Treasury releases guidance regarding elections relating to foreign currency gains and losses

In brief

What happened?

Treasury and the IRS on August 19 issued proposed regulations regarding the time for making and revoking certain elections relating to foreign currency gain or loss. The proposed regulations change the ability to elect and revoke elections under Treas. Reg. 1.954-2(g)(3), Treas. Reg. 1.954-2(g)(4), and Prop. Reg. 1.988-7 that are (or previously had been) made or revoked with a timely filed tax return. The proposed regulations also partially withdrew certain proposed regulations issued in 2017 (2017 proposed regulations) regarding the same. 

The proposed regulations generally apply to tax years ending on or after the date the final regulations are published in the Federal Register.

The proposed regulations were published in the Federal Register on August 20, 2024. Comments are due October 18, 2024.

Why is it relevant? 

The changes in these proposed regulations are proposed to be effective for taxpayer’s relying on the 2017 proposed regulations as of August 19, 2024, the date the proposed regulations were filed in the Federal Register. Accordingly, taxpayers may not rely on Prop. Reg. 1.954-2(g)(3)(iii), Prop. Reg. 1.954-2(g)(4)(iii), and Prop. Reg. 1.988-7(c) and (d) included in the 2017 proposed regulations starting August 19, 2024.

The proposed regulations require taxpayers to make the Prop. Reg. 1.988-7 election to mark-to-market foreign currency transactions by the due date for the extension for the immediately preceding taxable year. In other words, taxpayers may no longer make such election on a retroactive basis after the applicability date of these proposed regulations. The proposed regulations also propose more restrictions with respect to revoking each of the elections (i.e., Treas. Reg. 1.954-2(g)(3), Treas. Reg. 1.954-2(g)(4), and Prop. Reg. 1.988-7).

Actions to consider

Companies should consider whether to submit comments on the proposed regulations. Comments are due October 18, 2024. Companies should also determine how the applicability dates of the proposed regulations may impact upcoming compliance.