Guidance Regarding Elections Relating to Foreign Currency Gains and Losses, 67336-67341 [2024-18281]
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Federal Register / Vol. 89, No. 161 / Tuesday, August 20, 2024 / Proposed Rules
numbers; financial account numbers; or
credit or debit card numbers. Dyson is
also solely responsible for making sure
the documentary submission does not
include sensitive health information,
such as medical records or other
individually identifiable health
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documentary submission should not
include any ‘‘[t]rade secret or any
commercial or financial information
which . . . is privileged or
confidential’’—as provided in section
6(f) of the FTC Act, 15 U.S.C. 46(f), and
Commission Rule 4.10(a)(2), 16 CFR
4.10(a)(2)—including, in particular,
competitively sensitive information
such as costs, sales statistics,
inventories, formulas, patterns, devices,
manufacturing processes, or customer
names.
Documentary submissions containing
material for which confidential
treatment is requested must be filed in
paper form, must be clearly labeled
‘‘Confidential,’’ and must comply with
Commission Rule 4.9(c), 16 CFR 4.9(c).
In particular, the written request for
confidential treatment that accompanies
the documentary submission must
include the factual and legal basis for
the request and must identify the
specific portions to be withheld from
the public record. See Commission Rule
4.9(c). Documentary submissions will be
kept confidential only if the General
Counsel grants the request in
accordance with the law and the public
interest. Once a documentary
submission has been posted publicly at
https://www.regulations.gov—as legally
required by Commission Rule 4.9(b), 16
CFR 4.9(b)—we cannot redact or remove
it, unless the submitter submits a
confidentiality request that meets the
requirements for such treatment under
Commission Rule 4.9(c), and the
General Counsel grants that request.
The FTC Act and other laws that the
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as appropriate. The Commission will
consider all timely and responsive
documentary submissions it receives
from Dyson. For information on the
Commission’s privacy policy, including
routine uses permitted by the Privacy
Act, see https://www.ftc.gov/site
information/privacypolicy.
If Dyson needs assistance complying
with these instructions, it should
indicate as much in a written
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endeavor to provide accommodations. If
Dyson does not have the computer
technology necessary to participate in
video conferencing, it will be able to
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telephone; it should indicate as much in
its submission.
IV. Communications by Outside Parties
to the Commissioners or Their Advisors
Written communications and
summaries or transcripts of oral
communications respecting the merits
of this proceeding, from any outside
party to any Commissioner or
Commissioner’s advisor, will be placed
on the public record. See 16 CFR
1.26(b)(5).
By direction of the Commission.
Joel Christie,
Acting Secretary.
[FR Doc. 2024–17105 Filed 8–19–24; 8:45 am]
BILLING CODE 6750–01–P
Send hard copy submissions to:
CC:PA:01:PR (REG–111629–23), Room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT:
Concerning proposed § 1.954–2(g)(3)(ii)
and (iii) and (g)(4)(iii), Edward Tracy at
(202) 317–6934; concerning proposed
§ 1.988–7(c) and (d), Shane Ward at
(202) 317–6938; concerning submissions
of comments or requests for a public
hearing, Vivian Hayes at (202) 317–6901
(not toll free numbers) or
publichearings@irs.gov.
SUPPLEMENTARY INFORMATION:
Background
I. Elections Under § 1.954–2(g)
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–111629–23]
RIN 1545–BM80
Guidance Regarding Elections
Relating to Foreign Currency Gains
and Losses
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking;
partial withdrawal of proposed
rulemaking.
AGENCY:
This document contains
proposed regulations regarding the time
for making and revoking certain
elections relating to foreign currency
gain or loss.
DATES: Written or electronic comments
and requests for a public hearing must
be received by October 18, 2024. As of
August 20, 2024, proposed § 1.954–
2(g)(3)(iii) and (g)(4)(iii) and proposed
§ 1.988–7(c) through (e), contained in
the notice of proposed rulemaking
published in the Federal Register of
December 19, 2017 (82 FR 60135), are
withdrawn.
SUMMARY:
Commenters are strongly
encouraged to submit public comments
electronically via the Federal
eRulemaking Portal at
www.regulations.gov (indicate IRS and
REG–111629–23) by following the
online instructions for submitting
comments. 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.
ADDRESSES:
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In general, section 954(c)(1)(D) of the
Internal Revenue Code and § 1.954–2(g)
provide that foreign personal holding
company income (‘‘FPHCI’’) includes
the excess of foreign currency gains over
foreign currency losses attributable to
any section 988 transactions. Under
§ 1.954–2(g)(3) and (4), two different
elections are available to United States
shareholders (‘‘U.S. shareholders’’) that
are controlling United States
shareholders (‘‘controlling U.S.
shareholders’’) of a controlled foreign
corporation (‘‘CFC’’) with respect to the
CFC’s computation of its FPHCI. First,
under § 1.954–2(g)(3), controlling U.S.
shareholders may elect to exclude
foreign currency gain or loss otherwise
includible in the CFC’s FPHCI
computation under § 1.954–2(g) and
instead include such foreign currency
gain or loss in the category (or
categories) of subpart F income to which
such gain or loss relates (the ‘‘§ 1.954–
2(g)(3) election’’). Second, § 1.954–
2(g)(4) provides that controlling U.S.
shareholders may elect to treat as FPHCI
all foreign currency gains or losses
attributable to any section 988
transaction (except those described in
§ 1.954–2(g)(5)) and any section 1256
contract that would be a section 988
transaction but for section 988(c)(1)(D)
(the ‘‘§ 1.954–2(g)(4) election’’ and,
together with the § 1.954–2(g)(3)
election, the ‘‘§ 1.954–2(g) elections’’). A
§ 1.954–2(g)(4) election supersedes a
§ 1.954–2(g)(3) election. Under § 1.954–
2(g)(3)(ii) and (g)(4)(ii), controlling U.S.
shareholders make either of the § 1.954–
2(g) elections on behalf of the CFC by
filing a statement with their original
income tax return for the ‘‘taxable year
of [the U.S. shareholders] ending with
or within the taxable year of the [CFC]’’
for which the election is made, clearly
indicating that the election has been
made.
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II. Revocations Under § 1.954–2(g)(3)(iii)
and (g)(4)(iii) and Proposed § 1.954–
2(g)(3)(iii) and (g)(4)(iii)
Under § 1.954–2(g)(3)(iii) and
(g)(4)(iii), a CFC’s controlling U.S.
shareholders may revoke a § 1.954–2(g)
election by or with the consent of the
Commissioner. As part of the 2017
notice of proposed rulemaking in
respect of § 1.988–7 (the ‘‘2017
proposed regulations’’) (described
further in sections III and IV of this
Background section of the preamble),
revisions were proposed to the rules for
revoking § 1.954–2(g) elections. 82 FR
60135, 60142–60143. Under the 2017
proposed regulations, a CFC’s
controlling U.S. shareholders would be
permitted to revoke the CFC’s § 1.954–
2(g) election at any time. Proposed
§ 1.954–2(g)(3)(iii) and (g)(4)(iii).
Further, the 2017 proposed regulations
would provide that if the election is
revoked, a new election cannot be made
until the sixth taxable year following the
year in which the previous election was
revoked, and the subsequent election
cannot be revoked until the sixth
taxable year following the year in which
the subsequent election was made. Id.
Similar to the procedure for making
§ 1.954–2(g) elections, a CFC’s
controlling U.S. shareholders would
revoke § 1.954–2(g) elections on behalf
of the CFC under the 2017 proposed
regulations by filing a statement that
clearly indicates that the election has
been revoked with their original or
amended income tax returns for ‘‘the
taxable year of [the U.S. shareholders]
ending with or within the taxable year
of the [CFC] for which the election is
revoked.’’ Id. The 2017 proposed
regulations permitted taxpayers to rely
on proposed § 1.954–2(g)(3)(iii) and
(g)(4)(iii) to revoke § 1.954–2(g)
elections for taxable years ending on or
after December 19, 2017, subject to a
consistency requirement. 82 FR 60135,
60141.
the controlling U.S. shareholders make
the proposed § 1.988–7 election on
behalf of the CFC by filing a statement
that clearly indicates that the election
has been made with their timely-filed,
original Federal income tax returns for
the ‘‘taxable year of [the U.S.
shareholders] ending with or within the
taxable year of the [CFC] for which the
election is made.’’ The preamble to the
2017 proposed regulations stated that
taxpayers are permitted to rely on
proposed § 1.988–7(c) to make a
proposed § 1.988–7 election for taxable
years ending on or after December 19,
2017, subject to a consistency
requirement. 82 FR 60135, 60141.
