Source: https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title26-chapter1-subchapterN-part3-subpartJ&saved=%7CZ3JhbnVsZWlkOlVTQy1wcmVsaW0tdGl0bGUyNi1zZWN0aW9uOTg5%7C%7C%7C0%7Cfalse%7Cprelim&edition=prelim
Timestamp: 2020-05-30 21:55:08
Document Index: 552856990

Matched Legal Cases: ['§1012', '§985', '§1261', '§1261', '§986', '§1261', '§1012', '§1102', '§408', '§408', '§408', '§1102', '§987', '§1261', '§1012', '§988', '§1261', '§1012', '§6130', '§7811', '§13223', '§1104', '§532', '§1012', '§1012', '§1012', '§6130', '§1012', '§1012', '§6130', '§1012', '§1012', '§1012', '§1012', '§1104', '§1012', '§6130', '§1261', '§1012', '§13231', '§1501', '§1102', '§413', '§1102']

[USC02] 26 USC Subtitle A, CHAPTER 1, Subchapter N, PART III, Subpart J: Foreign Currency Transactions
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26 USC Subtitle A, CHAPTER 1, Subchapter N, PART III, Subpart J: Foreign Currency Transactions
Subpart J—Foreign Currency Transactions
Determination of foreign taxes and foreign corporation's earnings and profits.
Treatment of certain foreign currency transactions.
1988—Pub. L. 100–647, title I, §1012(v)(1)(C), Nov. 10, 1988, 102 Stat. 3529, added item 986 and struck out former item 986 "Determination of foreign corporation's earnings and profits and foreign taxes".
§985. Functional currency
Unless otherwise provided in regulations, all determinations under this subtitle shall be made in the taxpayer's functional currency.
(b) Functional currency
For purposes of this subtitle, the term "functional currency" means—
(A) except as provided in subparagraph (B), the dollar, or
(B) in the case of a qualified business unit, the currency of the economic environment in which a significant part of such unit's activities are conducted and which is used by such unit in keeping its books and records.
(2) Functional currency where activities primarily conducted in dollars
The functional currency of any qualified business unit shall be the dollar if activities of such unit are primarily conducted in dollars.
To the extent provided in regulations, the taxpayer may elect to use the dollar as the functional currency for any qualified business unit if—
(A) such unit keeps its books and records in dollars, or
(B) the taxpayer uses a method of accounting that approximates a separate transactions method.
(4) Change in functional currency treated as a change in method of accounting
Any change in the functional currency shall be treated as a change in the taxpayer's method of accounting for purposes of section 481 under procedures to be established by the Secretary.
(Added Pub. L. 99–514, title XII, §1261(a), Oct. 22, 1986, 100 Stat. 2585.)
Pub. L. 99–514, title XII, §1261(e), Oct. 22, 1986, 100 Stat. 2591, provided that:
"(1) In general.—Except as provided in paragraph (2), the amendments made by this section [enacting this subpart and amending sections 1092 and 1256 of this title] shall apply to taxable years beginning after December 31, 1986.
"(2) Special rules for purposes of sections 902 and 960.—For purposes of applying sections [former] 902 and 960 of the Internal Revenue Code of 1986, the amendments made by this section shall apply to—
"(A) earnings and profits of the foreign corporation for taxable years beginning after December 31, 1986, and
"(B) foreign taxes paid or accrued by the foreign corporation with respect to such earnings and profits."
§986. Determination of foreign taxes and foreign corporation's earnings and profits
At the election of the taxpayer, subparagraph (A) shall not apply to any foreign income taxes the liability for which is denominated in any currency other than in the taxpayer's functional currency.
For purposes of this subsection, the term "foreign income taxes" means any income, war profits, or excess profits taxes paid or accrued to any foreign country or to any possession of the United States.
