Final Regulation_INTL-29-91

FdtrdR+er/

Val. 5 9 . S ~ 141
.
I h f m d a y . J u l y E i . 1994 1 R u l e s a n d h g u l a h o n r

37a9

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SUPPLEMENTARY I N F O A L U M :

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Papemork Reduetion Aa IM U.S.C
, 3504ihll under coatto1 numbsr 154%
. . . . . . ! 10~1:
T b c e m a t e d anrrud burdsn
~erpondentvariw ban I S miuules t o I V. bourn. depending on individual
. . - .. :
~ S U R Y
st^^. with an -d
.
average of 1% hours.
&&nanb cmosming the a m q of
this burdun sstirmis Pad
d ~ + burdm buld=Yt:m
the lnttrnd Ruvunus Ssrvica A t k IRS
Reprts Qsurnm Oncar WFP.
WasbiPgton, XX: 20224. rrrd In thr
Offies ofldmagsrncut aad B d p L
Attenlim Desk 05- k h b
Oepertmenl d h e Tmury. 05- d
Informetiw and Rtguhtorp Maim
Wuhh@on. DC 20503.

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The collection of information
contained in these End regulalim has
been reviewed and a p p m d by the
OEee of Managerntnr m d Budgat in
accordma with rbt repuirsmenb d the

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On July I?.

t proposed

amendmenis to 6 l.Qas-3 warn

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publish4 in thi~edcnl

58'

FR 32525. In additioq aonfocmjPg ,changes w e n p r o p o d to 55 l.W',
1.954-ZT, 1 . W . 1.985-t. and 2985- .
2. A public hearing w m held on
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%d-cenWs
final
13.1991. A numbu o l
t I n C m 8 T a x ~ a t I o m r c l . t i n g ~ Septambu
~
mmmenu, whicb am d k u s d blow.
; compltation md-th~
of.
! i n c o m t w ~ a n d ~ ~ d wert
t r rsoeivd ou issuus rdtsed by tba
p
m@
+tioao.
hRw
the dokmppm*imasqanla
consideration of thesa commentr the
trans~dmmetbodolaoeorm~
(DA-.
b -Maor
am i ~ t d regulations are adopted as r Treasury,
asdsion with the m,dfications
under &-5 of dm L n t d
dwerilxd below.
Revenue Cmh of ~ B b d[ W e ) . dih
was s d d d t ~ t b C o d n b y t h s T a
~ e i ~a
m d 1988.m a q n b ~ m s
Under r .985-1Ib~2)liiNA).a QBU
p m v i d t g d c b a hrw;ppM-ith 1
th*t would 0thham r
qu.li6ad hdn- d l IQBW 0in 8 b m [ l r d m m y mwimnmmt ia. hyperinflationary m n e y ac iu
Q B U t b ~ ~ t b d o b u i t . fundional m n c y muft use tba d o h
u its functional
md murlfimaiwrl-md-pub
h-a
or
and profits
ipeomm DP
d pmdbl unda
uriw DASTM for tarabk
..>. D A S ~ M ~ U - I begirraiae
U W
~August
N 24.1994.
~ ~ C
dtsr
Any. Y
Qthmh
m.*'wld bt b~~
- . ,
churga
in
8 QBWs m a t h d of
- , nf.
.ccxluPting whi& results h m the
WMWR

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QBU'r adoption of I)w h rthe
find regulations Ehrll ba d t r m d to
haw bssa
. .m d e with the a - 1 o l h
IknmuSonu.
%me -tam
& w e d to rb.
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FOIIW-nOn

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thr O f 6 m d h s d w ChiefCoPncal,

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mquhrnsattbtwdth~dollurad
DASTM
k
n
- mad.
~ madatmy
~
dTor r QBU

o p t i n g iQ h y p d u ~

mvimnm*Pt.The t u # m h rhrt uw of
mcs.1111
C O B - A m n a W..W a & & t ~ tb.dollu~.DAsrurhwldaorrCiPlar
to be t h d i v a was not rdoptd b
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DC 20224. htnntion: #
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cumncy and the pro6t and low merbod
hEt tplll*

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37670

Federal Register 1 1'01. 59. No. 1 4 1 / Monday, July 15. 1994 / Rules and Regulations

(Fatmethod) does no!
dearly reiled income.
Under the PLL mehod, income or
10% i s computed in the
h!prinflationary currency and
mnskted inlo dollars at the appropriatq

funaional currency i s doe Functional
currenm ofthe foreign corporation.
The debnition or b y p e r i n n a t i o n q
currency, now found in 9 1.985~&lIZl[iil(Dl;has been revised to clarify
h a t the eumulativt inflation rate during
b e hrty-six month base period is
based on compounded inflation rates lor
the b e period, and not on the s u m of
m u a l inflation rates. This change
.
conforms the debition 01
hyperinflationary currency more close1y
to that applicable under United States
~ n e damepted
l ~
accounting
principles IGhhPIW o n 1.98%3(a) provides thal, for