III. Election Under Proposed § 1.988–
7(c)
Under the 2017 proposed regulations,
a taxpayer, including a CFC, would be
permitted to elect to use a mark-tomarket method of accounting for section
988 gain or loss with respect to certain
section 988 transactions (the ‘‘proposed
§ 1.988–7 election’’). Proposed § 1.988–
7(a). Under proposed § 1.988–7(c) of the
2017 proposed regulations, a taxpayer
makes a proposed § 1.988–7 election by
filing a statement that clearly indicates
that the election has been made with its
timely-filed original Federal income tax
return for the taxable year for which the
election is made. In the case of a CFC,
I. Proposed Modification to § 1.954–
2(g)(3)(ii) and Withdrawal and ReProposal of Proposed § 1.954–2(g)(3)(iii)
and (g)(4)(iii)
The Treasury Department and the IRS
have received several inquiries
regarding the procedure for making
§ 1.954–2(g) elections. Specifically,
practitioners have noted that the
language of § 1.954–2(g)(3)(ii) is
inconsistent with other filing
requirements with respect to CFCs,
which generally must be filed by U.S.
shareholders for the taxable year of a
CFC that ends with or within the taxable
year of the U.S. shareholders. See, e.g.,
§§ 1.964–1(c)(3)(ii) and 1.951A–
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IV. Revocation Under Proposed § 1.988–
7(d)
Under the 2017 proposed regulations,
a taxpayer, including a CFC, would be
permitted to revoke its proposed
§ 1.988–7 election at any time. Proposed
§ 1.988–7(d). Further, the 2017 proposed
regulations provided that if a proposed
§ 1.988–7 election has been revoked, a
new proposed § 1.988–7 election cannot
be made until the sixth taxable year
following the year in which the
previous election was revoked, and a
subsequent election cannot be revoked
until the sixth taxable year following the
year in which the subsequent election
was made. Id. Under the 2017 proposed
regulations, a taxpayer would revoke a
proposed § 1.988–7 election by filing a
statement that clearly indicates that the
election has been revoked with its
original or amended Federal income tax
return for the taxable year for which the
election is revoked. Id. The preamble to
the 2017 proposed regulations stated
that taxpayers are permitted to rely on
proposed § 1.988–7(d) to revoke a
proposed § 1.988–7 election for taxable
years ending on or after December 19,
2017, subject to a consistency
requirement. 82 FR 60135, 60141.
Explanation of Provisions
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2(c)(7)(viii)(A)(1)(i). Additionally, the
practitioners noted that under § 1.954–
2(g)(3)(ii), inconsistencies in treatment
can arise between a controlling U.S.
shareholder that owns a CFC with a
matching taxable year and a controlling
U.S. shareholder that owns a CFC with
a short year or whose taxable year
differs from the controlling U.S.
shareholder’s taxable year. With respect
to CFCs with short years, a controlling
U.S. shareholder will be prevented from
making § 1.954–2(g) elections for those
years if no year of the controlling U.S.
shareholder ends with or within the
CFC’s short year.
To address the issues raised by
practitioners’ inquiries, and to promote
consistency with other filing
requirements with respect to CFCs,
these proposed regulations would revise
§ 1.954–2(g)(3)(ii) to provide that
controlling U.S. shareholders make a
§ 1.954–2(g) election on behalf of a CFC
by filing a statement with their original
income tax returns for the taxable years
of the controlling U.S. shareholders in
which or with which the taxable year of
the CFC for which the election is made
ends, clearly indicating that the election
has been made. Additionally, these
proposed regulations withdraw
proposed § 1.954–2(g)(3)(iii) and
(g)(4)(iii) as included in the 2017
proposed regulations and re-propose
them to provide that controlling U.S.
shareholders revoke a § 1.954–2(g)
election on behalf of a CFC by filing a
statement with their original income tax
returns for the taxable years of the
controlling U.S. shareholders in which
or with which the taxable year of the
CFC for which the revocation is made
ends, clearly indicating that the § 1.954–
2(g) election has been revoked.
Under newly proposed § 1.954–
2(g)(3)(iii) and (g)(4)(iii), however,
controlling U.S. shareholders would be
precluded from revoking a § 1.954–2(g)
election made on behalf of a CFC
(including an initial election) until the
sixth taxable year following the year in
which the election was made. Further,
proposed § 1.954–2(g)(3)(iii) and
(g)(4)(iii) would provide that if a CFC’s
controlling U.S. shareholders revoke a
§ 1.954–2(g) election, they may not
make a new § 1.954–2(g) election on
behalf of the CFC until the sixth taxable
year following the year in which the
previous election was revoked. This
change to the revocation rules under
proposed § 1.954–2(g)(3)(iii) and
(g)(4)(iii) would limit taxpayers from
opportunistically making or revoking a
§ 1.954–2(g) election; for example, this
change would limit taxpayers’ ability to
selectively recognize certain foreign
currency losses. The Treasury
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Department and the IRS request
comments on this aspect of proposed
§ 1.954–2(g)(3)(iii) and (g)(4)(iii).
II. Proposed Amendments to Proposed
§ 1.988–7(c) and (d)
The Treasury Department and the IRS
are of the view that the rules for making
and revoking a proposed § 1.988–7
election under the 2017 proposed
regulations provided an excessive
amount of flexibility. The 2017
proposed regulations would have
permitted a taxpayer to make a
proposed § 1.988–7 election after the
end of the year to which the election
would apply, which would give the
taxpayer the ability to determine with
certainty whether the election would be
beneficial for that year. For example,
and as one comment noted, the ability
to make and revoke an initial election
without restriction would provide a
one-time opportunity to selectively
recognize foreign currency losses by
making an initial election for a
particular year after the taxpayer has
determined that it has net foreign
currency losses on section 988
transactions for a taxable year and then
immediately revoking the election.
Upon further consideration of the
2017 proposed regulations and the
comments received, the Treasury
Department and the IRS are of the view
that the time for making and revoking a
proposed § 1.988–7 election (permitting
a taxpayer to use a mark-to-market
method of accounting for section 988
gain or loss with respect to section 988
transactions) should accord with the
time for making and revoking an
election under section 475(e) or (f) (a
‘‘section 475 election’’) (permitting a
dealer in commodities or a trader in
securities or commodities to use the
mark-to-market method of accounting).
The Treasury Department and the IRS
are of the view that aligning proposed
§ 1.988–7 with the rules for making a
section 475 election will deter
selectively recognizing losses. The rules
for making or revoking a section 475
election deter taxpayers from selectively
recognizing losses by requiring that
taxpayers generally make an election on
the tax return for the year immediately
preceding the year to which the election
applies, see section 5.03 of Rev. Proc.
99–17, 1999–1 C.B. 503, 504–505, and
then by requiring taxpayers to apply
that election to all subsequent years
unless the taxpayers obtain the consent
of the Commissioner. See section
475(e)(3) and (f)(3). The Treasury
Department and the IRS expect that
implementing similar rules for making a
proposed § 1.988–7 election would also
prevent selective recognition of losses.
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The Treasury Department and the IRS
also expect that aligning the rules for
making a proposed § 1.988–7 election
with the rules for making a section 475
election will foster compliance,
especially for those taxpayers already
making a section 475 election, by
providing the same procedures for
making or revoking these elections to
adopt a mark-to-market method of
accounting. As a result, these proposed
regulations would permit taxpayers to
make and revoke a proposed § 1.988–7
election under rules similar to the rules
for making and revoking a section 475
election.
Proposed § 1.988–7(d) would provide
that the election made pursuant to
proposed § 1.988–7(c) is subject to rules
similar to those imposed on section 475
elections. The election would be
effective for the taxable year for which
it is made and all subsequent years.
