transfer group would be 

defined as a group of frequently 

recurring transfers between a section 

987 QBU and its owner (or another 

eligible QBU of the owner) that are 

made in the ordinary course of a trade 

or business. Proposed § 1.987–2(f)(2)(i). 

Only transfers made in connection with 

sales of inventory, payments for 

services, or rent or royalty transactions 

in which arm’s length compensation 

(determined by applying the principles 

of the arm’s length standard of § 1.482– 

1(b)(1)) has been paid would be 

included in a recurring transfer group. 

Proposed § 1.987–2(f)(2)(ii). For this 

purpose, the principles of the arm’s 

length standard apply as if the section 

987 QBU were a corporation that is 

separate from its owner and, thus, as if 

the disregarded transaction were a 

controlled transfer within the meaning 

of § 1.482–1(i)(8). A recurring transfer 

group would not include a transfer 

between the section 987 QBU and its 

owner if the transfer (or a portion of the 

transfer) would be treated as a 

distribution with respect to stock, or an 

exchange for stock (or a contribution to 


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capital), for U.S. tax purposes if the 

QBU were treated as a separate 

corporation. Proposed § 1.987– 

2(f)(2)(iii). Those transfers are unlikely 

to be made in the ordinary course of a 

trade or business and could be used to 

manipulate the computation of 

unrecognized section 987 gain or loss. 

The definition of a recurring transfer 

group in § 1.987–2(f)(2) is tailored to 

identify ordinary business transactions 

for which the use of the yearly average 

exchange rate would not cause 

significant distortions and which could 

be burdensome to account for under the 

rules of the final regulations. The 

Treasury Department and the IRS 

request comments as to whether other 

transfers should be included in a 

recurring transfer group. For example, 

comments are requested as to whether 

intercompany lending transactions (or 

other transactions) of a bank or other 

financial entity should be included in a 

recurring transfer group and, if so, how 

the scope of the covered transactions 

should be defined. Although lending 

transactions are made in the ordinary 

course of a bank’s trade or business, it 

may be difficult to distinguish between 

ordinary course loans and extraordinary 

transactions that could be used to 

manipulate a taxpayer’s unrecognized 

section 987 gain or loss. 

D. Exception for Disproportionate 

Transfers 

The rules of proposed § 1.987–2(f)(4) 

and (5) would not apply in a taxable 

year in which a disproportionate 

amount of the assets transferred as part 

of a recurring transfer group are 

transferred during one or more quarters 

of the taxable year. Proposed § 1.987– 

2(f)(6). In particular, proposed § 1.987– 

2(f)(4) and (5) would not apply if either 

(i) more than 50 percent of the total 

amount transferred during the taxable 

year is transferred during one quarter of 

the taxable year or (ii) more than 80 

percent of the total amount transferred 

during the taxable year is transferred 

during two quarters of the taxable year. 

The exception in proposed § 1.987– 

2(f)(6) is intended to prevent significant 

distortions that could arise from using 

the yearly average exchange rate to 

translate transfers that primarily occur 

in only part of the taxable year, while 

being flexible enough to accommodate 

ordinary course disregarded 

transactions between a section 987 QBU 

and its owner. The Treasury Department 

and the IRS request comments as to 

whether other standards could be used 

to identify transfers that can 

appropriately be translated at the yearly 

average exchange rate. For example, 

comments are requested as to whether 

more flexibility should be provided in 

taxable years in which exchange rates 

do not significantly fluctuate. 

Applicability Dates 

Once finalized, the regulations would 

apply to taxable years beginning after 

the date the Treasury Decision adopting 

these rules as final regulations is 

published in the Federal Register. A 

taxpayer may rely on these proposed 

regulations for a taxable year in which 

the final regulations (that is, the final 

regulations that are being published 

concurrently with the proposed 

regulations) apply, provided the 

taxpayer and each member of its 

consolidated group and section 987 

electing group, as applicable, 

consistently follow the proposed 

regulations in their entirety and in a 

consistent manner. 

In addition, for a taxable year in 

which the final regulations apply, a 

taxpayer may continue to rely on the 

parts of the proposed regulations 

published in the Federal Register (REG– 

128276–12, 81 FR 88882) on December 

8, 2016 (the ‘‘2016 proposed 

regulations’’) that have not been 

finalized or withdrawn, provided that 

the taxpayer and each member of its 

consolidated group and section 987 

electing group, as applicable, 

consistently follow these parts in their 

entirety and in a consistent manner. The 

following parts of the 2016 proposed 

regulations have not been finalized or 

withdrawn: (1) rules regarding QBUs 

with the U.S. dollar as their functional 

currency (see §§ 1.987–1 and 1.987–6 of 

the 2016 proposed regulations); and (2) 

rules requiring the deferral of certain 

section 988 loss that arises with respect 

to related-party loans (see § 1.988–2 of 

the 2016 proposed regulations). 