to he balance sheet under a system of
monetary correction u-ih respect ro
rued assets and capital. with
corresponding adjusunents !a the profi~
and loss statement. Under U.S. GAAP,
these adjustments am reversed. Section
1.985-3(b)(Zl and 5 1.g8$3{d)IZ)(ii)
exchange rate for the accounting period
have been clarified to requirt reversal of
The Pkt method distorts income and
monetary correctioo adjustments
loss of a QBU with substantial
re uired by local eeeourrting principles.
depreciable assets. As the .
$axpayerr suggested &at b e y should
hypuinnatioaary currency depreciates
be permitted to translate cmaia
with m p e d to the dollar, sales .
financial assets and liabilities at the
revenues [as measured in tbe
period-end exchange rab. rather ~ h a ati
byperinflationary curyency)incream;
the average exchange rate for the last
but depreciatiun and amortization
translation
p r i o d in order to conform
deductions, wthicb are based ou
the rules under 5 1.9853 lo G M P . To
hyriaflationary -ncy
cost bases,
puqos* or
A. DAm
must
be used to compute gross income.
make i t clear that the period-end
remain constant. This results in an .
income
o
r
loss,
or
earnings
and
profits
exchange
rats may be wed, 5 1.985overstatement of incoma: Another
-(ordeFtdts in earnings and profits). This 3Ic1(6) has been amended to indicate
distortion
wjh
to
provision is intended to clarify that . that a rpot exchange rate on the last day
and expense derived from
DASTM gain or loss i s p m of gross
of the taxabh perjod is 4 reasonable
hpriaflationuy Enancial assets and
income for purposes of the de minimis
method, provided that ii is mnsisrently
liabilitis For example, a QBU bat
and full inclusion rules of d o n
and used and conforms to h e taxpayer's
borrows in hyperinflationary cumncy
954lb3(3) (A) and IB). md h a t DASTM
of financial accounting.
ulll incur and deduct a v e y high level gain
or
bc
into amount mehod
Taxpayem request4 guidance with
~f nominal intuest ex-penx, reff ecting
respect to transactions desujbed in
the ]ender'r e x p e t i o n
pyment of in
the rr'a'ed P W interes'
section 988(c)(l)(B)and [C)
mles
DI
d
o
n
954b)(53.among other
intemn and repayment of pMcipd will cOmPUUtiom.
denominated in a currency orher than a
be in devalued currency- However,
Section 1.985-3ta) further prdvides
QBU's hyperinflationary c u r - .:
or the
dollar (third currency transsetion).:L
lLnder
the
P
'
L
the 'lfEetting
that,
for
opea
taxable
years begiming
exchange gdn treiative to Ihe
On
h e m h 31, f 486,but before the
order to parallel :be linandd
accounting ruler for tha edminismtive,
- a-QBUWs
hy*nrtionq
eurrancy
effective
data of these rtgulationr. tbe
liabilitie is deferred, causing the
qayar
has tbs tion to eld DASTM east of taxpayers and tbs Semics,
- income of net borrowtrs lo k
for any open taxab e year [and all
5 1.985-3(~](91 pravides that taxpayers
understatedsubsequent taxabb ycarr). Taxpayem
may use any rearonable method of
Inlightofth~edistortions,useola~ p r e v i o u s l y u r i n g ~ a p ~ m e t h ~ ~ accounting
at
for third currency
b>'@nflatim~ functiond w n v h s h to el- DASTM for prior open '
transactions
so long as such metbod i s
and the PaLmethd by QBUs OPmting years m y do so by amending their tax : consistent with their method or
in a hyperinflationary environment 1s
mt-5
for &s applicable y e a n and
financial accounting.
not appropriate. The regulations.
complying with the applicable election . Several commentaim requested that
therefoe. generdi~q u i r t h a t QBUs,
the regulations provide a simpler
procedutts of 5 1.985-1, including rhe
operating in a hyperinflationary conformity requirements o f f 1.985
mehod of allocating and apportjoning
at*ronment uw the dollar
DASTM ~ ( d ) ( 3 )if, applicabla. Taxpaycrs that
DAgain or loss for smali taxpayers.
for future taxable years. Under f 1.985- bv,e l a e d DASTM and applied be
This suggestion has hadopted.
lb)(2](ii](~)(~).
bowever. a taxpayer i s
pfior 5 1.985-3 may elm to Section 1.98S3(e)I2] provides Lhat I
not n q U h d to US@ a h m 10 COmpUtO ,*ply t
taxpayer wirh r QBU h u b g an adjusted
uder this revised
b
tbt income ot loss or earnings and
1.985-3 by unending their tax returns basis in assets of $10 million ot less
profits of fornip ForPomtion that i i
[taking into account assets of relaled
mppllcabla yeIn either a s s ,
for
not a contmHtd foreign corporation.
tbe Commisrionm is detmed to consent. QBUs resident in the same country) may
rnis exception is provided becausa ,
elect to allmats D A m p i n or loss
If a trxpsyer elects for prior years to
minority sbambolders ofa loraip?.-&<: ;+
&* functional cumncy of a
ratably to all items of the QBU's gross
corporalon rnav hc unabh to obWh'&$,.qsl) open&8 in hypnnflsUonvy
income [determined prior to adluanenl
information q u i d to apply D A m . m"vimnmanrto the dollar, i: must make lor DASTM gain or l a s l Thus. lor
However, W ~tb*
Ma
m
" .
b.dju-au
dwcribd in 5 1.985-5
purposes of he Iorcjgn tax credit.
idorma~ionMbe obt+Labb.f 1.98S+Ccr i&
5 l.oas-sT, applicable) if the !ear DhSTM gain or loss i s allocaled on t h t
basis of Ihs relative amounts of gross
1&)(2)(ii)(B)f2] provides tbal DA
of&mF begins after 1987. or the
may beelected by r nonc~ntrolI&$~~:: ' ~ d f a s t m ~ u d e s c r in
i M$1.985-6 (or
income in each separate caregory
M i o n 902 CorpoTation u n d the!
~
.;?':' 5 I.-.
ij&jcoble) if h c year of
described in section 4M[d). Simi!arly.
p r m d m l rules of 5 1.985-Z(cH31.
chrage beginr ip .I 987. The adjunrnents for purposes of section 952. D A S n !
Seaion 1.98~1(bl(2)Iiil(Bl(1)clarifies d d M in 5 1.984-5 lor f 1.985-ST,if gain or loss is allocgtbd to sub* F
d
b e mle for dewmining tht Functional ' appliabld must be included in income income in I separate c a i t g o ~3 a ~ an
h e ratio of grors subpart F irtcome in
currency of a QBU branch ofr foreign
in the t w b h ytu prior to tbe year of
corporation when the foreign
change unlcsr that prior taxable year is the separate c a t e g q to lad gross
income in that cotegoiy. CMlmcn!ato~
corporation has a n o n - d o h functional closed. In &at eass. the adjustments
also requested r simpla metbod for
. cumncy that is not byurinflationag. H
must be j n d u d d in income in the year
taxpayers u-ith one or two section - ,
the QBU bmch othemise would haw
of d a n p
Certain countries w i t h hyperinhiion 90r(d] separate ategorier (o- r de
a byperinflationary currency as i t s
minimis amounl in a second caregan-I.
require t?xpaysrr to make adjustments
5metion.l currency. h e branch's

- o f accounting

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Federd Register I 1.01. 59. NO. 141 1 Moada!.. ]ul!* 2 5 , 3994 / Ruies and Rpgclations

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.n i s suggestion was not adopled
because the a I l ~ e t i o nrules in 5 1.9853[e)(3)more rccurerely reflect t h e
locome af large raxpavers.
The prior hnal regulations under
5 1.9853 provided for the allocation of
DASTM gains and losses to section

apportioned under 5 1 861-9T [without
regard lo the exceptions io h g i b i l i t y in
5 l.86l-l0T-I.
Section 1.985-3(ej(3)(vii)(8l provides
rules with respecf to
all-bon
of
DASTU gain or loss on debt thnt rive4
rise to related person interest e v e n =
under section 954b)[s). Seaion
954Ib)(S)requires h a t related person
inkrest expense must firs! k @llmted
to fore@ personal holding comPmy
inwme that is passive income to the
extent thereof and therefore to tht
section 904(d)(1)[Al sspurts mtegory

9D4(d]separate ategories based on
foreign s o m gmss income in each

category. Them was no attempt to
identify DASrU gaip or loss with
sped6c &sets or lirrbilities. However. in
the proposed regulations under 5 1.98%
3. DAgrin or Loas was identified
with rpecibc W&K and was directly
for passive inwme lor purpose of Lhs
allocatd to specificsection 904td)
foteign tax &it limitation- To pmvent
separate calegoric~based on the income distortion. any D A S M ain or loss
those assets would generate.With
arising horn such rciai penon debt
m p d to liabilities, the proposed
- must alsu be all-led for purposes of
regulations provided that DASlU gain
d o n s 904 and 952 in the same
or loss should be .II~uiedto h e section manner that the related person intenst
expense of that debt is q u h d to be
9M(d) r s p m utegoria in the same
manner as tht allocation and
ha
of
appdonment of interest expense. The 9srlbllS).
c a m e n t a t o r suggested &at, in
proposed regulations applied this
applying the modified gross income
method of all-tion to all liabihties.
Some comments suggested h e !
mehod under 5 1.861-9T(j)to all-te
DASTM gain or loss on ceFtain nonand rppartion the interest expense ofa
interest-bearing liabilities, ~ c u l a r l y controlled f o r t i p cdrporatio~,the g r m
income in en& section 904(d)st amto
short-term non-interest-bearingtrade
pyeble.. should be directly a l l w t s d to catgory should hst be
the
he same section 904(d)separate
mount of DASTM grin or loss ellourted
under 5 1.985-3(t#3)(v).
tategory as the income pmducd by the to a s s e ~
. . purehasd good or servies to which the
Seetion 1.985-3[a)(3)[vii)[C) aI the final
pa\*ablerehttr. The suggested rationale regulations adopts this suggestion md
for ~ approach i s that in a
.=quires that, before applying the
h y x d s t i o n a r y a nvironment the
rnodifid
incomemehd
purchase p r i a for deferred payment of 5 1.861-9T[j].an adjustmen1 to grow
goods or services reflects a premium for income must IH made for D A m gain
hflauon expecled to ocau prior to
or loss attributed to assets under
p a p e n t . This overstatd purcbase prim 5 1.985-3(e)(3)tv) and DASTM gain or
IS rencaed i
n cost of goods sold.
la= on
non-intmn-~g
disloHing the tm-payer's income in the
trade payablw under f 1.985pertinent section 904(d) separate
3(el[3)(viiij(A).
carcgory. Therefon, in order to
In ae~lrdanwwith commanu
c o ~ p t n s a l efor this distortion.
dtscribsd above, f 1.985-3(e)[3#rlii)(A)
armmenlators recommended adjusting
provides h a t DhSTM gain or loss on
coa olgncds sold by tbe DhSTM gain
short-term,non-interns-bearing u ~ d *
on the wade payable.
payablts is allocated to tbe same
In response to this suggestion.
categwy or type ofgrou income as the
?.98S3(e) now provides different
eon or e x p a w to wbich the trade
rules for allmting and apporrioning
payable relattr. For this urpose. 8
DslM gain or lass with re+
lo
--.slwr(-~-, non-intefia-&mng trkdr
interest-bearing liabilities [undst .
payabh i s a nm-in~erest-bearing 5 1.98%3(e)[3)(vii))and non-intam
&Wity with term of 183 days or Iess
bearing Labilitiw [under 5 1.9..
tb& b ineurrsd ta purchase prnpny or
3(~)(3](1iii)).Section 1.985---:-.-f:;
&-8
10k u s 4 by h e obligor in an
3(e1(3]1vii)IA]now provides that .he-,3
active mds or bwintsr. Under f 1.985amount of DASTM gain on intend: -I. 3(8)(9(viii)(B). r similar mle has been
b a n g liabilities reduces interest -.
prwided for excise tax
expense generated by c u d liabilities:
Undcr 1
DASTh! gain or loss on other nona)'
DASTM gain in excesr of inttmt
intamsi-wrriag liabilities i s all-td
q n s e is soured or othmise
uadtr 5 l.Qd5-3(t](3)(ix) (i-s.,on a gross
ciassified in the same manner that
interest expense is allmated and
income brrisj. Howsvw. under 5 1.98sl
appaniond. b y DASTM 10s
on
3(*)(3)(\-iii)(CNZ), rho turpryer may
hlerest-bearltg liabilities i s aIlocated
demonstntr to the satisfaction of the
district director, or the distria dimor
azld apportioned in the same manner
h a t inrered expense is allocated and
may determine. that applicetion orthe
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37671