Proposed § 1.988–7(d) also would
provide that a taxpayer may revoke the
election only with the consent of the
Commissioner.
To adopt a method of accounting as
described in proposed § 1.988–7, a
taxpayer must receive the consent of the
Commissioner to implement that change
of accounting method in accordance
with the applicable administrative
procedures provided in the Internal
Revenue Bulletin. Section 446(e);
§ 1.446–1(e)(2); see also Rev. Proc.
2015–13, 2015–5 I.R.B. 419; Rev. Proc.
2024–1, 2024–1 I.R.B. 1. When these
proposed regulations are finalized, the
Treasury Department and the IRS expect
to issue a revenue procedure setting
forth the terms and conditions under
which a change of method of accounting
with respect to the mark-to-market
method under § 1.988–7 will be granted.
The Treasury Department and the IRS
anticipate that these terms and
conditions will address: whether this
change should be subject to a cutoff
method or another method requiring a
section 481(a) adjustment; the
appropriate circumstances under which
a taxpayer must establish a substantial
business reason for the change; whether
there are appropriate circumstances
under which an automatic change in
method of accounting should be
permitted; and the extent to which these
terms and conditions should
incorporate or deviate from the terms
and conditions for changing a mark-tomarket method of accounting under
section 475(e) or (f), see section 24 of
Rev. Proc. 2024–23.
The Treasury Department and the IRS
solicit comments regarding all aspects of
the rules for making and revoking the
proposed § 1.988–7 election, including
the terms and conditions under which
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a change of method of accounting with
respect to the mark-to-market method
under § 1.988–7 will be granted and
whether to require that related parties
apply a proposed § 1.988–7 election in
a consistent manner, such as in the case
of a section 987 election under proposed
§ 1.987–1(g)(2) (88 FR 78134, 78164–
78165). Comments submitted pursuant
to the 2017 proposed regulations will
also be considered.
III. Other Nonsubstantive Changes
These proposed regulations would
make nonsubstantive changes to
§ 1.954–2(g)(3)(ii) and re-proposed
§ 1.954–2(g)(3)(iii) and (g)(4)(iii). These
changes are intended to improve the
clarity of those regulations, including by
updating the cross-references to the
definition of controlling U.S.
shareholders from ‘‘§ 1.964–1(c)(5)’’ to
‘‘§ 1.964–1(c)(5)(i)’’ to more precisely
reference the definition with respect to
CFCs and not other foreign corporations,
and by providing that a § 1.954–2(g)
election must be made on a timely-filed,
original Federal income tax return for
consistency with proposed § 1.988–7
elections.
IV. Applicability Dates
These proposed regulations generally
are proposed to apply to taxable years
ending on or after the date of
publication of the Treasury decision
adopting these rules as final regulations
in the Federal Register (the
‘‘finalization date’’). See proposed
§§ 1.954–2(i)(3) and 1.988–7(e). The
remainder of this section of the
preamble discusses taxpayers’ ability to
rely on the proposed regulations and the
treatment of certain elections, or
revocation of elections, made in earlier
periods.
A. Section 954 regulations
For taxable years ending before the
finalization date, taxpayers may rely on
proposed § 1.954–2(g)(3)(ii) and reproposed § 1.954–2(g)(3)(iii) and
(g)(4)(iii) in making and revoking
§ 1.954–2(g) elections, provided that
they consistently apply proposed
§ 1.954–2(g)(3)(ii) and (iii) and (g)(4)(iii)
to such taxable years. Furthermore, with
respect to any taxpayer that made a
§ 1.954–2(g) election in the manner set
forth in proposed § 1.954–2(g)(3)(ii) of
these proposed regulations for a taxable
year beginning after November 6, 1995
(as provided in TD 8618, 60 FR 46517,
46527), and ending before August 19,
2024, and any taxpayer that revoked a
§ 1.954–2(g) election in the manner set
forth in proposed § 1.954–2(g)(3)(iii) or
(g)(4)(iii) of these proposed regulations
for a taxable year ending on or after
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December 19, 2017, and before August
19, 2024, the IRS will respect such
election or revocation as having been
timely made for the relevant taxable
year. As of August 19, 2024, taxpayers
may no longer rely on proposed § 1.954–
2(g)(3)(iii) and (g)(4)(iii) included in the
2017 proposed regulations.
B. Section 988 regulations
For taxable years ending before the
finalization date, taxpayers may rely on
proposed § 1.988–7(c) and (d) in making
and revoking the proposed § 1.988–7
election, provided that they consistently
apply proposed § 1.988–7(c) and (d) to
such taxable years. Furthermore, if a
taxpayer made or revoked a proposed
§ 1.988–7 election on behalf of a CFC
pursuant to the reliance provided by 82
FR 60135, 60141, but filed the election
or revocation in the manner set forth in
proposed § 1.988–7(c)(3)(ii), the IRS will
respect such election or revocation as
having been timely made for the
relevant taxable year. However, as of
August 19, 2024, taxpayers may no
longer rely on proposed § 1.988–7(c)
and (d) included in the 2017 proposed
regulations.
Special Analyses
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I. Regulatory Planning and Review—
Economic Analysis
Pursuant to the Memorandum of
Agreement, Review of Treasury
Regulations under Executive Order
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’’)
generally requires that a Federal agency
obtain the approval of the Office of
Management and Budget (‘‘OMB’’)
before collecting information from the
public, whether the 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
included in these proposed regulations
are in proposed § 1.954–2(g)(3)(ii) and
(iii) and (g)(4)(iii) and proposed § 1.988–
7(c). The information provided will
generally be used by the IRS for tax
compliance purposes or by taxpayers to
report making or revoking elections.
The collection of information in these
proposed regulations is for taxpayers to
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make or revoke an election as detailed
in proposed § 1.954–2(g)(3)(ii) and (iii)
and (g)(4)(iii) and proposed § 1.988–7(c).
Taxpayers must inform the IRS of these
elections and revocations by attaching a
statement to their tax return. The
information is required to be provided
by taxpayers that are U.S. shareholders
of CFCs and shareholders of certain
foreign corporations that make or revoke
an election with respect to the treatment
of a foreign corporation’s foreign
currency gains and losses. The likely
respondents are individual, business,
and trust and estate filers.
For purposes of the PRA, the
reporting and recordkeeping burden
associated with the collections of
information in proposed § 1.954–
2(g)(3)(ii) and (iii) and (g)(4)(iii) and
proposed § 1.988–7(c) will be accounted
for in OMB control number 1545–0074
for individual filers and 1545–0123 for
business filers.
The IRS will seek OMB approval
under a new OMB Control Number
(1545–NEW) for trust and estate filers.
Estimated total annual reporting and
recordkeeping burden for trusts and
estates filers: 61 hours.
Estimated average annual burden per
respondent: 1 hour.
Estimated number of respondents: 61.
Estimated frequency of responses:
one-time election or revocation.
The collections of information
contained in these proposed regulations
have been submitted to OMB for review
in accordance with the PRA.
Commenters are strongly encouraged to
submit public comments electronically.
Written comments and
recommendations for the proposed
information collection should be sent to
www.reginfo.gov/public/do/PRAMain,
with copies to the IRS. Find this
particular information collection by
selecting ‘‘Currently under Review—
Open for Public Comments,’’ then by
using the search function. Submit
electronic submissions for the proposed
information collection to the IRS via
email at pra.comments@irs.gov (indicate
REG–111629–23 on the Subject line).
Comments on the collection of
information should be received by
September 19, 2024. Comments are
specifically requested concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the IRS,
including whether the information will
have practical utility; the accuracy of
the estimated burden associated with
the proposed collection of information;
how the quality, utility, and clarity of
the information to be collected may be
enhanced; how the burden of complying
with the proposed collection of
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67339
information may be minimized,
including through the application of
automated collection techniques or
other forms of information technology;
and estimates of capital or start-up costs
and costs of operation, maintenance,
and purchase of services to provide
information.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6) (‘‘RFA’’), it is
hereby certified that these proposed
regulations would not have a significant
economic impact on a substantial
number of small entities within the
meaning of section 601(6) of the RFA
(‘‘small entities’’).