(1) of any shareholder of any foreign corporation, the earnings and profits of such corporation shall be determined in the corporation's functional currency, and
(Added Pub. L. 99–514, title XII, §1261(a), Oct. 22, 1986, 100 Stat. 2586; amended Pub. L. 100–647, title I, §1012(v)(1)(A), Nov. 10, 1988, 102 Stat. 3528; Pub. L. 105–34, title XI, §1102(a)(1), (b)(1), Aug. 5, 1997, 111 Stat. 963, 965; Pub. L. 108–357, title IV, §408(a), (b), Oct. 22, 2004, 118 Stat. 1499.)
Subsec. (a)(2). Pub. L. 108–357, §408(b)(2), inserted "or (E)" after "subparagraph (A)" in introductory provisions.
"(a) Foreign Taxes.—
"(1) In general.—For purposes of determining the amount of the foreign tax credit—
"(A) any foreign income taxes shall be translated into dollars using the exchange rates as of the time such taxes were paid to the foreign country or possession of the United States, and
"(B) any adjustment to the amount of foreign income taxes shall be translated into dollars using—
"(i) except as provided in clause (ii), the exchange rate as of the time when such adjustment is paid to the foreign country or possession, or
"(ii) in the case of any refund or credit of foreign income taxes, using the exchange rate as of the time of original payment of such foreign income taxes.
"(2) Foreign income taxes.—For purposes of paragraph (1), 'foreign income taxes' means any income, war profits, or excess profits taxes paid to any foreign country or to any possession of the United States."
1988—Pub. L. 100–647 substituted "foreign taxes and foreign corporation's earnings and profits" for "foreign corporation's earnings and profits and foreign taxes" in heading, and revised and restructured the provisions of subsecs. (a) and (b).
Pub. L. 108–357, title IV, §408(c), Oct. 22, 2004, 118 Stat. 1500, provided that: "The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2004."
Pub. L. 105–34, title XI, §1102(c)(1), Aug. 5, 1997, 111 Stat. 966, provided that: "The amendments made by subsections (a)(1) and (b) [amending this section and section 989 of this title] shall apply to taxes paid or accrued in taxable years beginning after December 31, 1997."
§987. Branch transactions
(1) by computing the taxable income or loss separately for each such unit in its functional currency,
(2) by translating the income or loss separately computed under paragraph (1) at the appropriate exchange rate, and
(3) by making proper adjustments (as prescribed by the Secretary) for transfers of property between qualified business units of the taxpayer having different functional currencies, including—
(A) treating post-1986 remittances from each such unit as made on a pro rata basis out of post-1986 accumulated earnings, and
(B) treating gain or loss determined under this paragraph as ordinary income or loss, respectively, and sourcing such gain or loss by reference to the source of the income giving rise to post-1986 accumulated earnings.
(Added Pub. L. 99–514, title XII, §1261(a), Oct. 22, 1986, 100 Stat. 2586; amended Pub. L. 100–647, title I, §1012(v)(1)(B), Nov. 10, 1988, 102 Stat. 3528.)
1988—Par. (4). Pub. L. 100–647 struck out par. (4) which provided for translation of foreign income taxes paid by each qualified business unit of the taxpayer in the same manner as provided under section 986(b).
§988. Treatment of certain foreign currency transactions
The residence of any person shall be—
(I) in the case of an individual, the country in which such individual's tax home (as defined in section 911(d)(3)) is located,
(II) in the case of any corporation, partnership, trust, or estate which is a United States person (as defined in section 7701(a)(30)), the United States, and
(III) in the case of any corporation, partnership, trust, or estate which is not a United States person, a country other than the United States.
(C) Special rule for certain related party loans
Except to the extent provided in regulations, in the case of a loan by a United States person or a related person to a 10-percent owned foreign corporation which is denominated in a currency other than the dollar and bears interest at a rate at least 10 percentage points higher than the Federal mid-term rate (determined under section 1274(d)) at the time such loan is entered into, the following rules shall apply:
(i) For purposes of section 904 only, such loan shall be marked to market on an annual basis.
(ii) Any interest income earned with respect to such loan for the taxable year shall be treated as income from sources within the United States to the extent of any loss attributable to clause (i).