gross Income allmation mehod w-ould
result tn s substantial distortlon of
Income. In that cafe. D h S m gun or
loss on such liabiliti- may k attributed
10b e same s t i o n 904[d)
separate
categoq or subpart F categoy as he
transaction to which h e liability relates.

The temporary regulalions under

5 1.Q54-2T heve been mended in h i s
Treasury Decision and nil1 b finalized
as p~

or

separate regulation.

hn accompanying proposed

regulation providw ruler that would
yuim
laxpaystto
bm
D~~ to *c P&L
when the
eurrenq which o*sMiw
be iu
fundona, currancy ceess
be
hyperinnationan..
Effective Date

Thcas wlationr
uc Lncctiv,
Mi-g lher Augcsr 24,
1994. ~ o v e v e ra, taxpayer may ricn to
3 1.985-3 lo any Open axable !.ear
beginnhg after December 31,Ig86
lwhethuor notDASm hasku
pmviously electod for some or dl of
those
In
to
the
51-985-3 that year and s"*uent
m.
In additian,
Pmn is
related [ w i t h mt:meaning of $1.9853ie)i21(vil) to the taxPa~erOn
taxabia year for
election is eflectivt and that would have
k n eiqibh ro
DASTM must ~ I S O
' P P ~5 1-985-3 to
Year and
~ ~ b s e ~ uYt enat -

Special hnalyru
It has be. determined that this
Treasury decision is not a sipiacant
rrgulslary a d o n as defmed in EO
12866. Therefon, m regulatory
assessment is no1 9 M d . It also has
bttn de~emmedthat seaion 5 5 3 b ) of
rhr Administ-alive Rocsdure Act ( 5
U.S.C b p t e r 5) and the Regulatory
Flexibility Act (5 U.S.C chaplet 6) do
not apply to thest regulations, and.
therefore. a Regulatory Flcebility
Analysis is not nquirad Pvruant lo
section 7805(r)oI the lnternrl R e v e ~ u e
Code. tba notice of proposed rulemuing
preceding the# regulations was
submitted lo the SmaH Businw
Admiairtmlion for comment on its
impact on small business. .
Draning Information

The principal authors of these
regulations rn Iamb FeIdmm vrd
Teresa B. Hughes of &e Office of
~ ~ ~ d&d
8 t Comrtl
a
[~n~emtionrll
within the Ofliea of Chief Collllsel. 1RS.
However, other personnel horn tbt
uid Trrsruq h p w e n t panicipsttd
in h e i r development

I R u l ~and R q p h t i a m

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UdSub+b
26

PY. 5.
rollowr:

mfi h d I

bmme tma. Reporting and
rsarrdkte*
*ents.
26 CFR p&

tX2

I

R e p h g and recodkwpiq requtunentr
Adopti- of Amendmerits to the
KeguIations .
Aeoodmgly, 26 CFR parls 1 and 60t

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PART I d C O t J E TAXES

Paragraph S. The authority citation
for part r mitin- to reed in parr ss
follows:

f
e
w
~~-~

m r & u p r & q e i m ~
cump?l.Finally. 5 1pmudes
m s i t l o n rules for o QBU that WB rbc

appRcstion
-gone&
1

d * a F P ~ ' e ~ F ~
m e b d for iu Grst taxable year
after Detemk 31.1986.

1

[ j ) Special d e f o r DaSiWgain or
*
*
*
' '
loss. q DASW pb or loss computed, (b) D a l l ~ ~ m d m - 1 1
g u K m L The dollar s b l l b O s a
under 5 t.98MtdJmust be allocated
zmoag the mtcgaries of income under
of W F
d b k d in pragmpb @.HI)
the rules of 5 1985-3 (eXZ#iv) or (e)f3).

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Tbedesoff1.~3(e)appIybdor8
the rulw of Fecti~nSO:td#2)lA](iiiI@rl
(the -on
burn panive income fm
higbtaed e e l .

u

Ibs cur-

g

h

@) &cep&ionr--(lJ
Q9U
bmnches. The W a d uureacy oi o
QBG that o h * mwld bs
use a b y p e n a l l . t i c u u r y v or
tto
e ~ ~ ~
its~currehcyandthira
branch of r roreip wrpation baviag

non-doIL h t d d

k d ir

&dl k the

~ c r i a r d o y ~ ~ d t h ~ p
S& QBU's iacom+ ar k s
or enmirlgs d p t o f i u U b a
dalermrnsd w u h 5 1,985-3 by
Qcubstituring
l ~ ~ thad
-J
05
tbt &gn
-tih
r
doh.
(2)Gporutmn t
kL
a
conuolied jazm-gn
A hmgm
ccrparathn [- ifg QBU b d ]

c~pora-

li)

(

v ) o f ~
u4ed in Laeping its

~

NmaeyOL.
(i)A rwpaya tbar is w QBU 1e.g..

