[Federal Register Volume 89, Number 161 (Tuesday, August 20, 2024)]
[Proposed Rules]
[Pages 67336-67341]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18281]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-111629-23]
RIN 1545-BM80


Guidance Regarding Elections Relating to Foreign Currency Gains 
and Losses

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking; partial withdrawal of proposed 
rulemaking.

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SUMMARY: This document contains proposed regulations regarding the time 
for making and revoking certain elections relating to foreign currency 
gain or loss.

DATES: Written or electronic comments and requests for a public hearing 
must be received by October 18, 2024. As of August 20, 2024, proposed 
Sec.  1.954-2(g)(3)(iii) and (g)(4)(iii) and proposed Sec.  1.988-7(c) 
through (e), contained in the notice of proposed rulemaking published 
in the Federal Register of December 19, 2017 (82 FR 60135), are 
withdrawn.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically via the Federal eRulemaking Portal at 
www.regulations.gov (indicate IRS and REG-111629-23) by following the 
online instructions for submitting comments. Once submitted to the 
Federal eRulemaking Portal, comments cannot be edited or withdrawn. The 
Department of the Treasury (``Treasury Department'') and the IRS will 
publish for public availability any comments submitted to the IRS's 
public docket. Send hard copy submissions to: CC:PA:01:PR (REG-111629-
23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin 
Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning proposed Sec.  1.954-
2(g)(3)(ii) and (iii) and (g)(4)(iii), Edward Tracy at (202) 317-6934; 
concerning proposed Sec.  1.988-7(c) and (d), Shane Ward at (202) 317-
6938; concerning submissions of comments or requests for a public 
hearing, Vivian Hayes at (202) 317-6901 (not toll free numbers) or 
[email protected].

SUPPLEMENTARY INFORMATION:

Background

I. Elections Under Sec.  1.954-2(g)

    In general, section 954(c)(1)(D) of the Internal Revenue Code and 
Sec.  1.954-2(g) provide that foreign personal holding company income 
(``FPHCI'') includes the excess of foreign currency gains over foreign 
currency losses attributable to any section 988 transactions. Under 
Sec.  1.954-2(g)(3) and (4), two different elections are available to 
United States shareholders (``U.S. shareholders'') that are controlling 
United States shareholders (``controlling U.S. shareholders'') of a 
controlled foreign corporation (``CFC'') with respect to the CFC's 
computation of its FPHCI. First, under Sec.  1.954-2(g)(3), controlling 
U.S. shareholders may elect to exclude foreign currency gain or loss 
otherwise includible in the CFC's FPHCI computation under Sec.  1.954-
2(g) and instead include such foreign currency gain or loss in the 
category (or categories) of subpart F income to which such gain or loss 
relates (the ``Sec.  1.954-2(g)(3) election''). Second, Sec.  1.954-
2(g)(4) provides that controlling U.S. shareholders may elect to treat 
as FPHCI all foreign currency gains or losses attributable to any 
section 988 transaction (except those described in Sec.  1.954-2(g)(5)) 
and any section 1256 contract that would be a section 988 transaction 
but for section 988(c)(1)(D) (the ``Sec.  1.954-2(g)(4) election'' and, 
together with the Sec.  1.954-2(g)(3) election, the ``Sec.  1.954-2(g) 
elections''). A Sec.  1.954-2(g)(4) election supersedes a Sec.  1.954-
2(g)(3) election. Under Sec.  1.954-2(g)(3)(ii) and (g)(4)(ii), 
controlling U.S. shareholders make either of the Sec.  1.954-2(g) 
elections on behalf of the CFC by filing a statement with their 
original income tax return for the ``taxable year of [the U.S. 
shareholders] ending with or within the taxable year of the [CFC]'' for 
which the election is made, clearly indicating that the election has 
been made.