Comments and Request for Public 

Hearing 

I. In General 

Before these proposed regulations are 

adopted as final regulations, 

consideration will be given to comments 

that are submitted timely to the IRS as 

prescribed in this preamble under the 

ADDRESSES heading. In addition to the 

specific requests for comments in parts 

II.C and II.D of the Explanation of 

Provisions, the Treasury Department 

and the IRS request comments on all 

other aspects of the proposed 

regulations as well as on the specific 

issues identified in part II of this 

Comments and Request for Public 

Hearing section. Any comments 

submitted will be made available at 

https://www.regulations.gov or upon 

request. 

A public hearing concerning the 

proposed regulations will be scheduled 

if requested in writing by any person 

who timely submits electronic or 

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. 

II. Additional Requests for Comments 

A. Treatment of Partnerships for 

Purposes of Sections 987 and 989(a) 

The final regulations do not provide 

detailed rules concerning the 

application of section 987 to 

partnerships, and they reserve on the 

treatment of a partnership as a QBU 

under section 989(a). See part VIII.B.1 of 

the Summary of Comments and 

Explanation of Revisions in the 

preamble to the final regulations. See 

also part VIII of the Explanation of 

Provisions in the preamble to the 2023 

proposed regulations. The Treasury 

Department and the IRS continue to 

study those issues and therefore request 

comments on the following topics: 

1. Should section 987 be applied to 

partnerships using an entity approach, 

an aggregate approach, or a hybrid 

approach? Comments recommending an 

entity approach should address the 

concerns raised in the preamble to the 

2023 proposed regulations regarding the 

potential for unrecognized section 987 

gain or loss to be shifted between 

partners upon a sale of a partnership 

interest. See part VIII.C of the 

Explanation of Provisions in the 

preamble to the 2023 proposed 

regulations. 

2. Should a partnership be treated as 

a per se QBU under section 989(a) and 

§ 1.989(a)–1(b)(2)(i)? 

3. Should different rules be provided 

for purposes of sections 987 and 989(a) 

depending on whether the partners in 

the partnership are related parties? 

Comments recommending an entity 

approach for partnerships owned by 

related parties should address the 

concerns raised in the preamble to the 

2023 proposed regulations regarding the 

potential for a group of related parties 

to hold an eligible QBU through a 

partnership (rather than directly) in 

order to alter the section 987 treatment 

of the eligible QBU without 

meaningfully altering the group’s 

economic position. See part VIII.E of the 

Explanation of Provisions in the 

preamble to the 2023 proposed 

regulations. 

4. Under an entity approach, if a 

partnership’s functional currency differs 

from that of its partners, how should the 


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2For a discussion of ‘‘excess asset basis,’’ see the 

preambles accompanying issuance of § 1.367(b)– 

3(g) (TD 10004, 89 FR 58275) and proposed 

§ 1.367(b)–3(g) (88 FR 69559), respectively. 

partners account for currency gain or 

loss with respect to their partnership 

interests? 

Comments submitted in response to 

the 2023 proposed regulations do not 

need to be resubmitted in response to 

these proposed regulations. 

B. Application of Section 987 to CFCs 

As discussed in part II.A.3 of the 

Summary of Comments and Explanation 

of Revisions in the preamble to the final 

regulations, a comment on the 2023 

proposed regulations recommended that 

the application of section 987 be 

simplified by applying rules similar to 

section 986(c) to section 987 QBUs 

owned by CFCs in lieu of applying 

section 987. In response to this 

comment, the preamble to the final 

regulations explained that the Treasury 

Department and the IRS are of the view 

that it would not be feasible to adopt 

this comment, but nonetheless are 

studying whether there are instances in 

which it would be possible to simplify 

the application of section 987 by 

modifying the application of section 

987(3) (and the related regulations, 

including §§ 1.987–4 through 1.987–6, 

1.987–8, and 1.987–11 through 1.987– 

13) to certain entities. 

In considering the appropriateness of 

such a rule, it is helpful to consider 

United States persons (‘‘U.S. persons’’) 

and foreign persons separately. In the 

case of a U.S. person, except to the 

extent that the Code specifically 

provides otherwise, the taxable income 

of the U.S. person should reflect that 

person’s accession to wealth, as 

measured in the U.S. dollar. 

Accordingly, when the amount of the 

U.S. person’s basis in its assets or the 

amount of its liabilities fluctuates as a 

result of fluctuations in the functional 

currency of a section 987 QBU, section 

987(3) is necessary to ensure that 

currency gain or loss is taken into 

account to prevent these fluctuations 

from artificially increasing or decreasing 

the taxpayer’s income, gain, deduction, 

and loss, as measured in the U.S. dollar. 

In contrast, in the case of a foreign 

person, such as a CFC or a partnership 

with only foreign partners, the Treasury 

Department and the IRS are studying 

whether the U.S. tax system 

appropriately tracks and taxes the 

foreign person’s accession to wealth 

given that its functional currency may 

not be the U.S. dollar. 