ar

operating in. h y p m d h a m r y
an indi+idual);
environment is not &to use Ibe
[ii)A QBU rbat & IS 8dollar as its W
5-1
Fonign p c m S holding
primarib in d d l s n . h QBU -duds its purmant to psragraph bllZ&iW) d
~
P
i
3
W
~
~
W ~ v~$ ~ m
~p r n
~ a r i9f y i .n d d a m i l W this section ifthat fan=ip
iE
anarI)eesmber3?.*986
. cumncy of d~
- m a r t
not a cont~oUBdh n q n m e o n u
in which &a QBU wnduds its a d v i t i w defined in sedan 957 cw ~ 5 3 I c ) t l L i h
kl.
is primarib the d0H.r- Tbc
and
Howwar, a nocrconuolM sedbn W Z
(2) ' [il Qudficd businea units
drnrmfisd
in w p h coqmmtion. as d e h d io d o n
k n b
d ~ ~ 4 p p r a r ~ ~ ( ~ ) ( tof
j
s d o n Jhsll appb ia
gwCd](2)m.aray ded to uw the dollar
LfOns~daU
d.
h n y D h m g&
,hg
thfs d ~ m i ~ d c n ;
(or,if ap ropriata, thu n m e r q
or 1- corrrpoted &5 1.g8+3td)
(iii)
Ex- u o t h d s r provided by r p s a a J b puagmph mWiimM~)
of
QWb d l 4 &t
t
h ~UIUSd
r a a m e m v a
&is d o n ) 8s iirr Iar its QW-'>I
j 1.9-3
(eB2llivl or (eU3).
. .
f u n a i d u u ~ e ~ &dB3
l
.
- ' . .-*$pmounctmmt. 4 QBU h i h
a tbs
*
*
: - . - - . : : - - - ~ t ~ S t a r ~ , o r ~ y p ~ r i o p-dnor,
vt
5 11 . g s 2 1 c ~ a ~
(C) C h a p in f d d CLVHX~. If
Par. 4. Szaion 1.98- is ~ m e n d d + . ~ i m d r o t yd the United Stat- w h m the
aQBU i r q u L e a t o iu
~
re.ising t
ktabk of contents,m*g
dollar is t
h nand& m m n q , as ita
functional a u m u q to t
k dollrr unQr
5 1 . ~ 5 to
3 d B fol-I
. - :
d e n c a Ier d e f t a d in d o n p m p p h Ib)(Z)(iiPAld this d n , or
. >-*;,
.9WaIt3HBlk
11.O u ~ d r b g r ~ . ~ , t f ~ , . r . .,
~.fir]
, ; A QBU tbar doer nat keep bmk
choore~ari s r e q u u e d ~ c h p i a
, --.-*
adrtcordshtheomncyolmy
h u r u i o d w c y to rbc hLt*t h iruy
optn t ~ d l -yeat
e
(d
all m k q w
5 1-.
unndm n M b r apptari. m m i e m%mcnr
lrubb
ykpn)
under
5
198)-3CP)12Miil,
signifianr
w
d
i
u
oaivitisr
u
v t r tn-smnductd Whether QBU k a e p urb the&angmLooPfidurdlolxnvdr
(a] S a p d MY
bts
with the -t
d tbt Ce --;Ssioaer
booksmdrscordsirdetermiwdin
&I statd mabob
lor
purposlsr
of
5
I.-.
A QBU
( c ) T ~ ~ I P . J ~ ~ ~ U ~ D ~ ~ ~ S U ~ ~ J ~ ~ ~~
~
changing bctiorral
w)CompuPrimdDASSM~ml~
O
W
Q
~
m d r ih
M m d D m p h a rhmgou
(vJAQBUtbarprodueeriDooarem
51.gaSsi i L h . y e u d M h
.
loss thf is, or is trtatbd m. o f f d v d y
m m b k t m . or m i n p mnd
dcrmed in 5 1.481-1 (iNll)
abr
conrusered with tbe
of. lrodo
a
l
T
~
7467,orthrad)rs~defcribedin
or business within the Unired St&=

PW. 3. L+ 6 1 . s s e z ~paagraph
.
[g)[2)[i) is r e r i d to read as foltows:

.

.

.

I

.

-

k G + s c , '

.

, ,

-G,>'

-!

*

I

.

*

.

5

'

*

~

its M
ad p y r e n ~ y

n a hyperin[ltorray

aad d (rsdefioed in 5 1.wN.b
l(d)b The dollar shall k tbe f u c t i o d

. . . . .
-

nrrrency

tht

to m p u U t b s ~ w t h % d d a r w i t a f u a 6 r o ; r a l ~
and campub i n a m s a h or
r ~ g s p p d
and prnfits uoder the nrlec of 5 1.*
l.esS5 pkvidei
3.
a d w t n t s th u+ requLtd to bt

Pu-Zbf-,~aragr~pb(i)b

1

19%exoeptas~prandedirr
p a r ~ p p hhH2Ilii)lB) d ha
any QBU &at otberwi# m b d bs
@d to use a b
,

iacoaslr ax iw o

revised lo reed 95 Zolbw~:

. . .

(21 QBUr apcr~bng
Ma

mrrpip QBUr mur

Authority: 26 U.S.C. ?BUS ' '

-t

IS Praended p~

.

hypcnnfrotumq c
v
i
)
1. Revise the fifth. seventh und
Ta*abkye--M
rwh@
August 24, 1944. F o r knhh yetrr
xmtof p a p + LaN'IIw
g On ot bebrr A*
2 1 1W4,
2 R e h p - q p p b Ibh
sa S I ~ Z w t t tomQBUth
b ~
5 Revise p a p a + Ic116L
to usa. ca is &emit required 16
4 . A d d a m w ~ ~ ~ t o t h e t n d o elects
f
use,the dollar ac ib -1
paragraph IdM'f)tii)a d remow h e
conduding text at t
h end d paxqmph currency.
. . [ii) Tax& years WaaingaJser
ldNlL L The revisimr and ddrtioa r i d pr August 24,19M.+A) in p m d Far '
tPobL yaars b
w hAugud U.
foll~ws:

are amended as follows

901
rspsettm
inwma - , -

W M1.985-1

d-U-7

,

.

,

federal Register / V d . 59. No. 1 4 1 1 Monday. july 2 5 . 1994 / Rules and Regulations

5 1.9854 if the year of change +rns

.

in

1987.The adjusunents d e s n i h d in
5 1.9055 must h included m income
in b e tarable year prior to the year of
change unless that prior taxable year is

5 1-9dotbr

Eletlon to uw fh* U n i t 4
funetlonal cumncy of a QBU.
(a) Bockground and s c o p d l l In
geneml- This section permits an eligible
QBU to elect to use h e dollar as its

37673

m d h a ! would have been
to
=leaD A S ~ Mmust also
these
rdes to that year and ail subsequent
years. A taxpayer that bas not

previously eleaed to opply DASlU to
functionalciurencylortaxableyaars
itspriortaxabicyearsmaymðe
heginning on or befoe August 24,1994. DASTM eiectios for the pertinent years
of change. No adjustments under section An election to use a dollar functional
by filing amended returns and
currency i s not pemined for a QBU
complying with the applicabie election
40 1 ara requked solely because of a
p r o c e d w or 1.985-2. Form 8819
.
change in functional m e y des&bd . other than an eligible QBU.Paragraph
Ib)ofthis d o n d e b e s rtn eligible
shall be attached to the return for the
in this paragraph (b)[2)(ii)(C).
first year for which the election is t o be
QBU, Paragraph (c] of this section
ID]H ~ e r h J ' n t i o n acurrency,
~
For
effedve. A taxpayer that has elected
purposes of sections 985 through 988, . describer the time and manner for
DASRUI for prior taxable years and
making the dollar elsaion and
the term b y p e d a i i o n q currency
applied the rules under 5 1.985-3 [as
paraprapb Id) of k s s a o n describes
m e w the mm-encyof a country in
tltction. For the contained in the April 1. 1994 editiw
&a clfed d m h g
u b & them is cumulative inflation
of 26 CFR
1 t1.908 to 1.1000))may
debition of a QBU. see section 989[a).
during tbe base perid nf at least 100
SER 5 1.905-~&)[2)(ii) for rules requiring amend its returns to apply the rules 01
peweat as dete-nsd by referenee to
the c o m e r pri- index of the counay a QBU to use the dollar as its hnctiond, this 5 1.985-3. ln tither case, the
Ifrted in tbe monthly issues of fh.
currency in t u b l a ye= beginning aftst DASTU election for prior taxable peas
shall be deemed to be made with the
"lriternelioadFinancial Slatisticr" at r Allgust 24,1991.
consent o l the Commissioner.
(2) Exception. Purmaht to f 1.98%
sutxessor publia tion of the
fil Statement of method. Under
IIbl(2l(ij~~B~[2~,
the rules of paragraph
hternational Monetary Fund. If 4
(cl[3)d t h i s section shall apply with
country's e u m n q is not listed in the
DASmf. income or lass ar csmings and
profits [or r deficit in earnings ar.d
resptct to the pmedurp. required to k
r;onthly issuw of "hotemational
followed by a noncontrolled sadon 902 proms? ofa QBU for its taxable year
Finadal Statistics," a QBU may use
shall be determined in dollars bycorporation as defined in section
any other tensanable method
(1)Pmp-g
an income or loss
rnndstently
for dctemining &* 9041d)(21lEI to elect tbt dollar as its [or
Statement born tbe QBU's boaks UA&
its QBU branch's]fundond-ney
country's consumer price index Base
records [within tht meaning of
and the application 01 f 1.985-3.
period me-, wi&
r e s p a to m y .
S 1.909[a)-l(d)l as recorded in the.
IbIm
*
lwsble year, Ibe Lhw-sixcalendar
QBU's byperinflationary currency (rn
I21 n y p e ~ f l a i i o n o rcurrenyy
sea
monhs
immsdiattl preceding ht
day or
-at
uhndar
For
5 I ,985-lb)lX)(ii)tDlfor the d e b t i o n
defined in 5 1.985-l(bl(Zl(ii)(Dl);
b ~ ~ e r i * ~ O n q (21 M a h g the ndjustment~necessary
&is purpost. the cumulative inflation
to conform such statement to Uniltd
r
m
~
*
t
rate for he base period is based on
SUtn genem1'y 4cm~ted
a~our&g
Pu. 7. MOII
1.985-3 i
.revised
-poundd
wadDn
nut,
if for
principles and tax accounting principles
read a t follows:
1991.1992. and 1993, r country's
(iadudhg reversing monetary
idalionnta
am 29 pent.
ZS
( 1.B85-3 Unlled Sme. dolu a p p r o i
co&on
~ d j ~ requimd
~ a by
n 1
m
~1
percsnt. md 30 percent respsnively,
srpa-aw tranacgonr ma
recounting rinci les);
the cumulative ~nflatianrate for the
(3) ~ m t l s i %e
h ~mounts ol
(a] Scope and effective datt-Il1
hjrwbaw~tiodirrrOperceni
Seopc.ThissecliondeserihtheUnitsd byperi~mtionsfycurrencyasshoumon
[[[I.29 x 1.25 x 1.3) - 1.0 x
such adjusted statement into do11m in
States d o h (douar) approximate
1.10~x1W=llD%Iaod the currency of
tranMdons
metbod of
accordanm with paragraph (c) of this
the counw
'Or the QBUs lg9' year ir
a-unlir.g
( D h m .For all purposes
section: sod
considered hypumllationav.
(41 Adjusting the resulring dollar
of subtitle A. this method of amounting
(c)
inwms or -1
or earnings bnd profits
must be used to compute the p*r
(6) Ef/KLof chmgcd ~ ~ u m f i income,
~ n ~w b~ l s hmms loss,
(ar deficit in earnings md proFi:s] and,
RegardItrs of any change in
whsm n6c8ssary. parbcular items of
earnings and p r o b (or deficit in
n s l m - . a QBU may dange itS
gross income, deduaibb expense or
,mi,
s and pmhk) d a QBU (m
b d o n d ~ M ~ Cd Ye ~ m h m
d d ~d c b J in m m ~ D C ) ) has tb*
.mounu. 1.
uil
P ~ P PId~D ~ ifY QBU d o ~ as
u iu fundond -ncy
paragraph (a) of this seaion to rcflsd
campliewithS1.98Mattbe
- - the amount 01 DASTU gain or loss r s
detrrmiuud undar paragraph (dl or this
cIosledhthatuse.th~edjustments
must be included in income in tbe yew