[[Page 67337]]

II. Revocations Under Sec.  1.954-2(g)(3)(iii) and (g)(4)(iii) and 
Proposed Sec.  1.954-2(g)(3)(iii) and (g)(4)(iii)

    Under Sec.  1.954-2(g)(3)(iii) and (g)(4)(iii), a CFC's controlling 
U.S. shareholders may revoke a Sec.  1.954-2(g) election by or with the 
consent of the Commissioner. As part of the 2017 notice of proposed 
rulemaking in respect of Sec.  1.988-7 (the ``2017 proposed 
regulations'') (described further in sections III and IV of this 
Background section of the preamble), revisions were proposed to the 
rules for revoking Sec.  1.954-2(g) elections. 82 FR 60135, 60142-
60143. Under the 2017 proposed regulations, a CFC's controlling U.S. 
shareholders would be permitted to revoke the CFC's Sec.  1.954-2(g) 
election at any time. Proposed Sec.  1.954-2(g)(3)(iii) and 
(g)(4)(iii). Further, the 2017 proposed regulations would provide that 
if the election is revoked, a new election cannot be made until the 
sixth taxable year following the year in which the previous election 
was revoked, and the subsequent election cannot be revoked until the 
sixth taxable year following the year in which the subsequent election 
was made. Id. Similar to the procedure for making Sec.  1.954-2(g) 
elections, a CFC's controlling U.S. shareholders would revoke Sec.  
1.954-2(g) elections on behalf of the CFC under the 2017 proposed 
regulations by filing a statement that clearly indicates that the 
election has been revoked with their original or amended income tax 
returns for ``the taxable year of [the U.S. shareholders] ending with 
or within the taxable year of the [CFC] for which the election is 
revoked.'' Id. The 2017 proposed regulations permitted taxpayers to 
rely on proposed Sec.  1.954-2(g)(3)(iii) and (g)(4)(iii) to revoke 
Sec.  1.954-2(g) elections for taxable years ending on or after 
December 19, 2017, subject to a consistency requirement. 82 FR 60135, 
60141.

III. Election Under Proposed Sec.  1.988-7(c)

    Under the 2017 proposed regulations, a taxpayer, including a CFC, 
would be permitted to elect to use a mark-to-market method of 
accounting for section 988 gain or loss with respect to certain section 
988 transactions (the ``proposed Sec.  1.988-7 election''). Proposed 
Sec.  1.988-7(a). Under proposed Sec.  1.988-7(c) of the 2017 proposed 
regulations, a taxpayer makes a proposed Sec.  1.988-7 election by 
filing a statement that clearly indicates that the election has been 
made with its timely-filed original Federal income tax return for the 
taxable year for which the election is made. In the case of a CFC, the 
controlling U.S. shareholders make the proposed Sec.  1.988-7 election 
on behalf of the CFC by filing a statement that clearly indicates that 
the election has been made with their timely-filed, original Federal 
income tax returns for the ``taxable year of [the U.S. shareholders] 
ending with or within the taxable year of the [CFC] for which the 
election is made.'' The preamble to the 2017 proposed regulations 
stated that taxpayers are permitted to rely on proposed Sec.  1.988-
7(c) to make a proposed Sec.  1.988-7 election for taxable years ending 
on or after December 19, 2017, subject to a consistency requirement. 82 
FR 60135, 60141.

IV. Revocation Under Proposed Sec.  1.988-7(d)

    Under the 2017 proposed regulations, a taxpayer, including a CFC, 
would be permitted to revoke its proposed Sec.  1.988-7 election at any 
time. Proposed Sec.  1.988-7(d). Further, the 2017 proposed regulations 
provided that if a proposed Sec.  1.988-7 election has been revoked, a 
new proposed Sec.  1.988-7 election cannot be made until the sixth 
taxable year following the year in which the previous election was 
revoked, and a subsequent election cannot be revoked until the sixth 
taxable year following the year in which the subsequent election was 
made. Id. Under the 2017 proposed regulations, a taxpayer would revoke 
a proposed Sec.  1.988-7 election by filing a statement that clearly 
indicates that the election has been revoked with its original or 
amended Federal income tax return for the taxable year for which the 
election is revoked. Id. The preamble to the 2017 proposed regulations 
stated that taxpayers are permitted to rely on proposed Sec.  1.988-
7(d) to revoke a proposed Sec.  1.988-7 election for taxable years 
ending on or after December 19, 2017, subject to a consistency 
requirement. 82 FR 60135, 60141.