The Treasury Department and the IRS 

agree with the comment that the 

compliance and administrative burdens 

of the section 987 regulations would be 

substantially reduced if section 987(3) 

and the related regulations did not 

apply to CFCs or to partnerships with 

only foreign partners. Under such an 

approach, a CFC or a partnership with 

only foreign partners would not 

calculate net unrecognized section 987 

gain or loss with respect to a section 987 

QBU and would not recognize section 

987 gain or loss on a remittance or 

termination. Instead, if a section 987 

QBU owned by the CFC or partnership 

transferred assets or liabilities to its 

owner, the CFC or partnership would 

merely take a basis in the assets or 

measure the amount of the liabilities by 

translating from the section 987 QBU’s 

functional currency into the CFC or 

partnership’s functional currency at the 

spot rate on the date of the transfer. 

Relatedly, the Treasury Department 

and the IRS are concerned about the 

ability of foreign entities to manipulate 

the recognition of section 987 gain and 

loss under section 987(3) and the related 

regulations. This concern is not entirely 

alleviated by the loss-to-the-extent-ofgain-rule in § 1.987–11, which suspends 

the recognition of section 987 loss for 

taxpayers that make a current rate 

election. 

Accordingly, the Treasury Department 

and the IRS are studying whether, in 

certain cases, it would be appropriate to 

not apply section 987(3) and the related 

regulations to CFCs and partnerships 

with only foreign partners. However, the 

Treasury Department and the IRS have 

a number of concerns, including that, 

under this approach, the amount of 

currency gain (or loss) that would have 

been taken into account under section 

987(3) would give rise to an increase (or 

decrease) in a CFC’s aggregate inside 

asset basis without a corresponding 

change in the CFC’s earnings and 

profits, and the resulting mismatch 

between inside asset basis and earnings 

and profits could produce inappropriate 

results. 

For example, over time, it would be 

common for a CFC’s aggregate inside 

asset basis to be greater or less than the 

sum of its (i) earnings and profits 

determined under the principles of 

§ 1.367(b)–2(d) but without regard to 

whether the exchanging shareholder is a 

U.S. person or foreign person, (ii) total 

basis in the stock of the CFC; and (iii) 

the amount of the CFC’s liabilities. 

Although it is possible for a CFC to have 

aggregate inside asset basis in excess of 

these amounts (‘‘excess asset basis’’) 2

under current law, the Treasury 

Department and the IRS are concerned 

that, if CFCs were not required to 

recognize currency gain or loss under 

section 987(3), excess asset basis would 

become more prevalent. If the United 

States shareholder (‘‘U.S. shareholder’’) 

ultimately sells its stock in the CFC, the 

U.S. shareholder would generally 

recognize the appropriate amount of 

gain or loss on the sale of stock 

(notwithstanding the potential excess 

asset basis of the CFC). However, if, in 

lieu of a sale of stock, the CFC merges 

or liquidates into a domestic 

corporation pursuant to an inbound 

asset reorganization or liquidation 

described in § 1.367(b)–3, the excess 

asset basis could be imported into the 

United States without a corresponding 

inclusion of income or gain under 

§ 1.367(b)–3, and thus permanently 

escape U.S. taxation. 

Accordingly, the Treasury Department 

and the IRS request comments 

concerning the following topics: 

1. Should the final regulations be 

modified to provide that section 987(3) 

and the related regulations do not apply 

to CFCs or to partnerships with only 

foreign partners? If so, how should 

currency gain or loss be recognized with 

respect to the section 987 QBU (if at 

all)? 

2. If section 987(3) did not apply to 

CFCs and partnerships with only foreign 

partners, what other rules would be 

needed to prevent value equal to the 

amount of excess asset basis from 

permanently escaping U.S. taxation 

upon an inbound transaction such as an 

asset reorganization or liquidation 

described in § 1.367(b)–3? For example, 

should the importation of excess asset 

basis trigger the recognition of gain in 

the same manner that § 1.367(b)–3 

triggers a deemed dividend to a 

shareholder? If so, are there 

circumstances in which excess asset 

basis should not trigger gain (such as 

excess asset basis arising by reason of 

section 362(e) or by reason of minority 

interests)? How should excess asset 

basis be computed? What additional 

rules would be needed to similarly 

prevent taxpayers from planning into 

the permanent avoidance or indefinite 

deferral of gain or acceleration of losses? 

3. If section 987(3) and the related 

regulations continue to apply to CFCs 

and partnerships with only foreign 

partners generally, are any 

modifications needed to the calculation 

of section 987 gain and loss for these 

entities? 

Special Analyses 

I. Regulatory Planning and Review— 

Economic Analysis 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 


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Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Proposed Rules 99787 

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) requires 

that a Federal agency obtain the 

approval of the Office of Management 

and Budget (OMB) before collecting 

information from the public, whether 

such 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 in the 

proposed regulations with respect to 

section 987 are in proposed § 1.987– 

2(f)(1) (and the related election rules in 

§ 1.987–1(g) of the final regulations). 

The likely respondents are individuals 

who file a Form 1040 and businesses 

that file a Form 1065 or Form 1120. 