For purposes of this subparagraph, the term "related person" has the meaning given such term by section 954(d)(3), except that such section shall be applied by substituting "United States person" for "controlled foreign corporation" each place such term appears.
The term "10-percent owned foreign corporation" means any foreign corporation in which the United States person owns directly or indirectly at least 10 percent of the voting stock.
(b) Foreign currency gain or loss
The term "foreign currency gain" means any gain from a section 988 transaction to the extent such gain does not exceed gain realized by reason of changes in exchange rates on or after the booking date and before the payment date.
The term "foreign currency loss" means any loss from a section 988 transaction to the extent such loss does not exceed the loss realized by reason of changes in exchange rates on or after the booking date and before the payment date.
The term "section 988 transaction" means any transaction described in subparagraph (B) if the amount which the taxpayer is entitled to receive (or is required to pay) by reason of such transaction—
(i) is denominated in terms of a nonfunctional currency, or
(ii) is determined by reference to the value of 1 or more nonfunctional currencies.
(B) Description of transactions
For purposes of subparagraph (A), the following transactions are described in this subparagraph:
In the case of any disposition of any nonfunctional currency—
(I) such disposition shall be treated as a section 988 transaction, and
(II) any gain or loss from such transaction shall be treated as foreign currency gain or loss (as the case may be).
For purposes of this section, the term "nonfunctional currency" includes coin or currency, and nonfunctional currency denominated demand or time deposits or similar instruments issued by a bank or other financial institution.
(iii) Qualified fund defined
For purposes of this subparagraph, the term "qualified fund" means any partnership if—
(I) at all times during the taxable year (and during each preceding taxable year to which an election under subclause (V) applied), such partnership has at least 20 partners and no single partner owns more than 20 percent of the interests in the capital or profits of the partnership,
(II) the principal activity of such partnership for such taxable year (and each such preceding taxable year) consists of buying and selling options, futures, or forwards with respect to commodities,
(III) at least 90 percent of the gross income of the partnership for the taxable year (and for each such preceding taxable year) consisted of income or gains described in subparagraph (A), (B), or (G) of section 7704(d)(1) or gain from the sale or disposition of capital assets held for the production of interest or dividends,
(IV) no more than a de minimis amount of the gross income of the partnership for the taxable year (and each such preceding taxable year) was derived from buying and selling commodities, and
(V) an election under this subclause applies to the taxable year.
In the case of any instrument treated as a section 1256 contract under subclause (I), subparagraph (A) of section 1256(a)(3) shall be applied by substituting "100 percent" for "40 percent" (and subparagraph (B) of such section shall not apply).
For purposes of clause (iii)(I), any income allocable to a general partner as incentive compensation based on profits rather than capital shall not be taken into account in determining such partner's interest in the profits of the partnership.
(vi) Other special rules
(2) Booking date
The term "booking date" means—
(A) in the case of a transaction described in paragraph (1)(B)(i), the date of acquisition or on which the taxpayer becomes the obligor, or
(B) in the case of a transaction described in paragraph (1)(B)(ii), the date on which accrued or otherwise taken into account.
The term "payment date" means the date on which the payment is made or received.
The term "debt instrument" means a bond, debenture, note, or certificate or other evidence of indebtedness. To the extent provided in regulations, such term shall include preferred stock.
(2) 988 hedging transaction
For purposes of paragraph (1), the term "988 hedging transaction" means any transaction—
(i) to manage risk of currency fluctuations with respect to property which is held or to be held by the taxpayer, or
(ii) to manage risk of currency fluctuations with respect to borrowings made or to be made, or obligations incurred or to be incurred, by the taxpayer, and
(B) identified by the Secretary or the taxpayer as being a 988 hedging transaction.
(2) Exclusion for certain personal transactions
(3) Personal transactions
For purposes of this subsection, the term "personal transaction" means any transaction entered into by an individual, except that such term shall not include any transaction to the extent that expenses properly allocable to such transaction meet the requirements of—
(B) section 212 (other than that part of section 212 dealing with expenses incurred in connection with taxes).