Generally, the proposed regulations
affect certain U.S. taxpayers that have
foreign operations. Specifically, the
proposed regulations affect U.S.
shareholders that make or revoke certain
elections with respect to the
computation of their CFCs’ foreign
currency gains and losses. The number
of small entities potentially affected by
the proposed regulations is unknown
and cannot be reliably estimated;
however, it is unlikely to be a
substantial number because taxpayers
with foreign operations are typically
larger businesses. Due to the low
expected number of potentially affected
taxpayers, and the fact that the proposed
regulations only amend the timing of
these elections and revocations that
taxpayers may already be making, the
Treasury Department and the IRS
believe the proposed regulations should
not materially impact a substantial
number of small entities within the
meaning of the RFA.
Accordingly, the Secretary certifies
that the proposed regulations will not
have a significant economic impact on
a substantial number of small entities,
and a regulatory flexibility analysis is
not required.
IV. Section 7805(f)
Pursuant to section 7805(f), these
proposed regulations have been
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on their
impact on small businesses. The
Treasury Department and the IRS also
request comments from the public on
the analysis in part III of the Special
Analyses.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
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
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Federal Register / Vol. 89, No. 161 / Tuesday, August 20, 2024 / Proposed Rules
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. This proposed
rule does 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.
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.
These 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.
khammond on DSKJM1Z7X2PROD with PROPOSALS
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
comments that are submitted timely to
the IRS as prescribed in this preamble
under the ADDRESSES section. The
Treasury Department and the IRS
request comments on all aspects of these
proposed regulations, including the
procedures for making and revoking a
proposed § 1.988–7 election. Any
comments submitted will be made
available at www.regulations.gov or
upon request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits 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.
Drafting Information
The principal authors of these
regulations are Edward Tracy and Shane
Ward of the Office of Associate Chief
Counsel (International). However, other
personnel from the Treasury
Department and the IRS participated in
their development.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, Notices, and other guidance
cited in this document are published in
VerDate Sep<11>2014
16:20 Aug 19, 2024
Jkt 262001
the Internal Revenue Bulletin or
Cumulative Bulletin and are available
from the Superintendent of Documents,
U.S. Government Publishing Office,
Washington, DC 20402, or by visiting
the IRS website at www.irs.gov.
Partial Withdrawal of Proposed
Regulations
Under the authority of 26 U.S.C. 7805,
proposed § 1.954–2(g)(3)(iii) and
(g)(4)(iii) and proposed § 1.988–7(c)
through (e), contained in the notice of
proposed rulemaking that was
published in the Federal Register on
December 19, 2017 (82 FR 60135), are
withdrawn.
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 * * *
Par. 2. Section 1.954–2 is amended
by:
■ 1. Revising the first sentence of
paragraph (g)(3)(ii) introductory text;
■ 2. Revising paragraphs (g)(3)(iii) and
(g)(4)(iii); and
■ 3. Adding two sentences to the end of
paragraph (i)(3).
The revisions and additions read as
follows:
§ 1.954–2 Foreign personal holding
company income.
*
*
*
*
*
(g) * * *
(3) * * *
(ii) * * * The controlling United
States shareholders, as defined in
§ 1.964–1(c)(5)(i), make the election on
behalf of the controlled foreign
corporation by filing a statement with
their timely-filed, original Federal
income tax returns for the taxable year
of the United States shareholders in
which or with which the taxable year of
the controlled foreign corporation for
which the election is made ends, clearly
indicating that the election has been
made. * * *
(iii) Revocation of election. An
election under this paragraph (g)(3) is
effective for the taxable year of the
controlled foreign corporation for which
it is made and all subsequent taxable
years of such corporation unless
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Fmt 4702
Sfmt 4702
revoked by the Commissioner or as
provided in this paragraph (g)(3)(iii) by
the controlling United States
shareholders (as defined in § 1.964–
1(c)(5)(i)) of the controlled foreign
corporation. Once made, an election
under this paragraph (g)(3) cannot be
revoked by the controlled foreign
corporation’s controlling United States
shareholders (as defined in § 1.964–
1(c)(5)(i)) until the sixth taxable year
following the year in which the
previous election was made. Further, if
an election has been revoked under this
paragraph (g)(3)(iii), a new election may
not be made until the sixth taxable year
following the year in which the
previous election was revoked. The
controlling United States shareholders
revoke an election on behalf of a
controlled foreign corporation by filing
a statement that clearly indicates such
election has been revoked with their
original or amended income tax returns
for the taxable year of such United
States shareholders in which or with
which the taxable year of the controlled
foreign corporation for which the
election is revoked ends.
*
*
*
*
*
(4) * * *
(iii) Revocation of election. An
election under this paragraph (g)(4) is
effective for the taxable year of the
controlled foreign corporation for which
it is made and all subsequent taxable
years of such corporation unless
revoked by the Commissioner or as
provided in this paragraph (g)(4)(iii) by
the controlling United States
shareholders (as defined in § 1.964–
1(c)(5)(i)) of the controlled foreign
corporation. Once made, an election
under this paragraph (g)(4) cannot be
revoked by the controlled foreign
corporation’s controlling United States
shareholders (as defined in § 1.964–
1(c)(5)(i)) until the sixth taxable year
following the year in which the
previous election was made. Further, if
an election has been revoked under this
paragraph (g)(4)(iii), a new election may
not be made until the sixth taxable year
following the year in which the
previous election was revoked. The
controlling United States shareholders
revoke an election on behalf of a
controlled foreign corporation by filing
a statement that clearly indicates such
election has been revoked with their
original or amended income tax returns
for the taxable year of such United
States shareholders in which or with
which the taxable year of the controlled
foreign corporation for which the
election is revoked ends.
*
*
*
*
*
(i) * * *
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Federal Register / Vol. 89, No. 161 / Tuesday, August 20, 2024 / Proposed Rules
(3) * * * Paragraphs (g)(3)(ii) and (iii)
and (g)(4)(iii) of this section apply to
taxable years of controlled foreign
corporations ending on or after [DATE
OF PUBLICATION OF FINAL RULE].
For taxable years of controlled foreign
corporations ending before [DATE OF
PUBLICATION OF FINAL RULE], see
§ 1.954–2(g)(3)(ii) and (iii) and (g)(4)(iii)
as in effect and contained in 26 CFR
part 1, as revised April 1, 2024.
Par. 3. Section 1.988–7, as proposed
to be added at 82 FR 60143 (December
19, 2017), is amended by adding
paragraphs (c) through (e) to read as
follows:
§ 1.988–7 Election to mark-to-market
foreign currency gain or loss on section 988
transactions.
khammond on DSKJM1Z7X2PROD with PROPOSALS
*
*
*
*
*
(c) Time and manner of election—(1)
In general. Except as otherwise
provided in this paragraph (c), a
taxpayer makes the election under
paragraph (a) of this section by filing a
statement that clearly indicates that the
election has been made with the
taxpayer’s timely-filed (excluding
extensions) original Federal income tax
return for the taxable year immediately
preceding the year for which the
election is made.
(2) New taxpayers. In the case of a
taxpayer for which no Federal income
tax return was required to be filed for
the taxable year immediately preceding
the year for which the election is made,
the taxpayer makes the election under
paragraph (a) of this section by
preparing a statement that clearly
indicates the election has been made
and:
(i) Placing the statement in the
taxpayer’s books and records by no later
than 2 months and 15 days after the first
day of the year for which the election
is made; and
(ii) Filing the statement with the
taxpayer’s original Federal income tax
return for the taxable year for which the
election is made.
(3) Elections on behalf of CFCs. In the
case of a controlled foreign corporation,
the controlling United States
shareholders (as defined in § 1.964–
1(c)(5)(i)) make the election under
paragraph (a) of this section on behalf of
the controlled foreign corporation by
preparing a statement that clearly
indicates the election has been made
and:
(i) Placing the statement in the
controlled foreign corporation’s books
and records by no later than 2 months
and 15 days after the first day of the
year of the controlled foreign
corporation for which the election is
made; and
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16:20 Aug 19, 2024
Jkt 262001
(ii) Filing the statement with their
original Federal income tax returns for
the taxable year of the United States
shareholders in which or with which
the taxable year of the controlled foreign
corporation for which the election is
made ends.