The collection of information in 

proposed § 1.987–2(f)(1) is required only 

when a taxpayer makes or revokes a 

recurring transfer group election under 

proposed § 1.987–2(f)(1). In the first year 

in which the section 987 regulations 

apply to a taxpayer, or the first year in 

which the taxpayer or a member of its 

consolidated group or section 987 

electing group is the owner of a section 

987 QBU, the taxpayer is permitted to 

make a recurring transfer group election 

without the Commissioner’s consent. 

Thereafter, the taxpayer may make or 

revoke a recurring transfer group 

election only with the consent of the 

Commissioner, which may be granted 

with a private letter ruling. When a 

taxpayer makes or revokes an election, 

the collection of information is 

mandatory. The collection of 

information required by proposed 

§ 1.987–2(f)(1) will be used by the IRS 

for tax compliance purposes. 

The Treasury Department and the IRS 

intend that the information required by 

§ 1.987–1(g) with respect to a recurring 

transfer group election under proposed 

§ 1.987–2(f)(1) will be collected by 

attaching a statement to a taxpayer’s 

return (such as the appropriate Form 

1040, Form 1120, Form 1065, or other 

appropriate forms). For purposes of the 

PRA, the reporting burden associated 

with those collections of information 

will be reflected in the PRA submissions 

associated with those forms. The OMB 

Control Numbers for the forms will be 

approved under 1545–0074 for 

individuals and under 1545–0123 for 

business entities. 

To the extent that a taxpayer makes or 

revokes an election by obtaining a 

private letter ruling, the reporting 

burden associated with those collections 

of information will be reflected in the 

PRA submissions associated with 

revenue procedures governing private 

letter rulings. The OMB Control Number 

for those revenue procedures is control 

number 1545–1522. The proposed 

regulations would only require 

taxpayers to follow the procedures 

under Revenue Procedure 2024–1, IRB 

2024–1 (or future revenue procedures 

governing private letter rulings) and 

would not change the collection 

requirements of the Revenue Procedure. 

Books or records relating to a 

collection of information must be 

retained as long as their contents may 

become material in the administration 

of any Internal Revenue law. Generally, 

tax returns and tax return information 

are confidential, as required by 26 

U.S.C. 6103. 

III. Regulatory Flexibility Act 

Pursuant to the Regulatory Flexibility 

Act (5 U.S.C. chapter 6), it is hereby 

certified that this rulemaking will not 

have a significant economic impact on 

a substantial number of small entities 

within the meaning of section 601(6) of 

the Regulatory Flexibility Act. The 

proposed regulations affect individuals 

and corporations (other than S 

corporations) with foreign branch 

operations. 

The number of small entities 

potentially affected by the proposed 

regulations is unknown; however, it is 

unlikely to be a substantial number 

because taxpayers with wholly owned 

foreign operations are typically larger 

businesses. The Treasury Department 

and the IRS estimate that the total 

number of corporations (other than S 

corporations) with a foreign branch 

subject to section 987 is approximately 

2,000. This estimate is based on the 

number of corporations (other than S 

corporations) that filed a Form 8858 in 

2022 that showed that the filer: (1) 

owned at least one disregarded entity or 

branch with a functional currency 

different from the functional currency of 

the owner, and (2) indicated that the 

disregarded entity or branch was a 

section 989 QBU. As shown in the 

following table, only a small percentage 

of those filers are small entities. 

Total receipts/positive 

income 

(2022) 

Percentage of 

filers 

Under $5 Million ................... 7 

$5 Million to $10 Million ........ 2 

Total receipts/positive 

income 

(2022) 

Percentage of 

filers 

$10 Million to $25 Million ...... 4 

Over $25 Million ................... 87 

The number of affected corporations 

(other than S corporations) with total 

receipts of less than $25 million 

represents 0.02% of all corporations 

(other than S corporations) with total 

receipts of less than $25 million. 

These proposed regulations generally 

modify the rules that would otherwise 

apply under the final regulations by 

providing taxpayers with an election 

that reduces the compliance burden of 

applying section 987. Small entities 

generally would not be affected by these 

rules unless they choose to make an 

election to reduce their compliance 

burden. 

A portion of the economic impact of 

the proposed regulations may derive 

from the collection of information 

requirements imposed under proposed 

§ 1.987–2(f)(1) (and the related election 

rules in § 1.987–1(g) of the final 

regulations). The Treasury Department 

and the IRS have determined that the 

average burden is 1.95 hours per 

response. The IRS’s Research, Applied 

Analytics, and Statistics division 

estimates that the appropriate wage rate 

for this set of taxpayers is $99.87 per 

hour. Thus, the annual burden per 

taxpayer from each collection of 

information requirement is $194.75. The 

requirements of proposed § 1.987–2(f)(1) 

apply only if a taxpayer chooses to make 

or revoke an election (and only in the 

year of the election or revocation). 

IV. Section 7805(f) 

Pursuant to section 7805(f) of the 

Code, this proposed regulation will be 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on their 

impact on small business. 

V. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 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 

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. The proposed 

regulations do 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. 