(Added Pub. L. 99–514, title XII, §1261(a), Oct. 22, 1986, 100 Stat. 2587; amended Pub. L. 100–647, title I, §1012(v)(2)(A), (3), (4), (6)–(8), title VI, §6130(a), (b), Nov. 10, 1988, 102 Stat. 3529, 3530, 3717; Pub. L. 101–239, title VII, §7811(i)(7), Dec. 19, 1989, 103 Stat. 2410; Pub. L. 103–66, title XIII, §13223(b)(1), Aug. 10, 1993, 107 Stat. 484; Pub. L. 105–34, title XI, §1104(a), Aug. 5, 1997, 111 Stat. 967; Pub. L. 106–170, title V, §532(b)(3), Dec. 17, 1999, 113 Stat. 1930.)
1999—Subsec. (d)(2)(A)(i), (ii). Pub. L. 106–170 substituted "to manage" for "to reduce".
1997—Subsec. (e). Pub. L. 105–34 amended heading and text of subsec. (e) generally. Prior to amendment, text read as follows: "This section shall apply to section 988 transactions entered into by an individual only to the extent expenses properly allocable to such transactions meet the requirements of section 162 or 212 (other than that part of section 212 dealing with expenses incurred in connection with taxes)."
1993—Subsec. (d)(1). Pub. L. 103–66 substituted "section 475 or 1256" for "section 1256" and "Sections 475, 1092, and 1256" for "Sections 1092 and 1256".
1989—Subsec. (a). Pub. L. 101–239 inserted introductory provision "Notwithstanding any other provision of this chapter—".
1988—Subsec. (a)(3)(B)(i). Pub. L. 100–647, §1012(v)(8), inserted at end "If an individual does not have a tax home (as so defined), the residence of such individual shall be the United States if such individual is a United States citizen or a resident alien and shall be a country other than the United States if such individual is not a United States citizen or a resident alien."
Subsec. (a)(3)(B)(iii). Pub. L. 100–647, §1012(v)(7), added cl. (iii).
Subsec. (b)(3). Pub. L. 100–647, §1012(v)(3)(A), added par. (3).
Subsec. (c)(1)(B)(iii). Pub. L. 100–647, §6130(a), struck out "unless such instrument would be marked to market under section 1256 if held on the last day of the taxable year" after "similar financial instrument".
Pub. L. 100–647, §1012(v)(6), amended cl. (iii) generally. Prior to amendment, cl. (iii) read as follows: "Entering into or acquiring any forward contract, futures contract, option, or similar financial instrument if such instrument is not marked to market at the close of the taxable year under section 1256."
Subsec. (c)(1)(C)(i)(II). Pub. L. 100–647, §1012(v)(3)(B), amended subcl. (II) generally. Prior to amendment, subcl. (II) read as follows: "for purposes of determining the foreign currency gain or loss from such transaction, paragraphs (1) and (2) of subsection (b) shall be applied by substituting 'acquisition date' for 'booking date' and 'disposition' for 'payment date'."
Subsec. (c)(1)(D), (E). Pub. L. 100–647, §6130(b), added subpars. (D) and (E).
Subsec. (c)(2)(C). Pub. L. 100–647, §1012(v)(3)(C), struck out subpar. (C) which defined "booking date" in the case of a transaction described in par. (1)(B)(iii) as the date on which the position is entered into or acquired.
Subsec. (c)(3). Pub. L. 100–647, §1012(v)(3)(D), amended par. (3) generally. Prior to amendment, par. (3) read as follows: "The term 'payment date' means—
"(A) in the case of a transaction described in paragraph (1)(B)(i) or (ii), the date on which payment is made or received, or
"(B) in the case of a transaction described in paragraph (1)(B)(iii), the date payment is made or received or the date the taxpayer's rights with respect to the position are terminated."
