IRS proposes election to waive foreign currency gain reporting for CFCs
Controlled foreign corporations could elect to skip foreign currency gain calculations on QBU remittances, with the election available for the 2025 taxable year.
The Internal Revenue Service issued a notice of proposed rulemaking (FR Doc No: 2026-16569, REG-103844-26, RIN 1545-BS16) that would allow a controlled foreign corporation (CFC) to elect not to compute or recognize foreign currency gain or loss on remittances from its qualified business units (QBUs), except in limited inbound nonrecognition transactions. The election, described in the proposed regulations to be added to 26 CFR Part 1, would apply to CFCs that make the election for the 2025 taxable year.
Under the proposal, any section 987 gain or loss that accrued before the election is made would be amortized over 120 months, consistent with the elective amortization rules in the 2024 final regulations (see Sec. 1.987-10(e)(5)(ii)). The regulations would also require taxpayers to account for foreign currency gain, but not loss, in the case of an inbound liquidation or reorganization described in Sec. 1.367(b)-3(a) of a CFC that has made the election.
The notice also outlines additional regulatory changes, including permission to use an equity and basis pool method for determining section 987 taxable income or loss, a narrowing of loss-suspension rules, simplification of the loss-to-the-extent-of-gain rule, a modified definition of a successor for deferral purposes, and an expanded definition of a section 987 hedging transaction. Taxpayers would be permitted to rely on these rules once finalized.
Comments and requests for a public hearing must be submitted by November 12, 2026, through the Federal eRulemaking Portal or to the address listed in the notice. The Treasury Department and the IRS will consider the comments before publishing a final rule.