(d) Revocation. An election under
paragraph (a) of this section is effective
for the taxable year for which it is made
and all subsequent taxable years unless
the election is revoked with the consent
of the Commissioner.
(e) Applicability dates. This section
applies to taxable years of taxpayers
ending on or after [DATE OF
PUBLICATION OF FINAL RULE].
Paragraph (c)(3) of this section applies
to taxable years of controlled foreign
corporations ending on or after [DATE
OF PUBLICATION OF FINAL RULE],
and to taxable years of United States
shareholders in which or with which
the taxable years of those controlled
foreign corporations end.
Heather C. Maloy,
Acting Deputy Commissioner.
[FR Doc. 2024–18281 Filed 8–19–24; 8:45 am]
BILLING CODE 4830–01–P
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R04–OAR–2022–0786; FRL–10405–
01–R4]
Air Plan Approval; North Carolina;
Second Period Regional Haze Plan
Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
AGENCY:
The Environmental Protection
Agency (EPA) is proposing to approve
in part and conditionally approve in
part a regional haze State
Implementation Plan (SIP) revision
submitted by the North Carolina
Department of Environmental Quality,
Division of Air Quality (DAQ), dated
April 4, 2022 (‘‘Haze Plan’’ or ‘‘2022
Plan’’) under the Clean Air Act (CAA or
Act) and EPA’s Regional Haze Rule
(RHR) for the regional haze program’s
second planning period. North
Carolina’s 2022 SIP submission
addresses the requirement that states
must periodically revise their long-term
strategies for making reasonable
progress toward the national goal of
preventing any future, and remedying
any existing, anthropogenic impairment
of visibility, including regional haze, in
mandatory Class I Federal areas. The
SIP submission also addresses other
SUMMARY:
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Fmt 4702
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67341
applicable requirements for the second
planning period of the regional haze
program. EPA is taking this action
pursuant to sections 110 and 169A of
the Act.
Written comments must be
received on or before September 19,
2024.
DATES:
Submit your comments,
identified by Docket ID No. EPA–R04–
OAR–2022–0786, at https://
www.regulations.gov. Follow the online
instructions for submitting comments.
Once submitted, comments cannot be
edited or removed from Regulations.gov.
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. 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, the full
EPA public comment policy,
information about CBI or multimedia
submissions, and general guidance on
making effective comments, please visit
https://www.epa.gov/dockets/
commenting-epa-dockets.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Michele Notarianni, Multi-Air Pollutant
Coordination Section, Air Planning and
Implementation Branch, Air and
Radiation Division, U.S. Environmental
Protection Agency, Region 4, 61 Forsyth
Street SW, Atlanta, Georgia 30303–8960.
Ms. Notarianni can be reached via
telephone at (404) 562–9031 or
electronic mail at notarianni.michele@
epa.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. What action is EPA proposing?
II. Background and Requirements for
Regional Haze Plans
A. Regional Haze Background
B. Roles of Agencies in Addressing
Regional Haze
III. Requirements for Regional Haze Plans for
the Second Planning Period
A. Identification of Class I Areas
B. Calculations of Baseline, Current, and
Natural Visibility Conditions; Progress to
Date; and the Uniform Rate of Progress
(URP)
C. Long-Term Strategy (LTS) for Regional
Haze
D. Reasonable Progress Goals (RPGs)
E:\FR\FM\20AUP1.SGM
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]]>Agencies
[Federal Register Volume 89, Number 161 (Tuesday, August 20, 2024)]
[Proposed Rules]
[Pages 67336-67341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18281]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-111629-23]
RIN 1545-BM80
Guidance Regarding Elections Relating to Foreign Currency Gains
and Losses
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking; partial withdrawal of proposed
rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations regarding the time
for making and revoking certain elections relating to foreign currency
gain or loss.
DATES: Written or electronic comments and requests for a public hearing
must be received by October 18, 2024. As of August 20, 2024, proposed
Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii) and proposed Sec. 1.988-7(c)
through (e), contained in the notice of proposed rulemaking published
in the Federal Register of December 19, 2017 (82 FR 60135), are
withdrawn.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at
www.regulations.gov (indicate IRS and REG-111629-23) by following the
online instructions for submitting comments. 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 hard copy submissions to: CC:PA:01:PR (REG-111629-
23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning proposed Sec. 1.954-
2(g)(3)(ii) and (iii) and (g)(4)(iii), Edward Tracy at (202) 317-6934;
concerning proposed Sec. 1.988-7(c) and (d), Shane Ward at (202) 317-
6938; concerning submissions of comments or requests for a public
hearing, Vivian Hayes at (202) 317-6901 (not toll free numbers) or
[email protected].
SUPPLEMENTARY INFORMATION:
Background
I. Elections Under Sec. 1.954-2(g)
In general, section 954(c)(1)(D) of the Internal Revenue Code and
Sec. 1.954-2(g) provide that foreign personal holding company income
(``FPHCI'') includes the excess of foreign currency gains over foreign
currency losses attributable to any section 988 transactions. Under
Sec. 1.954-2(g)(3) and (4), two different elections are available to
United States shareholders (``U.S. shareholders'') that are controlling
United States shareholders (``controlling U.S. shareholders'') of a
controlled foreign corporation (``CFC'') with respect to the CFC's
computation of its FPHCI. First, under Sec. 1.954-2(g)(3), controlling
U.S. shareholders may elect to exclude foreign currency gain or loss
otherwise includible in the CFC's FPHCI computation under Sec. 1.954-
2(g) and instead include such foreign currency gain or loss in the
category (or categories) of subpart F income to which such gain or loss
relates (the ``Sec. 1.954-2(g)(3) election''). Second, Sec. 1.954-
2(g)(4) provides that controlling U.S. shareholders may elect to treat
as FPHCI all foreign currency gains or losses attributable to any
section 988 transaction (except those described in Sec. 1.954-2(g)(5))
and any section 1256 contract that would be a section 988 transaction
but for section 988(c)(1)(D) (the ``Sec. 1.954-2(g)(4) election'' and,
together with the Sec. 1.954-2(g)(3) election, the ``Sec. 1.954-2(g)
elections''). A Sec. 1.954-2(g)(4) election supersedes a Sec. 1.954-
2(g)(3) election. Under Sec. 1.954-2(g)(3)(ii) and (g)(4)(ii),
controlling U.S. shareholders make either of the Sec. 1.954-2(g)
elections on behalf of the CFC by filing a statement with their
original income tax return for the ``taxable year of [the U.S.
shareholders] ending with or within the taxable year of the [CFC]'' for
which the election is made, clearly indicating that the election has
been made.
[[Page 67337]]
II. Revocations Under Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii) and
Proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii)
Under Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii), a CFC's controlling
U.S. shareholders may revoke a Sec. 1.954-2(g) election by or with the
consent of the Commissioner. As part of the 2017 notice of proposed
rulemaking in respect of Sec. 1.988-7 (the ``2017 proposed
regulations'') (described further in sections III and IV of this
Background section of the preamble), revisions were proposed to the
rules for revoking Sec. 1.954-2(g) elections. 82 FR 60135, 60142-
60143. Under the 2017 proposed regulations, a CFC's controlling U.S.
shareholders would be permitted to revoke the CFC's Sec. 1.954-2(g)
election at any time. Proposed Sec. 1.954-2(g)(3)(iii) and
(g)(4)(iii). Further, the 2017 proposed regulations would provide that
if the election is revoked, a new election cannot be made until the
sixth taxable year following the year in which the previous election
was revoked, and the subsequent election cannot be revoked until the
sixth taxable year following the year in which the subsequent election
was made. Id. Similar to the procedure for making Sec. 1.954-2(g)
elections, a CFC's controlling U.S. shareholders would revoke Sec.