Subsec. (c)(5). Pub. L. 100–647, §1012(v)(2)(A), added par. (5).
Subsec. (d)(1). Pub. L. 100–647, §1012(v)(4), substituted "this subtitle" for "this section".
Pub. L. 105–34, title XI, §1104(b), Aug. 5, 1997, 111 Stat. 967, provided that: "The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 1997."
Pub. L. 100–647, title I, §1012(v)(2)(B), Nov. 10, 1988, 102 Stat. 3529, provided that: "The amendment made by subparagraph (A) [amending this section] shall not apply in any case in which the taxpayer takes or makes delivery before June 11, 1987."
Pub. L. 100–647, title VI, §6130(d), Nov. 10, 1988, 102 Stat. 3719, provided that:
"(1) In general.—The amendments made by this section [amending this section and section 1092 of this title] shall apply with respect to forward contracts, future contracts, options, and similar instruments entered into or acquired after October 21, 1988.
"(2) Time for making election.—The time for making any election under subparagraph (D) or (E) of section 988(c)(1) of the 1986 Code shall not expire before the date 30 days after the date of the enactment of this Act [Nov. 10, 1988].
"(3) Transitional rules.—
"(A) The requirements of subclause (IV) of section 988(c)(1)(E)(iii) of the 1986 Code (as added by subsection (b)) shall not apply to periods before the date of the enactment of this Act.
"(B) In the case of any partner in an existing partnership, the 20-percent ownership requirements of subclause (I) of such section 988(c)(1)(E)(iii) shall be treated as met during any period during which such partner does not own a percentage interest in the capital or profits of such partnership greater than 331/3 percent (or, if lower, the lowest such percentage interest of such partner during any prior period after October 21, 1988, during which such partnership is in existence). For purposes of the preceding sentence, the term 'existing partnership' means any partnership if—
"(i) such partnership was in existence on October 21, 1988, and principally engaged on such date in buying and selling options, futures, or forwards with respect to commodities, or
"(ii) a registration statement was filed with respect to such partnership with the Securities and Exchange Commission on or before such date and such registration statement indicated that the principal activity of such partnership will consist of buying and selling instruments referred to in clause (i)."
Except as provided in regulations, for purposes of this subpart, the term "appropriate exchange rate" means—
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subpart, including regulations—
(Added Pub. L. 99–514, title XII, §1261(a), Oct. 22, 1986, 100 Stat. 2590; amended Pub. L. 100–647, title I, §1012(v)(5), Nov. 10, 1988, 102 Stat. 3529; Pub. L. 103–66, title XIII, §13231(c)(4)(C), Aug. 10, 1993, 107 Stat. 499; Pub. L. 104–188, title I, §1501(b)(9), Aug. 20, 1996, 110 Stat. 1826; Pub. L. 105–34, title XI, §1102(b)(2), (3), Aug. 5, 1997, 111 Stat. 966; Pub. L. 108–357, title IV, §413(c)(17), Oct. 22, 2004, 118 Stat. 1508.)
2004—Subsec. (b)(3). Pub. L. 108–357 struck out ", 551(a)," after "section 951(a)(1)(A)".
1997—Subsec. (b)(3), (4). Pub. L. 105–34, §1102(b)(3), struck out "weighted" before "average exchange rate".
1996—Subsec. (b). Pub. L. 104–188 substituted "section 951(a)(1)(B)" for "subparagraph (B) or (C) of section 951(a)(1)" in closing provisions.
1993—Subsec. (b). Pub. L. 103–66 substituted "subparagraph (B) or (C) of section 951(a)(1)" for "section 951(a)(1)(B)" in last sentence.
1988—Subsec. (b). Pub. L. 100–647 substituted in par. (3) "section 951(a)(1)(A)" for "section 951(a)" and inserted at end "For purposes of the preceding sentence, any amount included in income under section 951(a)(1)(B) shall be treated as an actual distribution made on the last day of the taxable year for which such amount was so included."