Explanation of Provisions

I. Proposed Modification to Sec.  1.954-2(g)(3)(ii) and Withdrawal and 
Re-Proposal of Proposed Sec.  1.954-2(g)(3)(iii) and (g)(4)(iii)

    The Treasury Department and the IRS have received several inquiries 
regarding the procedure for making Sec.  1.954-2(g) elections. 
Specifically, practitioners have noted that the language of Sec.  
1.954-2(g)(3)(ii) is inconsistent with other filing requirements with 
respect to CFCs, which generally must be filed by U.S. shareholders for 
the taxable year of a CFC that ends with or within the taxable year of 
the U.S. shareholders. See, e.g., Sec. Sec.  1.964-1(c)(3)(ii) and 
1.951A-2(c)(7)(viii)(A)(1)(i). Additionally, the practitioners noted 
that under Sec.  1.954-2(g)(3)(ii), inconsistencies in treatment can 
arise between a controlling U.S. shareholder that owns a CFC with a 
matching taxable year and a controlling U.S. shareholder that owns a 
CFC with a short year or whose taxable year differs from the 
controlling U.S. shareholder's taxable year. With respect to CFCs with 
short years, a controlling U.S. shareholder will be prevented from 
making Sec.  1.954-2(g) elections for those years if no year of the 
controlling U.S. shareholder ends with or within the CFC's short year.
    To address the issues raised by practitioners' inquiries, and to 
promote consistency with other filing requirements with respect to 
CFCs, these proposed regulations would revise Sec.  1.954-2(g)(3)(ii) 
to provide that controlling U.S. shareholders make a Sec.  1.954-2(g) 
election on behalf of a CFC by filing a statement with their original 
income tax returns for the taxable years of the controlling U.S. 
shareholders in which or with which the taxable year of the CFC for 
which the election is made ends, clearly indicating that the election 
has been made. Additionally, these proposed regulations withdraw 
proposed Sec.  1.954-2(g)(3)(iii) and (g)(4)(iii) as included in the 
2017 proposed regulations and re-propose them to provide that 
controlling U.S. shareholders revoke a Sec.  1.954-2(g) election on 
behalf of a CFC by filing a statement with their original income tax 
returns for the taxable years of the controlling U.S. shareholders in 
which or with which the taxable year of the CFC for which the 
revocation is made ends, clearly indicating that the Sec.  1.954-2(g) 
election has been revoked.
    Under newly proposed Sec.  1.954-2(g)(3)(iii) and (g)(4)(iii), 
however, controlling U.S. shareholders would be precluded from revoking 
a Sec.  1.954-2(g) election made on behalf of a CFC (including an 
initial election) until the sixth taxable year following the year in 
which the election was made. Further, proposed Sec.  1.954-2(g)(3)(iii) 
and (g)(4)(iii) would provide that if a CFC's controlling U.S. 
shareholders revoke a Sec.  1.954-2(g) election, they may not make a 
new Sec.  1.954-2(g) election on behalf of the CFC until the sixth 
taxable year following the year in which the previous election was 
revoked. This change to the revocation rules under proposed Sec.  
1.954-2(g)(3)(iii) and (g)(4)(iii) would limit taxpayers from 
opportunistically making or revoking a Sec.  1.954-2(g) election; for 
example, this change would limit taxpayers' ability to selectively 
recognize certain foreign currency losses. The Treasury

[[Page 67338]]

Department and the IRS request comments on this aspect of proposed 
Sec.  1.954-2(g)(3)(iii) and (g)(4)(iii).