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99788 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Proposed Rules 

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. The 

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. 

Drafting Information 

The principal authors of these 

proposed regulations are Adam G. 

Province and Raphael J. Cohen of the 

Office of Associate Chief Counsel 

(International). However, other 

personnel from the Treasury 

Department and the IRS participated in 

their development. 

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 * * * 

* * * * * 

Section 1.987–2 also issued under 26 

U.S.C. 987, 989, and 1502. 

* * * * * 

Section 1.987–4 also issued under 26 

U.S.C. 987 and 989. 

* * * * * 

Section 1.987–9 also issued under 26 

U.S.C. 987, 989, and 6001. 

* * * * * 

Section 1.987–15 also issued under 26 

U.S.C. 987 and 989. 

* * * * * 

■ Par. 2. Section 1.987–2 is amended by 

adding paragraph (f) to read as follows: 

§ 1.987–2 Attribution of items to eligible 

QBUs; definition of a transfer and related 

rules. 

* * * * * 

(f) Recurring transfer group election— 

(1) In general. For a taxable year in 

which a current rate election is in effect, 

the owner of a section 987 QBU may 

elect to use the yearly average exchange 

rate to translate all assets that are 

transferred to or from the section 987 

QBU in a taxable year as part of a 

recurring transfer group (a recurring 

transfer group election). The rules of 

this paragraph (f) apply to all transfers 

that are part of a recurring transfer 

group in any taxable year to which the 

recurring transfer group election applies 

(regardless of whether transfers of the 

same kind occurred in the first year to 

which the election applied). 

(2) Recurring transfer group. A 

recurring transfer group is a group of 

frequently recurring transfers made 

between a section 987 QBU and its 

owner (or another eligible QBU of the 

owner) in a taxable year that meet the 

requirements of paragraphs (f)(2)(i) 

through (iii) of this section. 

(i) Ordinary course transfers. The 

transfers must be made in the ordinary 

course of a trade or business. 

(ii) Specified transactions. The 

transfers must be made as part of one or 

more disregarded transactions described 

in paragraphs (f)(2)(ii)(A) through (C) of 

this section between the section 987 

QBU and its owner (or another eligible 

QBU of the owner), the compensation 

for which would satisfy the principles 

of the arm’s length standard (within the 

meaning of § 1.482–1(b)) if the section 

987 QBU were treated as a separate 

corporation. Transfers made in 

connection with different disregarded 

transactions described in paragraphs 

(f)(2)(ii)(A) through (C) of this section in 

the same taxable year are treated as part 

of a single recurring transfer group. 

(A) Sales of inventory; 

(B) Payments for services; 

(C) Rents or royalties. 

(iii) Distributions and contributions 

excluded. A transfer is not included in 

a recurring transfer group if the transfer 

(or any portion of the transfer) would be 

treated as a distribution with respect to 

stock, or an exchange for stock (or a 

contribution to capital), if the section 

987 QBU were treated as a separate 

corporation. 

(3) Consistency requirement. The 

determination as to which transfers are 

included in a recurring transfer group 

must be made consistently from year to 

year. However, this determination may 

change from one year to the next based 

on changes in the nature and timing of 

the relevant transfers. 

(4) Effect of recurring transfer group 

election. Except as provided in 

paragraph (f)(6) of this section, in a 

taxable year in which a recurring 

transfer group election is in effect, assets 

that are transferred to or from a section 

987 QBU in a taxable year as part of a 

recurring transfer group (grouped assets) 

are translated under paragraph (d) of 

this section and §§ 1.987–4(d)(2) and 

1.987–5(f) by deeming the spot rate 

applicable on the date of each transfer 

to be equal to the yearly average 

exchange rate for the taxable year. 

However, if the Commissioner 

determines that the use of the yearly 

average exchange rate to translate 

grouped assets in a taxable year does not 

clearly reflect income, the 

Commissioner may require some or all 

transfers of the grouped assets to be 

excluded from the recurring transfer 

group or may prescribe the use of a 

different exchange rate to translate the 

grouped assets. 

(5) Accounting for a disregarded 

transfer group in determining 

unrecognized section 987 gain or loss 

for the taxable year—(i) In general. 

Except as provided in paragraph 

(f)(5)(ii) or (f)(6) of this section, in a 

taxable year in which a recurring 

transfer group election is in effect, 

transfers of grouped assets are 

disregarded for purposes of § 1.987– 

4(d)(2) and (3) (steps 2 and 3). 

(ii) Exception. Paragraph (f)(5)(i) of 

this section does not apply to a section 

987 QBU in a taxable year in which the 

owner determines QBU net value with 

respect to the section 987 QBU under 

the steps provided in § 1.987–4(e)(2)(iii) 

(alternative formula for determining 

QBU net value without preparing an 

adjusted balance sheet). 