1.954-2(g) elections on behalf of the CFC under the 2017 proposed
regulations by filing a statement that clearly indicates that the
election has been revoked with their original or amended income tax
returns for ``the taxable year of [the U.S. shareholders] ending with
or within the taxable year of the [CFC] for which the election is
revoked.'' Id. The 2017 proposed regulations permitted taxpayers to
rely on proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii) to revoke
Sec. 1.954-2(g) elections for taxable years ending on or after
December 19, 2017, subject to a consistency requirement. 82 FR 60135,
60141.
III. Election Under Proposed Sec. 1.988-7(c)
Under the 2017 proposed regulations, a taxpayer, including a CFC,
would be permitted to elect to use a mark-to-market method of
accounting for section 988 gain or loss with respect to certain section
988 transactions (the ``proposed Sec. 1.988-7 election''). Proposed
Sec. 1.988-7(a). Under proposed Sec. 1.988-7(c) of the 2017 proposed
regulations, a taxpayer makes a proposed Sec. 1.988-7 election by
filing a statement that clearly indicates that the election has been
made with its timely-filed original Federal income tax return for the
taxable year for which the election is made. In the case of a CFC, the
controlling U.S. shareholders make the proposed Sec. 1.988-7 election
on behalf of the CFC by filing a statement that clearly indicates that
the election has been made with their timely-filed, original Federal
income tax returns for the ``taxable year of [the U.S. shareholders]
ending with or within the taxable year of the [CFC] for which the
election is made.'' The preamble to the 2017 proposed regulations
stated that taxpayers are permitted to rely on proposed Sec. 1.988-
7(c) to make a proposed Sec. 1.988-7 election for taxable years ending
on or after December 19, 2017, subject to a consistency requirement. 82
FR 60135, 60141.
IV. Revocation Under Proposed Sec. 1.988-7(d)
Under the 2017 proposed regulations, a taxpayer, including a CFC,
would be permitted to revoke its proposed Sec. 1.988-7 election at any
time. Proposed Sec. 1.988-7(d). Further, the 2017 proposed regulations
provided that if a proposed Sec. 1.988-7 election has been revoked, a
new proposed Sec. 1.988-7 election cannot be made until the sixth
taxable year following the year in which the previous election was
revoked, and a subsequent election cannot be revoked until the sixth
taxable year following the year in which the subsequent election was
made. Id. Under the 2017 proposed regulations, a taxpayer would revoke
a proposed Sec. 1.988-7 election by filing a statement that clearly
indicates that the election has been revoked with its original or
amended Federal income tax return for the taxable year for which the
election is revoked. Id. The preamble to the 2017 proposed regulations
stated that taxpayers are permitted to rely on proposed Sec. 1.988-
7(d) to revoke a proposed Sec. 1.988-7 election for taxable years
ending on or after December 19, 2017, subject to a consistency
requirement. 82 FR 60135, 60141.
Explanation of Provisions
I. Proposed Modification to Sec. 1.954-2(g)(3)(ii) and Withdrawal and
Re-Proposal of Proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii)
The Treasury Department and the IRS have received several inquiries
regarding the procedure for making Sec. 1.954-2(g) elections.
Specifically, practitioners have noted that the language of Sec.
1.954-2(g)(3)(ii) is inconsistent with other filing requirements with
respect to CFCs, which generally must be filed by U.S. shareholders for
the taxable year of a CFC that ends with or within the taxable year of
the U.S. shareholders. See, e.g., Sec. Sec. 1.964-1(c)(3)(ii) and
1.951A-2(c)(7)(viii)(A)(1)(i). Additionally, the practitioners noted
that under Sec. 1.954-2(g)(3)(ii), inconsistencies in treatment can
arise between a controlling U.S. shareholder that owns a CFC with a
matching taxable year and a controlling U.S. shareholder that owns a
CFC with a short year or whose taxable year differs from the
controlling U.S. shareholder's taxable year. With respect to CFCs with
short years, a controlling U.S. shareholder will be prevented from
making Sec. 1.954-2(g) elections for those years if no year of the
controlling U.S. shareholder ends with or within the CFC's short year.
To address the issues raised by practitioners' inquiries, and to
promote consistency with other filing requirements with respect to
CFCs, these proposed regulations would revise Sec. 1.954-2(g)(3)(ii)
to provide that controlling U.S. shareholders make a Sec. 1.954-2(g)
election on behalf of a CFC by filing a statement with their original
income tax returns for the taxable years of the controlling U.S.
shareholders in which or with which the taxable year of the CFC for
which the election is made ends, clearly indicating that the election
has been made. Additionally, these proposed regulations withdraw
proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii) as included in the
2017 proposed regulations and re-propose them to provide that
controlling U.S. shareholders revoke a Sec. 1.954-2(g) election on
behalf of a CFC by filing a statement with their original income tax
returns for the taxable years of the controlling U.S. shareholders in
which or with which the taxable year of the CFC for which the
revocation is made ends, clearly indicating that the Sec. 1.954-2(g)
election has been revoked.
Under newly proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii),
however, controlling U.S. shareholders would be precluded from revoking
a Sec. 1.954-2(g) election made on behalf of a CFC (including an
initial election) until the sixth taxable year following the year in
which the election was made. Further, proposed Sec. 1.954-2(g)(3)(iii)
and (g)(4)(iii) would provide that if a CFC's controlling U.S.
shareholders revoke a Sec. 1.954-2(g) election, they may not make a
new Sec. 1.954-2(g) election on behalf of the CFC until the sixth
taxable year following the year in which the previous election was
revoked. This change to the revocation rules under proposed Sec.
1.954-2(g)(3)(iii) and (g)(4)(iii) would limit taxpayers from
opportunistically making or revoking a Sec. 1.954-2(g) election; for
example, this change would limit taxpayers' ability to selectively
recognize certain foreign currency losses. The Treasury
[[Page 67338]]
Department and the IRS request comments on this aspect of proposed
Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii).
II. Proposed Amendments to Proposed Sec. 1.988-7(c) and (d)
The Treasury Department and the IRS are of the view that the rules
for making and revoking a proposed Sec. 1.988-7 election under the
2017 proposed regulations provided an excessive amount of flexibility.
The 2017 proposed regulations would have permitted a taxpayer to make a
proposed Sec. 1.988-7 election after the end of the year to which the
election would apply, which would give the taxpayer the ability to
determine with certainty whether the election would be beneficial for
that year. For example, and as one comment noted, the ability to make
and revoke an initial election without restriction would provide a one-
time opportunity to selectively recognize foreign currency losses by
making an initial election for a particular year after the taxpayer has
determined that it has net foreign currency losses on section 988
transactions for a taxable year and then immediately revoking the
election.
Upon further consideration of the 2017 proposed regulations and the
comments received, the Treasury Department and the IRS are of the view
that the time for making and revoking a proposed Sec. 1.988-7 election
(permitting a taxpayer to use a mark-to-market method of accounting for
section 988 gain or loss with respect to section 988 transactions)
should accord with the time for making and revoking an election under
section 475(e) or (f) (a ``section 475 election'') (permitting a dealer
in commodities or a trader in securities or commodities to use the
mark-to-market method of accounting). The Treasury Department and the
IRS are of the view that aligning proposed Sec. 1.988-7 with the rules
for making a section 475 election will deter selectively recognizing
losses. The rules for making or revoking a section 475 election deter
taxpayers from selectively recognizing losses by requiring that
taxpayers generally make an election on the tax return for the year
immediately preceding the year to which the election applies, see
section 5.03 of Rev. Proc. 99-17, 1999-1 C.B. 503, 504-505, and then by
requiring taxpayers to apply that election to all subsequent years
unless the taxpayers obtain the consent of the Commissioner. See
section 475(e)(3) and (f)(3). The Treasury Department and the IRS
expect that implementing similar rules for making a proposed Sec.
1.988-7 election would also prevent selective recognition of losses.
The Treasury Department and the IRS also expect that aligning the rules
for making a proposed Sec. 1.988-7 election with the rules for making
a section 475 election will foster compliance, especially for those
taxpayers already making a section 475 election, by providing the same
procedures for making or revoking these elections to adopt a mark-to-
market method of accounting. As a result, these proposed regulations
would permit taxpayers to make and revoke a proposed Sec. 1.988-7
election under rules similar to the rules for making and revoking a
section 475 election.