II. Proposed Amendments to Proposed Sec.  1.988-7(c) and (d)

    The Treasury Department and the IRS are of the view that the rules 
for making and revoking a proposed Sec.  1.988-7 election under the 
2017 proposed regulations provided an excessive amount of flexibility. 
The 2017 proposed regulations would have permitted a taxpayer to make a 
proposed Sec.  1.988-7 election after the end of the year to which the 
election would apply, which would give the taxpayer the ability to 
determine with certainty whether the election would be beneficial for 
that year. For example, and as one comment noted, the ability to make 
and revoke an initial election without restriction would provide a one-
time opportunity to selectively recognize foreign currency losses by 
making an initial election for a particular year after the taxpayer has 
determined that it has net foreign currency losses on section 988 
transactions for a taxable year and then immediately revoking the 
election.
    Upon further consideration of the 2017 proposed regulations and the 
comments received, the Treasury Department and the IRS are of the view 
that the time for making and revoking a proposed Sec.  1.988-7 election 
(permitting a taxpayer to use a mark-to-market method of accounting for 
section 988 gain or loss with respect to section 988 transactions) 
should accord with the time for making and revoking an election under 
section 475(e) or (f) (a ``section 475 election'') (permitting a dealer 
in commodities or a trader in securities or commodities to use the 
mark-to-market method of accounting). The Treasury Department and the 
IRS are of the view that aligning proposed Sec.  1.988-7 with the rules 
for making a section 475 election will deter selectively recognizing 
losses. The rules for making or revoking a section 475 election deter 
taxpayers from selectively recognizing losses by requiring that 
taxpayers generally make an election on the tax return for the year 
immediately preceding the year to which the election applies, see 
section 5.03 of Rev. Proc. 99-17, 1999-1 C.B. 503, 504-505, and then by 
requiring taxpayers to apply that election to all subsequent years 
unless the taxpayers obtain the consent of the Commissioner. See 
section 475(e)(3) and (f)(3). The Treasury Department and the IRS 
expect that implementing similar rules for making a proposed Sec.  
1.988-7 election would also prevent selective recognition of losses. 
The Treasury Department and the IRS also expect that aligning the rules 
for making a proposed Sec.  1.988-7 election with the rules for making 
a section 475 election will foster compliance, especially for those 
taxpayers already making a section 475 election, by providing the same 
procedures for making or revoking these elections to adopt a mark-to-
market method of accounting. As a result, these proposed regulations 
would permit taxpayers to make and revoke a proposed Sec.  1.988-7 
election under rules similar to the rules for making and revoking a 
section 475 election.
    Proposed Sec.  1.988-7(d) would provide that the election made 
pursuant to proposed Sec.  1.988-7(c) is subject to rules similar to 
those imposed on section 475 elections. The election would be effective 
for the taxable year for which it is made and all subsequent years. 
Proposed Sec.  1.988-7(d) also would provide that a taxpayer may revoke 
the election only with the consent of the Commissioner.
    To adopt a method of accounting as described in proposed Sec.  
1.988-7, a taxpayer must receive the consent of the Commissioner to 
implement that change of accounting method in accordance with the 
applicable administrative procedures provided in the Internal Revenue 
Bulletin. Section 446(e); Sec.  1.446-1(e)(2); see also Rev. Proc. 
2015-13, 2015-5 I.R.B. 419; Rev. Proc. 2024-1, 2024-1 I.R.B. 1. When 
these proposed regulations are finalized, the Treasury Department and 
the IRS expect to issue a revenue procedure setting forth the terms and 
conditions under which a change of method of accounting with respect to 
the mark-to-market method under Sec.  1.988-7 will be granted. The 
Treasury Department and the IRS anticipate that these terms and 
conditions will address: whether this change should be subject to a 
cutoff method or another method requiring a section 481(a) adjustment; 
the appropriate circumstances under which a taxpayer must establish a 
substantial business reason for the change; whether there are 
appropriate circumstances under which an automatic change in method of 
accounting should be permitted; and the extent to which these terms and 
conditions should incorporate or deviate from the terms and conditions 
for changing a mark-to-market method of accounting under section 475(e) 
or (f), see section 24 of Rev. Proc. 2024-23.
    The Treasury Department and the IRS solicit comments regarding all 
aspects of the rules for making and revoking the proposed Sec.  1.988-7 
election, including the terms and conditions under which a change of 
method of accounting with respect to the mark-to-market method under 
Sec.  1.988-7 will be granted and whether to require that related 
parties apply a proposed Sec.  1.988-7 election in a consistent manner, 
such as in the case of a section 987 election under proposed Sec.  
1.987-1(g)(2) (88 FR 78134, 78164-78165). Comments submitted pursuant 
to the 2017 proposed regulations will also be considered.

