New Section 987 QBU Regs and Outbound Transfers: New Rules Limiting Recognition of Built-In Foreign Currency Losses

Outbound Loss Events, Changes to QBU Termination Treatment, Basis Adjustments on QBUs Transferred to Foreign Affiliates

A live 110-minute CPE webinar with interactive Q&A


Wednesday, November 13, 2019

1:00pm-2:50pm EST, 10:00am-11:50am PST

or call 1-800-926-7926

This webinar will provide corporate tax advisers with a practical guide to the recently issued Section 987 regulations limiting loss recognition opportunities for outbound transfers involving foreign currency losses to foreign qualified business units (QBUs). The panel will detail how the new final regulations require gain recognition but loss deferral on certain QBU termination events, and outline strategies for avoiding recharacterization of QBU losses.

Description

In May 2019 the IRS issued final regulations that significantly limit loss recognition opportunities for outbound transfers of qualified business units (QBUs) to foreign related parties under IRC 987. Tax advisers to corporations looking to restructure through transfers to foreign affiliates must be aware of the impact of the new regulations to avoid costly tax consequences.

A QBU is defined by IRC 989 as any separate and identified unit of a trade or business that maintains separate books and records. U.S. corporations in the past have used restructuring techniques in which QBUs were transferred, either to domestic or foreign-related entities, to trigger ordinary loss recognition in the year of transfer.

The 2019 regulations change the landscape by limiting the recognition of QBU losses when QBUs are transferred outbound, or "outbound loss events." The new rules--part of the foreign anti-abuse regime--generally require immediate recognition of any built-in foreign currency gain, while mandating deferral of any unrecognized 987 loss with a correlative basis adjustment. The new guidance will affect companies with unrecognized Section 987 gains or losses and will limit offshore restructuring opportunities.

Listen as our experienced panel provides a practical guide to the impact on U.S. corporations with QBUs to apply the new IRS final and proposed regulations on Sec. 987 foreign currency translation gains or losses.

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Outline

  1. Definitions and applications of IRC 987
    1. Identifying IRC 989 qualified business units
    2. Statutory framework of 987
    3. Functional currency loss calculation
  2. Prior restructuring opportunities involving recognition of 987 gains and losses in the year of transfer
  3. Final regulations issued May 2019 in TD 9857
    1. Changes to transfer rules in Treas. Reg. 1.987-2
    2. Treas. Reg. 1.987-12(d)(2) new rules specifying deferral events
    3. Outbound loss event recognition deferral requirement
    4. Thresholds requiring deferral on foreign currency 987 losses
  4. Basis adjustment requirement for unrecognized loss in QBU transfer
  5. Restructuring strategies involving QBU transfers under the new guidance

Benefits

The panel will discuss these and other essential questions:

  • How does the new guidance impact restructuring opportunities for U.S. corporations with unrecognized 987 foreign currency losses?
  • What constitutes an "outbound loss event" requiring deferral?
  • Basis adjustments required in an outbound transfer of a QBU with unrecognized Section 987 loss

Faculty

Hsu, Doris
Doris S. Hsu

Principal
The Hsu Law Firm

Ms. Hsu has counseled clients for almost 20 years on the appropriate structures for their businesses and personal...  |  Read More

Skinner, William
William R. Skinner

Partner
Fenwick & West

Mr. Skinner focuses his practice on U.S. international taxation, with a particular emphasis on tax planning and...  |  Read More

Valestin, Laura
Laura Valestin

Partner
PricewaterhouseCoopers

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