Proposed Sec. 1.988-7(d) would provide that the election made
pursuant to proposed Sec. 1.988-7(c) is subject to rules similar to
those imposed on section 475 elections. The election would be effective
for the taxable year for which it is made and all subsequent years.
Proposed Sec. 1.988-7(d) also would provide that a taxpayer may revoke
the election only with the consent of the Commissioner.
To adopt a method of accounting as described in proposed Sec.
1.988-7, a taxpayer must receive the consent of the Commissioner to
implement that change of accounting method in accordance with the
applicable administrative procedures provided in the Internal Revenue
Bulletin. Section 446(e); Sec. 1.446-1(e)(2); see also Rev. Proc.
2015-13, 2015-5 I.R.B. 419; Rev. Proc. 2024-1, 2024-1 I.R.B. 1. When
these proposed regulations are finalized, the Treasury Department and
the IRS expect to issue a revenue procedure setting forth the terms and
conditions under which a change of method of accounting with respect to
the mark-to-market method under Sec. 1.988-7 will be granted. The
Treasury Department and the IRS anticipate that these terms and
conditions will address: whether this change should be subject to a
cutoff method or another method requiring a section 481(a) adjustment;
the appropriate circumstances under which a taxpayer must establish a
substantial business reason for the change; whether there are
appropriate circumstances under which an automatic change in method of
accounting should be permitted; and the extent to which these terms and
conditions should incorporate or deviate from the terms and conditions
for changing a mark-to-market method of accounting under section 475(e)
or (f), see section 24 of Rev. Proc. 2024-23.
The Treasury Department and the IRS solicit comments regarding all
aspects of the rules for making and revoking the proposed Sec. 1.988-7
election, including the terms and conditions under which a change of
method of accounting with respect to the mark-to-market method under
Sec. 1.988-7 will be granted and whether to require that related
parties apply a proposed Sec. 1.988-7 election in a consistent manner,
such as in the case of a section 987 election under proposed Sec.
1.987-1(g)(2) (88 FR 78134, 78164-78165). Comments submitted pursuant
to the 2017 proposed regulations will also be considered.
III. Other Nonsubstantive Changes
These proposed regulations would make nonsubstantive changes to
Sec. 1.954-2(g)(3)(ii) and re-proposed Sec. 1.954-2(g)(3)(iii) and
(g)(4)(iii). These changes are intended to improve the clarity of those
regulations, including by updating the cross-references to the
definition of controlling U.S. shareholders from ``Sec. 1.964-
1(c)(5)'' to ``Sec. 1.964-1(c)(5)(i)'' to more precisely reference the
definition with respect to CFCs and not other foreign corporations, and
by providing that a Sec. 1.954-2(g) election must be made on a timely-
filed, original Federal income tax return for consistency with proposed
Sec. 1.988-7 elections.
IV. Applicability Dates
These proposed regulations generally are proposed to apply to
taxable years ending on or after the date of publication of the
Treasury decision adopting these rules as final regulations in the
Federal Register (the ``finalization date''). See proposed Sec. Sec.
1.954-2(i)(3) and 1.988-7(e). The remainder of this section of the
preamble discusses taxpayers' ability to rely on the proposed
regulations and the treatment of certain elections, or revocation of
elections, made in earlier periods.
A. Section 954 regulations
For taxable years ending before the finalization date, taxpayers
may rely on proposed Sec. 1.954-2(g)(3)(ii) and re-proposed Sec.
1.954-2(g)(3)(iii) and (g)(4)(iii) in making and revoking Sec. 1.954-
2(g) elections, provided that they consistently apply proposed Sec.
1.954-2(g)(3)(ii) and (iii) and (g)(4)(iii) to such taxable years.
Furthermore, with respect to any taxpayer that made a Sec. 1.954-2(g)
election in the manner set forth in proposed Sec. 1.954-2(g)(3)(ii) of
these proposed regulations for a taxable year beginning after November
6, 1995 (as provided in TD 8618, 60 FR 46517, 46527), and ending before
August 19, 2024, and any taxpayer that revoked a Sec. 1.954-2(g)
election in the manner set forth in proposed Sec. 1.954-2(g)(3)(iii)
or (g)(4)(iii) of these proposed regulations for a taxable year ending
on or after
[[Page 67339]]
December 19, 2017, and before August 19, 2024, the IRS will respect
such election or revocation as having been timely made for the relevant
taxable year. As of August 19, 2024, taxpayers may no longer rely on
proposed Sec. 1.954-2(g)(3)(iii) and (g)(4)(iii) included in the 2017
proposed regulations.
B. Section 988 regulations
For taxable years ending before the finalization date, taxpayers
may rely on proposed Sec. 1.988-7(c) and (d) in making and revoking
the proposed Sec. 1.988-7 election, provided that they consistently
apply proposed Sec. 1.988-7(c) and (d) to such taxable years.
Furthermore, if a taxpayer made or revoked a proposed Sec. 1.988-7
election on behalf of a CFC pursuant to the reliance provided by 82 FR
60135, 60141, but filed the election or revocation in the manner set
forth in proposed Sec. 1.988-7(c)(3)(ii), the IRS will respect such
election or revocation as having been timely made for the relevant
taxable year. However, as of August 19, 2024, taxpayers may no longer
rely on proposed Sec. 1.988-7(c) and (d) included in the 2017 proposed
regulations.
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 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'')
generally requires that a Federal agency obtain the approval of the
Office of Management and Budget (``OMB'') before collecting information
from the public, whether the 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 included in these proposed
regulations are in proposed Sec. 1.954-2(g)(3)(ii) and (iii) and
(g)(4)(iii) and proposed Sec. 1.988-7(c). The information provided
will generally be used by the IRS for tax compliance purposes or by
taxpayers to report making or revoking elections.
The collection of information in these proposed regulations is for
taxpayers to make or revoke an election as detailed in proposed Sec.
1.954-2(g)(3)(ii) and (iii) and (g)(4)(iii) and proposed Sec. 1.988-
7(c). Taxpayers must inform the IRS of these elections and revocations
by attaching a statement to their tax return. The information is
required to be provided by taxpayers that are U.S. shareholders of CFCs
and shareholders of certain foreign corporations that make or revoke an
election with respect to the treatment of a foreign corporation's
foreign currency gains and losses. The likely respondents are
individual, business, and trust and estate filers.
For purposes of the PRA, the reporting and recordkeeping burden
associated with the collections of information in proposed Sec. 1.954-
2(g)(3)(ii) and (iii) and (g)(4)(iii) and proposed Sec. 1.988-7(c)
will be accounted for in OMB control number 1545-0074 for individual
filers and 1545-0123 for business filers.
The IRS will seek OMB approval under a new OMB Control Number
(1545-NEW) for trust and estate filers.
Estimated total annual reporting and recordkeeping burden for
trusts and estates filers: 61 hours.
Estimated average annual burden per respondent: 1 hour.
Estimated number of respondents: 61.
Estimated frequency of responses: one-time election or revocation.
The collections of information contained in these proposed
regulations have been submitted to OMB for review in accordance with
the PRA. Commenters are strongly encouraged to submit public comments
electronically. Written comments and recommendations for the proposed
information collection should be sent to www.reginfo.gov/public/do/PRAMain, with copies to the IRS. Find this particular information
collection by selecting ``Currently under Review--Open for Public
Comments,'' then by using the search function. Submit electronic
submissions for the proposed information collection to the IRS via
email at [email protected] (indicate REG-111629-23 on the Subject
line). Comments on the collection of information should be received by
September 19, 2024. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility; the accuracy of the estimated
burden associated with the proposed collection of information; how the
quality, utility, and clarity of the information to be collected may be
enhanced; how the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6)
(``RFA''), it is hereby certified that these proposed regulations would
not have a significant economic impact on a substantial number of small
entities within the meaning of section 601(6) of the RFA (``small
entities'').