(6) Exception for taxable years in 

which a disproportionate amount of 

grouped assets is transferred in one or 

more quarters of the taxable year—(i) In 

general. Paragraphs (f)(4) and (5) of this 

section do not apply to a section 987 

QBU in a taxable year in which— 

(A) More than 50 percent of the total 

amount of grouped assets transferred to 

or from the section 987 QBU during the 

taxable year is transferred during one 

quarter of the taxable year; or 

(B) More than 80 percent of the total 

amount of grouped assets transferred to 

or from the section 987 QBU during the 

taxable year is transferred during two 

quarters of the taxable year. 

(ii) Amount of grouped assets 

transferred. For the purpose of applying 

paragraph (f)(6)(i) of this section, the 

amount of grouped assets transferred to 

or from a section 987 QBU in a taxable 

year and in each quarter of the taxable 

year is determined in the functional 

currency of the section 987 QBU by 

reference to the aggregate of the amount 

of functional currency transferred and 

the basis of the other assets transferred 

(taking into account the total gross 

amount of both the transfers from the 

section 987 QBU to the owner or 

another eligible QBU of the owner and 


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Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Proposed Rules 99789 

the transfers from the owner or another 

eligible QBU of the owner to the section 

987 QBU). For this purpose, amounts 

transferred from the owner (or another 

eligible QBU of the owner) to the 

section 987 QBU are translated into the 

section 987 QBU’s functional currency 

at the yearly average exchange rate. 

(iii) Short taxable year. For purposes 

of applying this paragraph (f)(6) in a 

short taxable year, each quarter 

comprises a number of days equal to 

one fourth of the total number of days 

in the taxable year. If a section 987 QBU 

did not exist for the full taxable year of 

the owner, this paragraph (f)(6) is 

applied with respect to the section 987 

QBU by treating the taxable year as 

comprising the portion of the taxable 

year in which the section 987 QBU 

existed. 

(7) Examples. The following examples 

illustrate the application of this 

paragraph (f). For purposes of the 

examples, DC1 is a domestic 

corporation that owns Business A, a 

section 987 QBU that has the euro as its 

functional currency. In year 1, DC1’s 

home office provides services to 

Business A in exchange for arm’s length 

cash payments (within the meaning of 

§ 1.482–1(b)). The payments are made in 

the ordinary course of the Business A 

trade or business. A current rate election 

and a recurring transfer group election 

are in effect for year 1. DC1 does not 

determine QBU net value with respect 

to Business A under the steps provided 

in § 1.987–4(e)(2)(iii). 

(i) Example 1: Transfers treated as 

part of a recurring transfer group—(A) 

Facts. In year 1, Business A made 50 

payments for services to DC1’s home 

office, totaling Ö30,000x. Of this 

amount, Business A paid Ö5,000x in the 

first quarter of year 1, Ö7,500x in the 

second quarter of year 1, Ö10,000x in 

the third quarter of year 1, and Ö7,500x 

in the fourth quarter of year 1. No other 

transfers were made between Business 

A and DC1 for year 1. 

(B) Analysis—(1) Recurring transfer 

group. Under paragraph (c)(2) of this 

section, each payment for services is 

treated as a transfer of assets from 

Business A to DC1. These transfers 

qualify as a recurring transfer group 

under paragraph (f)(2) of this section 

because they are frequently recurring 

payments for services made in the 

ordinary course of the Business A trade 

or business that would satisfy the 

principles of the arm’s length standard 

(within the meaning of § 1.482–1(b)) if 

Business A were treated as a separate 

corporation. In addition, the exception 

in paragraph (f)(6) of this section does 

not apply because Business A did not 

transfer more than 50 percent of the 

total amount of grouped assets 

transferred in year 1 in any one quarter, 

and Business A did not transfer more 

than 80 percent of the total amount of 

grouped assets transferred in year 1 in 

any two quarters. 

(2) Effect of recurring transfer group 

election. Under paragraph (f)(4) of this 

section, because Business A’s transfers 

to DC1 comprise a recurring transfer 

group, DC1 applies § 1.987–5(f) by 

deeming the spot rate applicable on the 

date of each transfer to be equal to the 

yearly average exchange rate for year 1. 

As a result, DC1 determines its basis in 

the euros received from Business A by 

translating the total amount of euros 

transferred in year 1 at the yearly 

average exchange rate for year 1. In 

addition, under paragraph (f)(5) of this 

section, the transfers are disregarded for 

purposes of determining unrecognized 

section 987 gain or loss for year 1 under 

§ 1.987–4(d)(2). 

(ii) Example 2: Disproportionate 

transfers—(A) Facts. The facts are the 

same as in paragraph (f)(7)(i) of this 

section (Example 1), except that most of 

the payments are made in the fourth 

quarter of year 1 to compensate DC1’s 

home office for additional services 

provided at the end of year 1. 

Specifically, of the Ö30,000 paid by 

Business A for services in year 1, 

Ö18,000x is transferred in the fourth 

quarter of year 1, and Ö4,000x is 

transferred in each of the first three 

quarters of year 1. 

(B) Analysis. The amount of grouped 

assets transferred in the fourth quarter 

(Ö18,000x) exceeds 50 percent of the 

total amount of grouped assets 

transferred in year 1 (Ö30,000x). 

