Notice 2017-07: Revised effective date, temporary regulations under section 987

Notice 2017-07: Temporary regulations under section 987

The IRS today released an advance version of Notice 2017-07, which revises the effective date of temporary regulations (issued in early December 2016) concerning the recognition and deferral of foreign currency gain or loss under section 987 with respect to a “qualified business unit” (QBU) in connection with certain QBU terminations and other transactions involving partnerships.

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Read Notice 2017-07 [PDF 10 KB] 

Background

Under the rules in Reg. section 1.987-12T, section 987 gain or loss is deferred in connection with certain QBU terminations, and certain transactions involving partnerships or disregarded entities. As released on December 7, 2016, Reg. section 1.987-12T generally applies to “deferral events” or “outbound loss events” (collectively, “Events”) that occur on or after January 6, 2017, although the rules also apply to any Event that occurs on or after December 7, 2016 if the event was undertaken with a principal purpose of recognizing section 987 gain or loss. Read TaxNewsFlash-United States

Notice 2017-07

Notice 2017-07 explains that in order to prevent abuse, the applicability of Reg. section 1.987-12T will be extended to apply to events that are deemed to occur as a result of filing entity classification elections retroactively effective to certain dates. 

Specifically, the general rule in Reg. section 1.987-12T(j)(1) will be revised to also apply to any “event” that occurs as a result of an entity classification election made under Reg. section 301.7701-3 that is filed on or after January 6, 2017, and that is effective before January 6, 2017. The special applicability rule in Reg. section 1.987-12T(j)(2) will be revised as well, such that the temporary regulation will apply to any “event” that is undertaken with a principal purpose of recognizing section 987 gain or loss and that occurs as a result of an entity classification election made under Reg. section 301.7701-3 that is filed on or after December 22, 2016, and that is effective before December 7, 2016.

KPMG observation

As a result of today’s notice, taxpayers will not be able to recognize section 987 losses as a result of filing retroactive check the box elections. Nevertheless, Notice 2017-07 does not affect the ability of taxpayers to recognize section 987 losses in 2017 through remittances prior to their transition to the rules in the final section 987 regulations. 

 

For more information, contact a tax professional with KPMG’s Washington National Tax practice:

Barbara Rasch | +1 (202) 533-8181 | brasch@kpmg.com

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