III. Other Nonsubstantive Changes

    These proposed regulations would make nonsubstantive changes to 
Sec.  1.954-2(g)(3)(ii) and re-proposed Sec.  1.954-2(g)(3)(iii) and 
(g)(4)(iii). These changes are intended to improve the clarity of those 
regulations, including by updating the cross-references to the 
definition of controlling U.S. shareholders from ``Sec.  1.964-
1(c)(5)'' to ``Sec.  1.964-1(c)(5)(i)'' to more precisely reference the 
definition with respect to CFCs and not other foreign corporations, and 
by providing that a Sec.  1.954-2(g) election must be made on a timely-
filed, original Federal income tax return for consistency with proposed 
Sec.  1.988-7 elections.

IV. Applicability Dates

    These proposed regulations generally are proposed to apply to 
taxable years ending on or after the date of publication of the 
Treasury decision adopting these rules as final regulations in the 
Federal Register (the ``finalization date''). See proposed Sec. Sec.  
1.954-2(i)(3) and 1.988-7(e). The remainder of this section of the 
preamble discusses taxpayers' ability to rely on the proposed 
regulations and the treatment of certain elections, or revocation of 
elections, made in earlier periods.
A. Section 954 regulations
    For taxable years ending before the finalization date, taxpayers 
may rely on proposed Sec.  1.954-2(g)(3)(ii) and re-proposed Sec.  
1.954-2(g)(3)(iii) and (g)(4)(iii) in making and revoking Sec.  1.954-
2(g) elections, provided that they consistently apply proposed Sec.  
1.954-2(g)(3)(ii) and (iii) and (g)(4)(iii) to such taxable years. 
Furthermore, with respect to any taxpayer that made a Sec.  1.954-2(g) 
election in the manner set forth in proposed Sec.  1.954-2(g)(3)(ii) of 
these proposed regulations for a taxable year beginning after November 
6, 1995 (as provided in TD 8618, 60 FR 46517, 46527), and ending before 
August 19, 2024, and any taxpayer that revoked a Sec.  1.954-2(g) 
election in the manner set forth in proposed Sec.  1.954-2(g)(3)(iii) 
or (g)(4)(iii) of these proposed regulations for a taxable year ending 
on or after

[[Page 67339]]

