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...987 qualified business unit (QBU), well as the timing, amount, character, and source of any section 987 gain or loss (the "2006 proposed regulations" or the "revised regulations"). The revised regulations were published in the September 7, 2006, issue of the FEDERAL REGISTER (71 Fed. Reg. 52875) and in the October 16, 2006, issue of the INTERNAL REVENUE BULLETIN (2006-42 I.R.B. 698).
The notice withdraws proposed regulations under section 987 that were published in the FEDERAL REGISTER on September 25, 1991 (the "1991 proposed regulations"), and significantly revises those regulations.
Background
Tax Executives Institute is the preeminent association of business tax executives in North America. Our nearly 7,000 members represent 3,000 of the leading corporations in the United States, Canada, Europe, and Asia. TEI represents a cross-section of the business community, and is dedicated to developing and effectively implementing sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works--one that is administrable and with which taxpayers can comply in a cost-efficient manner.
Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring a balanced and practical perspective to the 2006 proposed regulations.
Executive Summary
TEI recommends that the 2006 proposed regulations reflect that virtually all assets used in the ordinary course of business--other than securities and investment in affiliates and associated acquisition debt--generate economic gains and losses. The calculation of net income or loss from the section 987 QBU should more closely follow sections 987(1) and (2), as well as the 1991 proposed regulations. An average exchange rate or a year-end spot rate to translate the assets and liabilities of the section 987 QBU at year end should be adopted. In the event this recommendation is not adopted, then TEI recommends the following modifications to simplify compliance:
* Reduce the scope of items classified as section 987 historic items; and
* Permit an election to use broader reasonable conventions for the spot rate under Prop. Reg. [section] 1.987-1(c)(1)(ii).
In addition, TEI recommends the following changes to the 2006 proposed regulations:
* Permit taxpayers to apply the regulations retroactively to all open years;
* Adopt a true fresh start for translating the opening balance sheet upon adoption of the fresh start method;
* Clarify the method for electing the transition method and confirm that no section 481 adjustments are required;
* Permit deferral of exchange gains to a broader group of intra-consolidated group transactions involving sections 351 and 332 transfers of section 987 QBUs;
* Clarify that an ordinary course of business transaction with its owner does not result in a transfer to or from a section 987 QBU for purposes of section 987(3) and calculations of exchange gains and losses under Prop. Reg. [section] 1.987-4; and
* Modify the calculation of exchange gains and losses under Prop. Reg. [section] 1.987-4 to incorporate nontaxable or certain timing items that otherwise affect the net worth of the section 987 QBU.
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