IRS Aims to Finalize Foreign Currency Gains Rules This Year

The IRS is working to finalize regulations this year on how a company’s subsidiary calculates its foreign-currency gains and losses, a Treasury Department official said Monday.

The agency proposed regulations in November 2023 that deal with how qualified business units subject to tax code Section 987 handle currency transactions and gains and losses in their own taxable income or loss.

The regulations require these subsidiaries to use the “foreign exchange exposure pool” method to determine currency gains and losses, which is different from the “earnings and capital method” that has been in use since 1991. There have been multiple delays on these rules in the past decade.

Treasury Department international tax attorney Paul Crispino during a Monday panel at the Tax Executives Institute 2024 Midyear Conference said the timeline has to do in part with the impending 2025 tax policy shakeup, when many of the 2017 tax law provisions will be expiring.

“You want to get your rules out once they’ve been issued, and that’s really our plan to try and get it done,” Crispino said. “That doesn’t mean every single piece of it.”

• The National Foreign Trade Council business group said in a comment letter that the IRS and Treasury should allow companies’ subsidiaries to keep using the former “earnings and capital method.”
• Crispino said Treasury will continue to consider comments, especially from partnerships, which have special guidance in the proposed regulation.