December 19, 2017, and before August 19, 2024, the IRS will respect 
such election or revocation as having been timely made for the relevant 
taxable year. As of August 19, 2024, taxpayers may no longer rely on 
proposed Sec.  1.954-2(g)(3)(iii) and (g)(4)(iii) included in the 2017 
proposed regulations.
B. Section 988 regulations
    For taxable years ending before the finalization date, taxpayers 
may rely on proposed Sec.  1.988-7(c) and (d) in making and revoking 
the proposed Sec.  1.988-7 election, provided that they consistently 
apply proposed Sec.  1.988-7(c) and (d) to such taxable years. 
Furthermore, if a taxpayer made or revoked a proposed Sec.  1.988-7 
election on behalf of a CFC pursuant to the reliance provided by 82 FR 
60135, 60141, but filed the election or revocation in the manner set 
forth in proposed Sec.  1.988-7(c)(3)(ii), the IRS will respect such 
election or revocation as having been timely made for the relevant 
taxable year. However, as of August 19, 2024, taxpayers may no longer 
rely on proposed Sec.  1.988-7(c) and (d) included in the 2017 proposed 
regulations.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (``PRA'') 
generally requires that a Federal agency obtain the approval of the 
Office of Management and Budget (``OMB'') before collecting information 
from the public, whether the collection of information is mandatory, 
voluntary, or required to obtain or retain a benefit. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a valid control number 
assigned by the OMB.
    The collections of information included in these proposed 
regulations are in proposed Sec.  1.954-2(g)(3)(ii) and (iii) and 
(g)(4)(iii) and proposed Sec.  1.988-7(c). The information provided 
will generally be used by the IRS for tax compliance purposes or by 
taxpayers to report making or revoking elections.
    The collection of information in these proposed regulations is for 
taxpayers to make or revoke an election as detailed in proposed Sec.  
1.954-2(g)(3)(ii) and (iii) and (g)(4)(iii) and proposed Sec.  1.988-
7(c). Taxpayers must inform the IRS of these elections and revocations 
by attaching a statement to their tax return. The information is 
required to be provided by taxpayers that are U.S. shareholders of CFCs 
and shareholders of certain foreign corporations that make or revoke an 
election with respect to the treatment of a foreign corporation's 
foreign currency gains and losses. The likely respondents are 
individual, business, and trust and estate filers.
    For purposes of the PRA, the reporting and recordkeeping burden 
associated with the collections of information in proposed Sec.  1.954-
2(g)(3)(ii) and (iii) and (g)(4)(iii) and proposed Sec.  1.988-7(c) 
will be accounted for in OMB control number 1545-0074 for individual 
filers and 1545-0123 for business filers.
    The IRS will seek OMB approval under a new OMB Control Number 
(1545-NEW) for trust and estate filers.
    Estimated total annual reporting and recordkeeping burden for 
trusts and estates filers: 61 hours.
    Estimated average annual burden per respondent: 1 hour.
    Estimated number of respondents: 61.
    Estimated frequency of responses: one-time election or revocation.
    The collections of information contained in these proposed 
regulations have been submitted to OMB for review in accordance with 
the PRA. Commenters are strongly encouraged to submit public comments 
electronically. Written comments and recommendations for the proposed 
information collection should be sent to www.reginfo.gov/public/do/PRAMain, with copies to the IRS. Find this particular information 
collection by selecting ``Currently under Review--Open for Public 
Comments,'' then by using the search function. Submit electronic 
submissions for the proposed information collection to the IRS via 
email at [email protected] (indicate REG-111629-23 on the Subject 
line). Comments on the collection of information should be received by 
September 19, 2024. Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility; the accuracy of the estimated 
burden associated with the proposed collection of information; how the 
quality, utility, and clarity of the information to be collected may be 
enhanced; how the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and estimates of capital or start-up costs and costs of 
operation, maintenance, and purchase of services to provide 
information.

III. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
(``RFA''), it is hereby certified that these proposed regulations would 
not have a significant economic impact on a substantial number of small 
entities within the meaning of section 601(6) of the RFA (``small 
entities'').
    Generally, the proposed regulations affect certain U.S. taxpayers 
that have foreign operations. Specifically, the proposed regulations 
affect U.S. shareholders that make or revoke certain elections with 
respect to the computation of their CFCs' foreign currency gains and 
losses. The number of small entities potentially affected by the 
proposed regulations is unknown and cannot be reliably estimated; 
however, it is unlikely to be a substantial number because taxpayers 
with foreign operations are typically larger businesses. Due to the low 
expected number of potentially affected taxpayers, and the fact that 
the proposed regulations only amend the timing of these elections and 
revocations that taxpayers may already be making, the Treasury 
Department and the IRS believe the proposed regulations should not 
materially impact a substantial number of small entities within the 
meaning of the RFA.
    Accordingly, the Secretary certifies that the proposed regulations 
will not have a significant economic impact on a substantial number of 
small entities, and a regulatory flexibility analysis is not required.

IV. Section 7805(f)

    Pursuant to section 7805(f), these proposed regulations have been 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small businesses. The 
Treasury Department and the IRS also request comments from the public 
on the analysis in part III of the Special Analyses.

V. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may

[[Page 67340]]

result in expenditures in any one year by a State, local, or Tribal 
government, in the aggregate, or by the private sector, of $100 million 
in 1995 dollars, updated annually for inflation. This proposed rule 
does not include any Federal mandate that may result in expenditures by 
State, local, or Tribal governments, or by the private sector in excess 
of that threshold.

VI. Executive Order 13132: Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These proposed regulations do not 
have federalism implications and do not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ADDRESSES section. 
The Treasury Department and the IRS request comments on all aspects of 
these proposed regulations, including the procedures for making and 
revoking a proposed Sec.  1.988-7 election. Any comments submitted will 
be made available at www.regulations.gov or upon request.
    A public hearing will be scheduled if requested in writing by any 
person who timely submits written comments. Requests for a public 
hearing are also encouraged to be made electronically. If a public 
hearing is scheduled, notice of the date and time for the public 
hearing will be published in the Federal Register.

Drafting Information

    The principal authors of these regulations are Edward Tracy and 
Shane Ward of the Office of Associate Chief Counsel (International). 
However, other personnel from the Treasury Department and the IRS 
participated in their development.

Statement of Availability of IRS Documents

    IRS Revenue Procedures, Revenue Rulings, Notices, and other 
guidance cited in this document are published in the Internal Revenue 
Bulletin or Cumulative Bulletin and are available from the 
Superintendent of Documents, U.S. Government Publishing Office, 
Washington, DC 20402, or by visiting the IRS website at www.irs.gov.

Partial Withdrawal of Proposed Regulations

    Under the authority of 26 U.S.C. 7805, proposed Sec.  1.954-
2(g)(3)(iii) and (g)(4)(iii) and proposed Sec.  1.988-7(c) through (e), 
contained in the notice of proposed rulemaking that was published in 
the Federal Register on December 19, 2017 (82 FR 60135), are withdrawn.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 1 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. Section 1.954-2 is amended by:

0
1. Revising the first sentence of paragraph (g)(3)(ii) introductory 
text;
0
2. Revising paragraphs (g)(3)(iii) and (g)(4)(iii); and
0
3. Adding two sentences to the end of paragraph (i)(3).
    The revisions and additions read as follows:


Sec.  1.954-2  Foreign personal holding company income.

* * * * *
    (g) * * *
    (3) * * *
    (ii) * * * The controlling United States shareholders, as defined 
in Sec.  1.964-1(c)(5)(i), make the election on behalf of the 
controlled foreign corporation by filing a statement with their timely-
filed, original Federal income tax returns for the taxable year of the 
United States shareholders in which or with which the taxable year of 
the controlled foreign corporation for which the election is made ends, 
clearly indicating that the election has been made. * * *
    (iii) Revocation of election. An election under this paragraph 
(g)(3) is effective for the taxable year of the controlled foreign 
corporation for which it is made and all subsequent taxable years of 
such corporation unless revoked by the Commissioner or as provided in 
this paragraph (g)(3)(iii) by the controlling United States 
shareholders (as defined in Sec.  1.964-1(c)(5)(i)) of the controlled 
foreign corporation. Once made, an election under this paragraph (g)(3) 
cannot be revoked by the controlled foreign corporation's controlling 
United States shareholders (as defined in Sec.  1.964-1(c)(5)(i)) until 
the sixth taxable year following the year in which the previous 
election was made. Further, if an election has been revoked under this 
paragraph (g)(3)(iii), a new election may not be made until the sixth 
taxable year following the year in which the previous election was 
revoked. The controlling United States shareholders revoke an election 
on behalf of a controlled foreign corporation by filing a statement 
that clearly indicates such election has been revoked with their 
original or amended income tax returns for the taxable year of such 
United States shareholders in which or with which the taxable year of 
the controlled foreign corporation for which the election is revoked 
ends.
* * * * *
    (4) * * *
    (iii) Revocation of election. An election under this paragraph 
(g)(4) is effective for the taxable year of the controlled foreign 
corporation for which it is made and all subsequent taxable years of 
such corporation unless revoked by the Commissioner or as provided in 
this paragraph (g)(4)(iii) by the controlling United States 
shareholders (as defined in Sec.  1.964-1(c)(5)(i)) of the controlled 
foreign corporation. Once made, an election under this paragraph (g)(4) 
cannot be revoked by the controlled foreign corporation's controlling 
United States shareholders (as defined in Sec.  1.964-1(c)(5)(i)) until 
the sixth taxable year following the year in which the previous 
election was made. Further, if an election has been revoked under this 
paragraph (g)(4)(iii), a new election may not be made until the sixth 
taxable year following the year in which the previous election was 
revoked. The controlling United States shareholders revoke an election 
on behalf of a controlled foreign corporation by filing a statement 
that clearly indicates such election has been revoked with their 
original or amended income tax returns for the taxable year of such 
United States shareholders in which or with which the taxable year of 
the controlled foreign corporation for which the election is revoked 
ends.
* * * * *
    (i) * * *