Therefore, under paragraph (f)(6) of this 

section, paragraphs (f)(4) and (5) of this 

section do not apply. As a result, DC1 

determines its basis in the euros 

received from Business A by translating 

each transfer at the applicable spot rate 

under § 1.987–5(f), and DC1 must take 

each transfer into account for purposes 

of determining unrecognized section 

987 gain or loss for year 1 under 

§ 1.987–4(d)(2). 

(iii) Example 3: Determination of the 

transfers including in a recurring 

transfer group over multiple taxable 

years—(A) Facts. The facts in year 1 are 

the same as in paragraph (f)(7)(i) of this 

section (Example 1). The recurring 

transfer group election remains in effect 

in years 2 and 3. In year 2, DC1’s home 

office continues to provide services to 

Business A in exchange for arm’s length 

cash payments made in the ordinary 

course of the Business A trade or 

business. Additionally, in year 2, 

Business A begins to sell Product X 

inventory to Business B, an eligible 

QBU of DC1 that is not a section 987 

QBU, in exchange for arm’s length cash 

payments. In year 3, DC1’s home office 

no longer provides services to Business 

A, but Business A continues to sell 

Product X inventory to Business B in 

exchange for arm’s length cash 

payments. Additionally, in year 3, 

Business A begins to sell Product Y 

inventory to Business B in exchange for 

arm’s length cash payments. In each of 

years 1, 2, and 3, the transfers to and 

from Business A are made on a frequent 

basis in the ordinary course of the 

Business A trade or business. 

(B) Analysis. In year 1, the cash 

payments for services made by Business 

A to DC1’s home office are part of a 

recurring transfer group. In year 2, the 

recurring transfer group includes the 

cash payments for services made by 

Business A to DC1’s home office, the 

transfers of Product X inventory from 

Business A to Business B, and the cash 

payments made by Business B to 

Business A in connection with the 

inventory sales. In year 3, the recurring 

transfer group includes the transfers of 

Product X inventory and Product Y 

inventory from Business A to Business 

B and the cash payments made by 

Business B to Business A in connection 

with the inventory sales. Therefore, in 

each of years 1, 2, and 3, unless the 

exception in paragraph (f)(6) of this 

section applies, the grouped assets are 

translated at the yearly average 

exchange under paragraph (f)(4) of this 

section, and the transfers of the grouped 

assets are disregarded for purposes of 

determining unrecognized section 987 

gain or loss under § 1.987–4(d)(2) and 

(3). 

* * * * * 

■ Par 3. Section 1.987–4 is amended by 

adding paragraph (d)(10)(ii)(D) to read 

as follows: 

§ 1.987–4 Determination of net 

unrecognized section 987 gain or loss of a 

section 987 QBU. 

* * * * * 

(d) * * * 

(10) * * * 

(ii) * * * 

(D) Recurring transfer group. In order 

to determine the residual increase or 

decrease to net assets under this 

paragraph (d)(10) in a taxable year in 

which transfers of grouped assets are 

disregarded under § 1.987–2(f)(5), the 

transfers of grouped assets are 

disregarded for purposes of applying 

steps 2 and 3 (paragraphs (d)(2) and (3) 

of this section) in the functional 

currency of the section 987 QBU. 

* * * * * 


lotter on DSK11XQN23PROD with PROPOSALS1
99790 Federal Register / Vol. 89, No. 238 / Wednesday, December 11, 2024 / Proposed Rules 

1 75 FR 35520, June 22, 2010. 

2 40 CFR 50.17. 

3 40 CFR part 50, appendix T, section 3(b). 

4CAA section 107(d)(1)(A)(i). 

■ Par 4. Section 1.987–9 is amended by 

revising paragraphs (b)(5) and (6) to read 

as follows: 

§ 1.987–9 Recordkeeping requirements. 

* * * * * 

(b) * * * 

(5) The amount of assets and 

liabilities transferred by the owner to 

the section 987 QBU determined in the 

functional currency of the owner and 

the section 987 QBU (to the extent those 

amounts are taken into account in 

applying § 1.987–4 or § 1.987–5). 

(6) The amount of assets and 

liabilities transferred by the section 987 

QBU to the owner determined in the 

functional currency of the owner and 

the section 987 QBU (to the extent those 

amounts are taken into account in 

applying § 1.987–4 or § 1.987–5). 

* * * * * 

■ Par 5. Section 1.987–15 is amended 

by adding paragraph (e) to read as 

follows: 

§ 1.987–15 Applicability date. 

* * * * * 

(e) Recurring transfer group election. 

Sections 1.987–2(f),1.987– 

4(d)(10)(ii)(D), and 1.987–9(b)(5) and (6) 

apply to taxable years beginning after 

[DATE OF PUBLICATION OF THE 

FINAL RULE IN THE FEDERAL 

REGISTER]. 

Douglas W. O’Donnell, 

Deputy Commissioner. 