Generally, the proposed regulations affect certain U.S. taxpayers
that have foreign operations. Specifically, the proposed regulations
affect U.S. shareholders that make or revoke certain elections with
respect to the computation of their CFCs' foreign currency gains and
losses. The number of small entities potentially affected by the
proposed regulations is unknown and cannot be reliably estimated;
however, it is unlikely to be a substantial number because taxpayers
with foreign operations are typically larger businesses. Due to the low
expected number of potentially affected taxpayers, and the fact that
the proposed regulations only amend the timing of these elections and
revocations that taxpayers may already be making, the Treasury
Department and the IRS believe the proposed regulations should not
materially impact a substantial number of small entities within the
meaning of the RFA.
Accordingly, the Secretary certifies that the proposed regulations
will not have a significant economic impact on a substantial number of
small entities, and a regulatory flexibility analysis is not required.
IV. Section 7805(f)
Pursuant to section 7805(f), these proposed regulations have been
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small businesses. The
Treasury Department and the IRS also request comments from the public
on the analysis in part III of the Special Analyses.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
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
[[Page 67340]]
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. This proposed rule
does 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.
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. These 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.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS as prescribed in this preamble under the ADDRESSES section.
The Treasury Department and the IRS request comments on all aspects of
these proposed regulations, including the procedures for making and
revoking a proposed Sec. 1.988-7 election. Any comments submitted will
be made available at www.regulations.gov or upon request.
A public hearing will be scheduled if requested in writing by any
person who timely submits 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.
Drafting Information
The principal authors of these regulations are Edward Tracy and
Shane Ward of the Office of Associate Chief Counsel (International).
However, other personnel from the Treasury Department and the IRS
participated in their development.
Statement of Availability of IRS Documents
IRS Revenue Procedures, Revenue Rulings, Notices, and other
guidance cited in this document are published in the Internal Revenue
Bulletin or Cumulative Bulletin and are available from the
Superintendent of Documents, U.S. Government Publishing Office,
Washington, DC 20402, or by visiting the IRS website at www.irs.gov.
Partial Withdrawal of Proposed Regulations
Under the authority of 26 U.S.C. 7805, proposed Sec. 1.954-
2(g)(3)(iii) and (g)(4)(iii) and proposed Sec. 1.988-7(c) through (e),
contained in the notice of proposed rulemaking that was published in
the Federal Register on December 19, 2017 (82 FR 60135), are withdrawn.
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 * * *
Par. 2. Section 1.954-2 is amended by:
0
1. Revising the first sentence of paragraph (g)(3)(ii) introductory
text;
0
2. Revising paragraphs (g)(3)(iii) and (g)(4)(iii); and
0
3. Adding two sentences to the end of paragraph (i)(3).
The revisions and additions read as follows:
Sec. 1.954-2 Foreign personal holding company income.
* * * * *
(g) * * *
(3) * * *
(ii) * * * The controlling United States shareholders, as defined
in Sec. 1.964-1(c)(5)(i), make the election on behalf of the
controlled foreign corporation by filing a statement with their timely-
filed, original Federal income tax returns for the taxable year of the
United States shareholders in which or with which the taxable year of
the controlled foreign corporation for which the election is made ends,
clearly indicating that the election has been made. * * *
(iii) Revocation of election. An election under this paragraph
(g)(3) is effective for the taxable year of the controlled foreign
corporation for which it is made and all subsequent taxable years of
such corporation unless revoked by the Commissioner or as provided in
this paragraph (g)(3)(iii) by the controlling United States
shareholders (as defined in Sec. 1.964-1(c)(5)(i)) of the controlled
foreign corporation. Once made, an election under this paragraph (g)(3)
cannot be revoked by the controlled foreign corporation's controlling
United States shareholders (as defined in Sec. 1.964-1(c)(5)(i)) until
the sixth taxable year following the year in which the previous
election was made. Further, if an election has been revoked under this
paragraph (g)(3)(iii), a new election may not be made until the sixth
taxable year following the year in which the previous election was
revoked. The controlling United States shareholders revoke an election
on behalf of a controlled foreign corporation by filing a statement
that clearly indicates such election has been revoked with their
original or amended income tax returns for the taxable year of such
United States shareholders in which or with which the taxable year of
the controlled foreign corporation for which the election is revoked
ends.
* * * * *
(4) * * *
(iii) Revocation of election. An election under this paragraph
(g)(4) is effective for the taxable year of the controlled foreign
corporation for which it is made and all subsequent taxable years of
such corporation unless revoked by the Commissioner or as provided in
this paragraph (g)(4)(iii) by the controlling United States
shareholders (as defined in Sec. 1.964-1(c)(5)(i)) of the controlled
foreign corporation. Once made, an election under this paragraph (g)(4)
cannot be revoked by the controlled foreign corporation's controlling
United States shareholders (as defined in Sec. 1.964-1(c)(5)(i)) until
the sixth taxable year following the year in which the previous
election was made. Further, if an election has been revoked under this
paragraph (g)(4)(iii), a new election may not be made until the sixth
taxable year following the year in which the previous election was
revoked. The controlling United States shareholders revoke an election
on behalf of a controlled foreign corporation by filing a statement
that clearly indicates such election has been revoked with their
original or amended income tax returns for the taxable year of such
United States shareholders in which or with which the taxable year of
the controlled foreign corporation for which the election is revoked
ends.
* * * * *
(i) * * *
[[Page 67341]]
(3) * * * Paragraphs (g)(3)(ii) and (iii) and (g)(4)(iii) of this
section apply to taxable years of controlled foreign corporations
ending on or after [DATE OF PUBLICATION OF FINAL RULE]. For taxable
years of controlled foreign corporations ending before [DATE OF
PUBLICATION OF FINAL RULE], see Sec. 1.954-2(g)(3)(ii) and (iii) and
(g)(4)(iii) as in effect and contained in 26 CFR part 1, as revised
April 1, 2024.
Par. 3. Section 1.988-7, as proposed to be added at 82 FR 60143
(December 19, 2017), is amended by adding paragraphs (c) through (e) to
read as follows:
Sec. 1.988-7 Election to mark-to-market foreign currency gain or loss
on section 988 transactions.
* * * * *
(c) Time and manner of election--(1) In general. Except as
otherwise provided in this paragraph (c), a taxpayer makes the election
under paragraph (a) of this section by filing a statement that clearly
indicates that the election has been made with the taxpayer's timely-
filed (excluding extensions) original Federal income tax return for the
taxable year immediately preceding the year for which the election is
made.
(2) New taxpayers. In the case of a taxpayer for which no Federal
income tax return was required to be filed for the taxable year
immediately preceding the year for which the election is made, the
taxpayer makes the election under paragraph (a) of this section by
preparing a statement that clearly indicates the election has been made
and:
(i) Placing the statement in the taxpayer's books and records by no
later than 2 months and 15 days after the first day of the year for
which the election is made; and
(ii) Filing the statement with the taxpayer's original Federal
income tax return for the taxable year for which the election is made.
(3) Elections on behalf of CFCs. In the case of a controlled
foreign corporation, the controlling United States shareholders (as
defined in Sec. 1.964-1(c)(5)(i)) make the election under paragraph
(a) of this section on behalf of the controlled foreign corporation by
preparing a statement that clearly indicates the election has been made
and:
(i) Placing the statement in the controlled foreign corporation's
books and records by no later than 2 months and 15 days after the first
day of the year of the controlled foreign corporation for which the
election is made; and
(ii) Filing the statement with their original Federal income tax
returns for the taxable year of the United States shareholders in which
or with which the taxable year of the controlled foreign corporation
for which the election is made ends.
(d) Revocation. An election under paragraph (a) of this section is
effective for the taxable year for which it is made and all subsequent
taxable years unless the election is revoked with the consent of the
Commissioner.
(e) Applicability dates. This section applies to taxable years of
taxpayers ending on or after [DATE OF PUBLICATION OF FINAL RULE].
Paragraph (c)(3) of this section applies to taxable years of controlled
foreign corporations ending on or after [DATE OF PUBLICATION OF FINAL
RULE], and to taxable years of United States shareholders in which or
with which the taxable years of those controlled foreign corporations
end.
Heather C. Maloy,
Acting Deputy Commissioner.
[FR Doc. 2024-18281 Filed 8-19-24; 8:45 am]
BILLING CODE 4830-01-P