[[Page 67341]]

    (3) * * * Paragraphs (g)(3)(ii) and (iii) and (g)(4)(iii) of this 
section apply to taxable years of controlled foreign corporations 
ending on or after [DATE OF PUBLICATION OF FINAL RULE]. For taxable 
years of controlled foreign corporations ending before [DATE OF 
PUBLICATION OF FINAL RULE], see Sec.  1.954-2(g)(3)(ii) and (iii) and 
(g)(4)(iii) as in effect and contained in 26 CFR part 1, as revised 
April 1, 2024.
    Par. 3. Section 1.988-7, as proposed to be added at 82 FR 60143 
(December 19, 2017), is amended by adding paragraphs (c) through (e) to 
read as follows:


Sec.  1.988-7  Election to mark-to-market foreign currency gain or loss 
on section 988 transactions.

* * * * *
    (c) Time and manner of election--(1) In general. Except as 
otherwise provided in this paragraph (c), a taxpayer makes the election 
under paragraph (a) of this section by filing a statement that clearly 
indicates that the election has been made with the taxpayer's timely-
filed (excluding extensions) original Federal income tax return for the 
taxable year immediately preceding the year for which the election is 
made.
    (2) New taxpayers. In the case of a taxpayer for which no Federal 
income tax return was required to be filed for the taxable year 
immediately preceding the year for which the election is made, the 
taxpayer makes the election under paragraph (a) of this section by 
preparing a statement that clearly indicates the election has been made 
and:
    (i) Placing the statement in the taxpayer's books and records by no 
later than 2 months and 15 days after the first day of the year for 
which the election is made; and
    (ii) Filing the statement with the taxpayer's original Federal 
income tax return for the taxable year for which the election is made.
    (3) Elections on behalf of CFCs. In the case of a controlled 
foreign corporation, the controlling United States shareholders (as 
defined in Sec.  1.964-1(c)(5)(i)) make the election under paragraph 
(a) of this section on behalf of the controlled foreign corporation by 
preparing a statement that clearly indicates the election has been made 
and:
    (i) Placing the statement in the controlled foreign corporation's 
books and records by no later than 2 months and 15 days after the first 
day of the year of the controlled foreign corporation for which the 
election is made; and
    (ii) Filing the statement with their original Federal income tax 
returns for the taxable year of the United States shareholders in which 
or with which the taxable year of the controlled foreign corporation 
for which the election is made ends.
    (d) Revocation. An election under paragraph (a) of this section is 
effective for the taxable year for which it is made and all subsequent 
taxable years unless the election is revoked with the consent of the 
Commissioner.
    (e) Applicability dates. This section applies to taxable years of 
taxpayers ending on or after [DATE OF PUBLICATION OF FINAL RULE]. 
Paragraph (c)(3) of this section applies to taxable years of controlled 
foreign corporations ending on or after [DATE OF PUBLICATION OF FINAL 
RULE], and to taxable years of United States shareholders in which or 
with which the taxable years of those controlled foreign corporations 
end.

Heather C. Maloy,
Acting Deputy Commissioner.
[FR Doc. 2024-18281 Filed 8-19-24; 8:45 am]
BILLING CODE 4830-01-P