[FR Doc. 2024–28371 Filed 12–10–24; 8:45 am] 

BILLING CODE 4830–01–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R09–OAR–2024–0417; FRL–12279– 

01–R9] 

Air Plan Conditional Approval; 

California; Bay Area Air Quality 

Management District 

Correction 

In Proposed Rule document 2024– 

27518 beginning on page 94633 in the 

issue of Friday, November 29th, 2024, 

make the following correction: 

On page 94633, in the first column, in 

the DATES section, in the second line, 

‘‘December 30, 2025’’ should read 

‘‘December 30, 2024’’. 

[FR Doc. C1–2024–27518 Filed 12–10–24; 8:45 am] 

BILLING CODE 0099–10–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Parts 52 and 81 

[EPA–R03–OAR–2024–0316; FRL–11777– 

01–R3] 

Air Plan Approval; Pennsylvania; 

Redesignation of the Allegheny County 

Nonattainment Area to Attainment and 

Approval of the Area’s Maintenance 

Plan for the 2010 1-Hour Primary Sulfur 

Dioxide National Ambient Air Quality 

Standard 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: The Environmental Protection 

Agency (EPA) is proposing to approve a 

state implementation plan (SIP) revision 

and redesignation request submitted on 

November 14, 2023, by the 

Pennsylvania Department of 

Environmental Protection (PADEP) on 

behalf of the Allegheny County Health 

Department (ACHD). The SIP revision 

asks the EPA to redesignate the 

Allegheny County, Pennsylvania area 

from nonattainment to attainment for 

the 2010 1-hour primary sulfur dioxide 

(SO2) national ambient air quality 

standard (NAAQS). The revision also 

asks the EPA to approve into the SIP 

Allegheny County’s maintenance plan 

for the 2010 1-hour primary SO2

standard for the Allegheny County area. 

This action is being taken under the 

Clean Air Act (CAA). 

DATES: Written comments must be 

received on or before January 10, 2025. 

ADDRESSES: Submit your comments, 

identified by Docket ID No. EPA–R03– 

OAR–2024–0316 at 

www.regulations.gov, or via email to 

talley.david@epa.gov. For comments 

submitted at Regulations.gov, follow the 

online instructions for submitting 

comments. Once submitted, comments 

cannot be edited or removed from 

Regulations.gov. For either manner of 

submission, the EPA may publish any 

comment received to its public docket. 

Do not submit electronically any 

information you consider to be 

confidential business information (CBI) 

or other information whose disclosure is 

restricted by statute. Multimedia 

submissions (audio, video, etc.) must be 

accompanied by a written comment. 

The written comment is considered the 

official comment and should include 

discussion of all points you wish to 

make. The EPA will generally not 

consider comments or comment 

contents located outside of the primary 

submission (i.e., on the web, cloud, or 

other file sharing system). For 

additional submission methods, please 

contact the person identified in the FOR

FURTHER INFORMATION CONTACT section. 

For the full EPA public comment policy, 

information about CBI or multimedia 

submissions, and general guidance on 

making effective comments, please visit 

www.epa.gov/dockets/commenting-epadockets. 

FOR FURTHER INFORMATION CONTACT: 

Philip McGuire, Planning & 

Implementation Branch (3AD30), Air & 

Radiation Division, U.S. Environmental 

Protection Agency, Region III, 1600 John 

F Kennedy Boulevard, Philadelphia, 

Pennsylvania 19103. The telephone 

number is (215) 814–2251. Mr. McGuire 

can also be reached via electronic mail 

at mcguire.philip@epa.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Nonattainment Designation 

On June 22, 2010, the EPA revised the 

primary SO2 NAAQS, establishing a 

new 1-hour primary standard of 75 parts 

per billion (ppb).1 Under the EPA’s 

regulations at title 40 of the Code of 

Federal Regulations (CFR) part 50, the 

2010 1-hour SO2 NAAQS is met at a 

monitoring site when the 3-year average 

of the annual 99th percentile of daily 

maximum 1-hour average 

concentrations is less than or equal to 

75 ppb (based on the rounding 

convention in 40 CFR part 50, appendix 

T).2 Ambient air quality monitoring data 

for the 3-year period must meet a data 

completeness requirement. A year meets 

data completeness requirements when 

all four quarters are complete, and a 

quarter is complete when at least 75 

percent of the sampling days for each 

quarter have complete data. A sampling 

day has complete data if 75 percent of 

the hourly concentration values, 

including State-flagged data affected by 

exceptional events which have been 

approved for exclusion by the 

Administrator, are reported.3

Upon promulgation of a new or 

revised NAAQS, the CAA requires the 

EPA to designate as nonattainment any 

area that does not meet (or that 

contributes to ambient air quality in a 

nearby area that does not meet) the 

NAAQS.4 On August 5, 2013, the EPA 

designated a portion of Allegheny 

County, Pennsylvania (hereafter the 

‘‘Allegheny County NAA’’), as 

nonattainment for the 2010 1-hour 

primary SO2 NAAQS, effective October 


lotter on DSK11XQN23PROD with PROPOSALS1