-.

.

.

-

-3Ctioa.

DASSM has bsen pmviously elmad for
functional M n C Y wider P ~ P P ~ some or all of thou y-1.
la ordur to
b)(2)of h i s &on. the QBVs
make thir e k t i o n . d i m taxpayer m u d
activities shall k considered dollar
apply f 1.9to thrt ysu and rU
activitiss of h a mrporation.
subsequent yaur. In addition, uach
*
.
.
.
a
p m n thd it =latbd {withintbr Par. 6. -on
1.985-2 is amaaded by m d n g of 5 1.98C~J(e)(Z](vi)]to tha
=vising pamgraphs (I) m d b)[2]to read tmpuysr on the last day of m y taxable
y w lor which the elta'm is eflactive
as follows:

(el Translationinto V n i f d St d i e s
dollam+) In geneml. Excep~8 s
ohewirs provided in this pmgrsph
Ic). thr mounts shorn! on h e income
or loss statement, as adjusted under
pangraph IbIt21 of this section. shall k
translard into d p U * n ~t tbe orchanga
rate [as defined in paragraph (c#6] of
this setion) for the translation period
tu defined h p p a p h (e)(7) a l this
d o n ) to w h h they relata Howtvtr.
if thr QBU pmviously changed its
functional c u m c y to the dollar, and
tbe mler oI 5 f .985-s (or. if applicable,

-37674

F&BrpsterIVol.59,Na1411M~day,luly3,19M1RrriesabdR~b1~

51.985-5T.uanlamdinrhehpri~l. t h s o s m h t i m p e r i o d a f ~ u n r s
v t i q items of dmjq invmory
r g q 3 edkiao of26 (3FR +1 (1to
1.lWUll applied in tranrlating its
for p
m of -ph
Ic#3)tiiil!A) .
b a l m shed a m o u t s iatodolbrs. therr d W sa&m.my b kdu p
the s p ex&@
me pUed under - reasanable appxiipatiom arid

o f hm
mh
In
lcrrns d h e dnllar. ~lr
LSh - b d
m f w m a ro t
h v h d tba doliar. m m
Le armpuled
by ~ r a m ~ ~ n
Far m n p l t . LI a hreign v
m
,

lhoada~b.dto&*amy*avnapa..hdu~msoftumau.
amount Iht w a d d othanvise k
p v i d e d tbst the m e M is d
tmslated at a m u d e t c m h d by
corrsirt€dyhorn year to ).ear.

~ n t i r l 10
d

td a M t i o a prim3 +of ID
the change ip
m c y . For
example, d e p d t i a n with respect to
m irrsi q u i d w U a tba QBU b d a
n~nddM
h a d m c y s h ba~
uanrhted hto U u r u b e spot nte au
~
b
~
~
y
o
f
t
tbr year of &.npto A d o h h & a d
c,rather than at tbs n t s f
a the
p e n d in which tb -1
wrr Pcqulredtt)
ofgd&.ThabUar
value of eon of goods lold rhll e q d
tho armofthedollaruahusd
b e g h h g inventmy and purchlgs
b e dollar v h of dosing iavmtory
thea ammints ars determud under
paragraph (cM3)d this sccticwr.
I31 Binrentory. p u c u
and d o h g invm-i)
Beginning
inventory. h m o m b repbeg-tqshpubedated
raf-

A

ie~drmLCrhozoLC;POandir
dx LC q u i n k n t of
SU)u r
m
m p b a market m e of
(41 D e p k a t i m , depletio~,and
interea in d d h lllt its LC equivpknt).
ammitation. h o u u
thd ,1 u 4 dol& - o ~ .
~ O W for d e p e a t i - d q l d ~ SimilarI
~ ~ y, this paragraph a p p k 10 any
or am-on
shali k %m&tcd
w
o
n that is & e r a 10k a
exchange rats for hd o t i o n m
od d01)ar -dim
m
c
r seaion 988
in which tb.c s t d tbs
s..et
(ii) Non-do])orfunct(ond
11,
h
~
~
a
~
~
~
p~rsuant[o~l.-~@~~~i~~~r~
QBU is r e q u i d to use a hcriand
~ n c othcr
y
the dollar. then rLmi
hmouato reJ-bS-a
currency shaI: b s u h t e d for tbe
pai or mxbd iP I p5ar
dollar m applying paragmph [cH8fii] or
y a ~ shall
r
b mushed a tim

exchange mts lor tbc -tian
Hod
during whch tbey wem p i d or

sectiph

(9)Third c w c y -A
taxpayer may use any r-&k
recaivd
math& of ~cmuntinglot
16) Exchange fa& l'b &#
mte
fw I d a t i a o period w y bs
d b b d in
WcMf) @)ad
- ,
. .
batunck any r e a d l e
(CJtbal am d e a n b a l e d in.ar
determined by r e Q r m 14
mehod. p v l d e d that t
h m e u ir
-4
applied to rll framlatioir
ht b n tbs QWsbypxdh!.wrprv
p e r i a i s d r n ~ m ~ m p r c t mn='tyorths*(~budc-y.
r
soutoo
bmnmamountd
method d 5 . . ~ i 7 m
d ting.
tmdiou] sohag as s u c h m e w n
.
d o h w u v t s d ~ u e ihtia ReaonaMs rnethc27 b c l u d t the a v o consirlent wish it9 methad of finaari;d
the dadng inventory b n h c a f o r the - ofm danler m a n g .
for tb.-on
pt3d ~ l t
h
d SW
pnrceding tax%& ye=.
(10) fimPk
ns
d &%. .
ti9 Avctrartr
w* rale
kg
of tbh
paragraph ara i l h r e d
itcmspanhsd ar d m n v w M
p e n d O n w choan, m method lor
following tamp\=
included in bumtory huring t
hm d d a d e t v a a x b n p rue mn be
h m p ! e 1. S tr an p~rrrylk is QEV t b p ~
Y W S b d b w h t d h e cuhng. &=god o n e wtb h e CO=t
of b?
quvsd
rb* dolhr *
rate for the e
m period in which
&&a dincrot.
e u r r * ~ r u r i u b r ~ r ~ ~ ~ h n @

