Earlier this month, the IRS published final regulations under Code §987 (see T.D. 9794). Code §987 was enacted in 1986. No regulations have been in existence since Code §987 was enacted over 30 years ago.
The IRS had proposed regulations in 1991. Those regulations remained in proposed form until 2006, when the IRS withdrew the 1991 proposed regulations and reissued new proposed regulations. Now, 10 years after the reissuance of the second set of proposed regulations, the IRS has issued final regulations.
Proposed regulations are not considered binding authority.1 So, for over 30 years, the rules under Code §987 have not been clear. Code §987 and the regulations thereunder deal with taxpayers that have one or more qualified business units (“QBUs”) with a functional currency other than the dollar (or a functional currency other than the functional currency of the taxpayer).
The final regulations are more complicated than the 1991 proposed regulations, although perhaps slightly less complicated than the 2006 proposed regulations. Including the preamble, the final regulations are 47 pages long (single-spaced). We have taken some notes on the final regulations, which you can find (and study using rote memorization) at 987 Regulation Notes 1 and 987 Regulation Notes 2. We have not yet taken any notes on the Code §987 temporary regulations that were issued on the same day.
1. “[A]lthough final regulations command our respect, proposed regulations carry no more weight than a position advanced on brief by respondent.” [Citations omitted] Laglia v. Commr., 88 T.C. 894 (1987). “While proposed regulations do constitute a body of informed judgment * * * which courts may draw on for guidance, we accord them no more weight than a litigation position.” [Citations and internal quotation marks omitted] KTA Tator v. Commr., 108 T.C. 100 (1997).