[Federal Register Volume 59, Number 141 (Monday, July 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17569]


[[Page Unknown]]

[Federal Register: July 25, 1994]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[INTL-0066-92]
RIN 1545-AS68

 

Change From the Dollar Approximate Separate Transactions Method 
(DASTM) to the Profit and Loss Method of Accounting

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed Income Tax Regulations that 
would require a qualified business unit (QBU) using the dollar 
approximate separate transactions method of accounting (DASTM) to 
change its functional currency when the local currency ceases to be 
hyperinflationary. These regulations provide rules for taxpayers to 
determine when a change from DASTM is required and provide guidance on 
required adjustments relating to the change in method.

DATES: Comments and requests for a public hearing must be received by 
September 23, 1994.

ADDRESSES: Send submissions to: CC:DOM:CORP:T:R (INTL-0066-92), room 
5228, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Jacob Feldman or Teresa B. Hughes, 
(202) 622-3870 (not a toll free call).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) under section 985 of the Internal Revenue 
Code of 1986. The proposed regulations would require a qualified 
business unit that uses the dollar approximate separate transactions 
method to change its functional currency and its method of accounting 
to the profit and loss method when the QBU is no longer operating in an 
environment that has a hyperinflationary currency.

Explanation of Provisions

    Proposed Sec. 1.985-1(b)(2)(ii)(E) provides that a QBU required to 
use the dollar as its functional currency pursuant to Sec. 1.985-
1(b)(2) or a QBU that has elected to use the dollar as its functional 
currency pursuant to Sec. 1.985-2 must redetermine its functional 
currency if for three consecutive taxable years the currency of the 
QBU's economic environment is not a hyperinflationary currency. The 
change in functional currency is treated as made with the consent of 
the Commissioner, and the adjustments required under Sec. 1.985-5 must 
be made in connection with the change.
    The IRS believes it appropriate to require a QBU that is no longer 
operating in a hyperinflationary environment to stop using the dollar 
to compute its income or loss or earnings and profits because of the 
general preference expressed in section 985(b) to use the currency of 
the QBU's economic environment for this purpose. A three year 
measurement period for determining non-hyperinflationary status was 
thought desirable to avoid frequent changes in functional currency for 
QBUs operating in borderline hyperinflationary environments. Comments 
are requested as to whether the three year period is appropriate.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in EO 12866. Therefore, 
a regulatory assessment is not required. It also has been determined 
that section 553(b) of the Administrative Procedure Act (5 U.S.C. 
chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do 
not apply to these regulations, and, therefore, a Regulatory 
Flexibility Analysis is not required. Pursuant to section 7805(f) of 
the Internal Revenue Code, this notice of proposed rulemaking will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (preferably a 
signed original and eight (8) copies) that are submitted timely to the 
IRS. All comments will be available for public inspection and copying. 
A public hearing may be scheduled if requested in writing by a person 
that timely submits written comments. If a public hearing is scheduled, 
notice of the date, time, and place for the hearing will be published 
in the Federal Register.

Drafting Information

    The principal authors of these proposed regulations are Jacob 
Feldman and Teresa B. Hughes of the Office of Associate Chief Counsel 
(International), within the Office of Chief Counsel, IRS. Other 
personnel from the IRS and Treasury Department participated in their 
development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendment to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended 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. In Sec. 1.985-1, paragraph (b)(2)(ii)(E) is added to read 
as follows:


Sec. 1.985-1  Functional currency.

* * * * *
    (b) * * *
    (2) * * *
    (ii) * * *
    (E) Change in functional currency when currency ceases to be 
hyperinflationary--(1) In general. A QBU that has been required to use 
the dollar as its functional currency under paragraph (b)(2) of this 
section, or has elected to use the dollar as its functional currency 
under paragraph (b)(2)(ii)(B)(2) of this section or Sec. 1.985-2, must 
change its functional currency as of the first day of the first taxable 
year that follows three consecutive taxable years in which the currency 
of its economic environment, determined under paragraph (c)(2) of this 
section, is not a hyperinflationary currency. The functional currency 
of the QBU for such year shall be determined in accordance with 
paragraph (c) of this section. For purposes of Sec. 1.985-4, the change 
is considered to be made with the consent of the Commissioner. See 
Sec. 1.985-5 for adjustments that are required upon a change in 
functional currency.
    (2) Effective date. Section 1.985-1(b)(2)(ii)(E) is effective for 
taxable years beginning after the date which is 30 days after the 
publication of final regulations in the Federal Register.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 94-17569 Filed 7-22-94; 8:45 am]
BILLING CODE 4830-01-U