tbecastofsufhitemo~~s~ (
~
T
~
~ i
~~
1
~~
~ ~'
~ ~+
~ F f
( i i i l C l o s i n g i n v e n ~ A ) I n g h .E r u p t ESP&&
fn paragrephs
"b" Duriug 1991. S ocrruor Y 0~ ddbrr
h o u n t s representing items U u d d in (c)[3)(iiim)
and IcI(7)Iiil ofh i s s a d o n . , h ~ k
hlh+
-..
tbe d d g inventmy balance
b
a
parid s b n eecb month &cause this is a ddim v-trrn
udu
.
&td
at the
raw far h a
w i h QBU'r tmxebla y~gt.
pangrapb ICUS) d h
m
SP
OI
tramlation ptnod inw b & h e con of
-1
for 1991 sbsU r e k Ibe 100 &IW
(ii) Exepa;On. A q ~ m e divide
y
tbe h > ~ ~ u id o
r a~
at vJdr
q ddiarr
such items was innured. Howaver. if
its -18
y m into mnshion periods
amounts rep-itinchrdd in of qd b g h [with m*
than o m when acauedL
h a m p l e 2. ti) S i s sn acrrud basis Q8U
urn-)
that aR )em &the daing i P v - 0 ~
rn e i b &on
tho1 i s ragutrd to w hd o l k ns i3
% d u dat d e t or written d m IO
on*pmlhOnocoucba-*um
fuonianalummqkfuL*t-bbpt
mar* v d u a they &dl be trvulalrd rt p r i d is lclblishsd. it m y not bs
is r9w,S, h-nlbfthe
nte
on t
hb
hmpd wi-t
fbs -1
01 h
S., mh
ir tba 'b'
day of t k d h F.
For PUTPOL#&
' d h i d -ormountsd m 2
4
ar r~rrmruy
d q ~ e r m i n i n g I o w e r a f ~ o r m ~ . . 1~ < 4% ~~ I ~ ~ ~ ~ i l Jd & nu f ~l i bml e wd - &
u provided in p m p p h
item 01 m v m ~ a q
i n h d e d in Ibc ;.;;':': -itsWiovenrory--rrdlo
d ~ a i n r r m q ~ - b - ; j - - . ; c ~ - & ~ ) dY
t hCi ~. ~ O ~ . ~ D iCmT. M
m h~ -1-d~trarslared i n 1 ~ d o ) h * t & a c x ~ : . ~ ~ Q l ~ t r ~ r n 4 , . l t h ~o tll %
~ .dS pdubr crh o v d d e p r e c i o b h ~ u h
8O.orW1.WOh ~d ww ~ l h w t d t m a r i - o i
M ah c t & Alln i~
tbt rare fm btm a m
paiod
'.m.mh * a m d 01 lm. s.1 w
Hi
d
-1
cumdt
h Q5U.Thm,
a t of
d d d ta-'ths m o u n t of m y p*-t
ot r
m of i n w n l v W~ 3-000.000LNQ e i d n lo
am@
& &&
incomt . U e ~ " S & D d o r h n t h r n tbc mtb
the QBU'sb y p m n a i t h c~ w m m q
dolhn
bt m w d in
is&Sbdmotmia
tranrlatcd~nod&althsn~
orlo=~t.nnnlbyib.-omtof=*
~ p ~ 1 c h 4 a l c X 4 d i h . l ~ d
d o l h Alm. the heow w 1rate d d n g an the k t dby D[ the
Srckr*qimsa~wr~m=qmdlarrh
t ~ & v.
b
rmikrtrbk to ~ j W
r
m ~ wh)ctr rmt-jn, firam*-9
~'1
h a r m ~ u tbrt
n ~ 4 QBU Is entftled 10
t% i
01&dm
djutd w or h
kto hIILx Y IOUperiod. Tit d u d to ddSrmjpt
k v * {OI is q u u d to py) by m a w - t m s i a ~ s d

-

-

_

-

-

e-

'

t

~

F

M R w t r

/ Vol. 59.

No. 1 4 1

1 Mondav,

July 25. 199J 1 Rules and R~gulations

37675

4

(Jsn-Fea)-,

.

(W.-W.l

Sak

.

(Msy.4lsle.).

(My) .....-.--, , ,(Avgmq
, ,-, . , ,

...

.

-.,,-,,,

(

XI.OM1.000

[Nm.)
..----..-i-.-

-II__-.--C."..--.-

..

,

- 0 f i m S d d
Lnveniory Ru(Jan-Fea)
(Mw.-Ap.)

.

-(MayJuns) - . - - - - . , , , ,
(My)
(h-

-

.-

.,
,
--....-----.------ --.- --...----.
- . . .....-I

-

-

7

-

-

4

(W),.-,-----.~-.(Nbv.1-

tDer)

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--

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15,Wl,000h
lO.ooO,~

30,000,000
2
0
m
.
0
0
0
to.m.000
5.000.m
5.00D,~
2m.m

---

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IRuentocy.----

.

.

-

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2mm

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r W ~ e m h p k ~ w ~ ~ m t ~ r a t e a p p l i ~ l o c a Q m v m g
lSecpaFigrilphmd-ErPrrpk

-

,

-

(ii)Since S rues the turt-m.~ i r s k t
i o r e a t q method. tht dosiag l k n t y n
unrmd lo consist of
mmh M*

w-

hmast rscrnl urnslrtbn pcnd sl f o l k

--------.....-..---.

DsceW-Nave- ,

,,,,,,.,

.

-,.,.

5-

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.

-...... .....-....-.+..-....
....*.--.-------.
--.--- ------.--

-----...--..----..--.-.--

Id) Campubtion of M S T M goin m

Rule. D A S I U pin m I- of r
Q9U quai*
lil The net wwtb d h e QBU 1- delemined under parapph ld)(.2?01
~thisreaioalarthsendoftbemxoLk

31:l

2500.000

3 21

5.Ooo.~
~,oo~.oo~
8+O(X1.D00

B
1

a.m.-

-

yew minus Ihr a01 wOnh of h e QaU .r
h e end ofthe p r d g ~ a ~ a ybek~ r . plus
(iil Tbe dollu amof the items
d-bcd
in pmgmph (413) ofthis
lu?nimmndminus~eddkamaunld

m.m

20.1 -

t19.m

113,636
8Gs7
i9 5 s
107.143
6 8 s
1D
0
m
.

2 7
231

2sr1
a
1

2.m.m

*I

3,000.000

3&1
333

lam

.

-..-..---

.

~m.s?r
307.69;2

213

132.m.m
,,,,-..

!

,

=;?33

lZ.414

EZs55

3.OOC1.000

to7,m.m

-

281
26:1

-

2m.m
3,040,000

26.m.oOoh
4.MXI.m

.

.".-I-

4.000.m

.
.-L.I.X-.III-r-.---.--.tf--------_-.--.-.,-,,,,.

-

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2w.m

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L M d *

fi-w-

4.OSYl.m
2.500.040

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ocprm-

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merry

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1,W.167

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M
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2al.

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4.n6.4~1
4m.121
P

M

h e iromo d w x i b d ia pampa$ IdH1)
.
of tbi* m i o n : minus
[iii)Tbe mount of d o h inwm or
m i n p and pro5tl lor p ) u tbe ~~vaunl
of any dollar ioss or defi& In earnings

dpronts)asdeteminedlotthe

I

Fedtr+l R w t r

I Val. 59,

No.

1 4 1 f Monday,

July

2 5 , 19%

I Rules

and R~ulatians

37675

hwlnnalrona~ E r c ~ q weUSwes
~
crsrerq
rate
mbn
Saies

--.

lJan4eh) -

-

IW.-Apr.I

-.-..A--d-44.-

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Wy) ,
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5Q.D00.000

Z1:1
221

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231
2Rl

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m.ooo.oo~

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~ 3 8 1

2272-7
217U13
76923t
7142~6

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689.655
ws.667

mt
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30,
.000.W- 319

567.742

240,MX1,000h,.,---

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9

.

7

~

~OlGoodsSdd

-.--

lnvemwy PLU(JanJW
(w.-Av.)

-.

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0

----..----..,,,,,,
ro.om.0[~1
. - 30.000.000
221
..-.- ----.-----+20m.m
a
1
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..
.--..-- ......---.
m1
70mm
a 1
I=)
IOU) - - - - - - - - + - . - - - - . -- 5.000.000
s . ~ . ~ el
,

,,,-..,..

(May-June)
(*

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t%m

20rl
21:l

47~190
1 s . a

Bms5
384.615
~ 7 a m

L
-

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n.DOO.O[Xh ,-,.,

xkt
31:1

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IX',414

ax5

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3536374

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tii) Since S w the h - i n . b i # t
i n v e om
~ ~stw.h e 3wsi~ginveota n
ur-4 10consist of p d madt3aring
h e r ~ &nxent
t
trs&tioa
pcrid M i o l h

- ---

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s

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[dl 6 m p m t m n of M S T M g o i n or
1-1)
Rule. DAST)UI gain or lasr of a
Q3U quals(i) The wt wortb d tbe QBU 1.r
damnin4 under parapph ldll7: ol
.his d o 4 at &a end of Lb taxable

Id114)
.mminus the w! yab d t
k QaU n rhe items d d t d in p-ph
he end of tbr p r a g ~ ~ a b k y w- , d &is -ion: minus
plus
liU] The mount 01 do1l.r income OI
euninp and pro5tl (mplus h e llrnwnt.
(ii)Tha doI1u mount of the items
of any RoHar 10sor d e f i d in eaminp
d d b E d in psragapb td)l3) of &is
section m d minus thc dd1aramuwt of .nd profits) as determined faQe

I

~

37676

1 Rules and Re~ulations
FederdR~isterIV01.59.N0.141/Monday,iuly25.~g94
-

'

(5) Tmnslotion o/ bnlonce shcci. Asset
and liability amounts shown on h e
balance sheet in byperinnatinnary
c m n q (adiustd pursuant t o
parapph IdIta)[ii] of this section) shall
be translated into dollarc AS provided in
-this p m p p b (dN51. However. if the
doliar amount representing liabilities an-.QBU pmviously changed i t s functional
the bdance sheet N o t w i h t a n b g my currenq*to the dollar and the rules of
oher provision in h s paragraph [d)(2), 5 1.985-5 (or,if applicable, 1.985-51.
as contained in the April 1.lg93 edition
the district direelor may adjust tbe .
of 26 CFR p a 1 (1.908 to l.l000)1
amount of any asset or linbility iT a
applied in m s b h g its balance sheet
purpose for acquiring (or disposing afJ
amounts into d o l k , then the spot
the asset or incurring [or &schargio@
exchmge rate applied under those ruler
the liability is to manipulate the composition of h e balance sheet for any shall be usad to t ~ ~ l mY
a ~amoml
e
that would otherwic6 be trans1aled at a
period during
taxable yew in order
mtt determiaed by refemam to a
to avoid tax. Tht taxpayer s b d
vk'1s1atior; ycriod prior to the than
determine net worth by(i)heparing a balan- sheet as c ! the
f ~ d o n curRn'?Y.
d
For example.
basis ol real properly acquired while the
end of be-ble
,
.
M
bornthe
b m b and
[,,;lfin &e meaning QBU had a nondollar functional
CmncY
be tmslated
Into dollars
of5 1.989[a&l (d)]as recorded in the
a! t h e spot raw an Iht last day of the
QBW's hyperinna90nary currency;
t m b l yew
~ befo~
of change to
[ii)M&ng ldjustmenb nemsmry to
such b & n e sheet lo United
a dollar functiona1
rather
the "Ie forthe period inwhich the
slates generaUy accepted aaounting
principles and tax accowting princip~y
[including reversing monetary .
adjusmenu-3"- ed by 1-1
"pmsenling
ofinventoT
included in the closhg inilcnlory
accounling principles);and
balann shall be translated in
(iiil T m 1 a h g the asset md Lability
.
iclglliiilof
mountsshou~onche~ancerheet eccordmo
tbuseaion- nilh p.ngnp
inlo United States dollars ia accordance
[iil Bod debrmsem. hmountr
'ith parapph [dl[5) this scctiOn*
mp,Henhg
bad
EMrvcs shall
(3) Positive ~ d i u h e n f iT. h e items
rate for hB
-laled
at he
ddbed
inLhis paragph ld)I3)
an
last -siat.ion
p e r i d for the t a u b ~ s
&ridend distributions for the taxable
year.
year and any items that deesease net
{iii]Prepaid income or expense.
war& for the taxable ytar but that
Amaunts represenring txpenoes or
gentrally do not rFIeet income or loss or
paid or
in a
earnings and profits (or a deficit in
taxable year s h d bt translated in
earnings and profitsb Su& items
accordance with paragraph (c)[51 of this
inciude a transfer to the borne office of
ion.
a QBU branch and a rerun of capital.
tip) Hypen'nflutionq*cumncy.
kmp! as othewise provided by d n g h o u n uofb e hyperinflationary
or administrative pronouncement. the
-ncy
hyperinflationary demaad
amout of a transfu to h e borne oflice
dcpg~itbalances h a l l k translated at
of r QBU branch. a dividend. or a
tbr sxcbanga tale for the last m a l a t i o n
dihbution that is a rtturn of apital
pdd of
taxable year.
s
m be transiated inlo d o l l a ~at h b
,:
tvj &fialn orxts--(A] In general;
e w c h a n g e r a ! t o n t b e d a t e t h s m o ~ b . ~mouwmp-nlingplant,red
paid.
' ,
p-perty,
'
oquipmbnt. goodwill. and
(4) Negative odjustmtntr. TI% items,:, pimu
obw bm@b]cssfiall k
described inrhis parsgraph tdlI4l.m ':'+, M a t e d r t t b s cxchmgc rate for the
items t h t innet WO& f~ &a. -?-';! : hnJ.tifia perid w h a the c a t of
tzxsble year but thm generally do nd,-?2r
was in-&
dect income or IOU or earnings and
I31Adjustment io cemin a s x l s .
pro6ts (orI deficit in c w g s and
hmounu repmenring depfecirtim,
pro6tsl. Such items incluae 8 capital
dtpletion. md amaniution resew#
contribution or a lransier from s borne
shaH k trmrhtd in rccordlnee with
ofiee to a QBU brsnch. beep! as
b tcJ14)of this waioa.
(YI
~ n ' n f l a t i o n adtttf
y
otbcmiss provided by ruling w
obligations. Except as provided in
a d d h i r e t j v e pronorincemtnt. if the
mntribution or w i e t is not in dollars, paragraph {d][S)[vii] ofthis d o n
the mount of a apital oonuibution or
amounts represealing A
hyprinllationsry debt obligation
transfer shall k tmnslaid into dollarr
at thc excbange rate on tbe dskt mada.
(indu&ng m u n t s reotivrbla and
-

lawable year pursuant to paragraphs
@](1) thmugb lbI(31olthis secbon.
12) Net woah. Net wo* ofa QBU at
the end of MY taxable yeat equals the
aggregate dollar amount mpresenting
assets on the QBUf balance sheet at the
end of the taxable year less h e aggregate

L"

~

0

~

1

~

zi$z.",tO

-

pan'f"d

,

payable) shall be translaled at rhe
exchange rate ior t h e last translat~on
peiiod for h e rwable year.
Ivii) Accrued foreign income tuxes.
Amounts representing an accrued but

1

r
'

unpaid loreign income tax shall be
translated at the exchange rate on the
last day of the last rranslation period of
the rsxable year of accrual.
Iviii) Certain h y p e r i n , f l ~ i i o n u ~
financial imtruments. Amounlr
.
representing any item described in
seaion 988(c](I)(B)[iii) Irela ting 10
foward conlracts. futures contracts.
options. or similar financial
instrumenls) denominated in or
determined by reierence to the
hyprinflationary currency shiiI1 be
translated at the exchange rate for the
last trandation period for h e mxable

year.
(ix)Orher assets and Iiabilities.
Amounts mpresenting assets and
liabilities. oher than those desaibed in
parapaphs [ d ] ( ~ ) ( bi ) u g h Iviii) of his
section. shall be translaled at tbo
exchange rate for the hnslalion period
in which the cost ofLhe asset or the
amount of h e lisbiiity was i n w e d .
(6) Dollor tr~nsoctions.
Notwithstanding any olber provisions d
this paragraph (dl, wbert he amount
reprewriting an item rhohn on the
balance sheet reflects a doilar
transaction (describedin pmgrnph
(c)[8) of this section], the transamor?
shall be taken into account in
accordance with that paragraph.
(71 Third cumen- tmnsoctions. A
taxpayer may use any reamn8ble
method d amounting for transactions
desaibed in seaion 988[cJIl#B)and [C)
!hat are denominated in. or detenined
bv referenosto. a m n c v other &an
&t QBU's hjTerinflationky currency or
the dollar (third m n c y transaaions).
$0 long as such mttbad i
s consistent
with ik melfid of financial recounting.
(6) Chamcfur.The m o u n t 01DASTM
gain or loss determined under paragmpb
[ d ) ( r )of this section shall be ordinary
incomt or Iws.
I91 C.ramp!c.The provisions of this
paragraph Id) a n illustrated by the
following cxampk:
fiomple- li) S.an a m a l method cslendnt
y u u k m i y mqmntion. urcr D A S r U S-r
hyperinflationmy nurancy is the "h." S's nut
vonh rr Dsctmkr 31.1993 was s3.zr6.495.
For 1994, S's Dpsrrtlng p f i L is 81.340.000h.
or S2.031.200.5 mads r s . ~ . ~ b
dinribution ia A ril md mgmin in Daccmbsr
ol IPU S s transpation pend is ,be month
Noaeot S's w u or liabilium r n f l e ~r dollar
w O i m n c y r n n ~ ~ &lcribd
u ~ a in
w 8 m p b r ~ n e ) ICIIQ) 01 I ~ soctiok
~ S
.
mpacuydy.Tbr exchrngt -10 Iw emd
moo& in 1 S H is ar f o l l ~ w c

fder;ll Rtgsler I Val. 59, No. I 4 I I Monday. luly 3, 1 9 9 1 Rules and Rpgulations

-

. 33:l

kwh-Mu.

-...--

Aprd-hlay

/

....

jdy

-

-...--.--,-----

Aug&pt

Dcr

u:l

-

.

....--...-...--,,-,
........................................

.,.,,

a

1

I

•

waonaymuflmm
-r-

.

.

60 D q -A

-,

,
,
,
,
,
,

--.-..--...--.-..-.---.-.--*---..-.-.-.....
Total Assets
-.--..------..-.---.--*.A m r m Payable L w l c m t k a b U k
Lizsrilr) A .
,.......,.,-.-.....-.......*.......-.....-*
-,

exchange raw tu tte-'E

-T
S's -1
per*d m.

.......-...--...-...-.-,..-.............................-..........--....
.,,...,..,,..
-.,...,-,.,.

K c i wonb-19%
Imc-Xel worth--1993
14~-? 9PI Dividends

(ivJ Thus. total F ~ f i ls !5?.038-

n. % 6 2 , ~ =8 ~ 3 . 9 0 0 . 9 ~
le) Effea of D-4Sm@n

Ex-

1

US. do.r

,
-

, ,

-

. .

... -...h---.---.-

....+*k--*--..-.
.
.
.
.
.......--.-

,,
,
.
,
.
,,,.
,
.-.,
4
.
-.
..
d
.
-

mtr A.
* S hzs a vL-w
d

1

- .................-............-...*..---..-... ....................-*..-----------

C.Ds

bah~tB
y

+lamnay

,,----.---..----..----

30 Day

-A

l i i j At the end d 1%. S'r ~ s s s t sand
liabilitm. R S mdlusled m d m h 1 3
llunuont ID pan%qpk ld)l2) and Id){S) 01
(his seaiou, .re ol tollow*

371

31:1
39:l

Nov. .------.I

363

37677

tw

basis repre-

d

rn h

.,.,.,..,..,..

X.XX.X.XXX

Lhe Sstcp pr0c~drtu.udwui'hd in

orrsr or m.P?-

to uw

...................
....-.. .
......... .............,.....

=A::
.C.X
fil*6.4sS

m f m r y

.-

.

XXX.X

w a : d in bim-ctioz*

k w w n kla~erl

~;rr;lpa?k( ~ ) [ 3 ) this mioll.
991% ms~dentin the s L z e oomtry. Fot
~
or I0s.s ol*,&2- ,; t l ) Small QBl' D.4SS'M ~ ) ~ Y u o ~: uIn )t p l cn. - m c Q B G I , miden1 in
( w u x : X.
~ ~wUS h \ e n ! q lo I P ~ I L ~
fiwss iac'oize, f a ~ a M ~IICOW.
e
a ; ': 3
& c l i o n tir,v&aid. A t ~ v ! - e : mcy 61rsxinp and pnfik-(l)ln gem&. FIW; to n m
sm& QBU U
A i#l)m
~ ; r L i ~Q~R L 2 . ;lisrr r e d e c : i i b eour.rry X, i~
c x c h ~ : g tIw w amm! renw&Lil F w
ail purposes of su'wiPe .L -1
ug.7-i+d in pwagwpb leH2)iiv) of Bk
u
D h S T M @ n o r l m d a Q B L K ~ - : - , . - p ~ x i o n w . i t h r r s p c a ; o a Q B U M h s l p h u of~d s t c m l r q the ~ w e ul
Q9CI-1
undur
&u
p
m
p
a
p
b
Ic)!lyi].
determined under pa-+
Id) 9t thbL+,anodjustod '-is in aswts Imsbrd rr
Iht tsvpaycr sbli I& into -curt
d o n is taken ieto amount by rb**: !;;;' 'prcrededin puagmpb (dbsj of this
uithcr
1Sr! iuvm;o? S ~ O H I I02 h 1 &As
OaU fcr purposes of d a ~ e m h i the
q
-. - m
n ] of $1 0 d i o a nr ks 41 tbe end
01 QRii-:! or QB'LL1's r&vabkr h i n
mvun; olits
income, &sable
of any taxable year. I? d c u k i n tbc
~
Q13t;Z fiul not tmtb).
iaarns ar 1~ariad profirs (0,
St0 million W o l d . 8 QBU shall ha
(ii] Consent lo efMiion. .The a h icu*
dcsal e ~ p i n g s& prufitsl, *&
m e d a4 o\vninp 111 of the @Setsof
of h a smaIl QEU D k ! S N dimrinn or
w p ~ ~ - I , p a m ~ i l ~ ~ ~ *
f adrektedQBUWAfintdi~
sta)xseq\~tntapp1ira:ion of tbn ru* of
~noome,exprtsa w &cr ammlnm
pmgmpb ie#:Mvi) afthis 6 0 4
p i m p p h t d 3 ) nlthis d o n crrc I ~ kJr r
~.tm or Ion
ij 9-d
uk hobins its reridanm IS & f i n d ip
increes~In tbe adjunsd basis of rba
- o*
IwO
&Q 5 k d m ~ 1 * K 3 M A 1 1i l t h QBU'g
ol rwirktm Imhted
QBU's awts sbdl k dr*rmrd io haw
may clcct tha smail QBU D A S l l i
h a made nitb the E - W D ~ 01 h e
dl-tic3 d-bod
in ~w;rgmpb[&ZJ
QBUk For
p
m
appropriate adiustrnen~shall k u d e to Cammis s i m r . Omr the h i o n untk
DtberP!tb
uu: eliminate
B e double munlilyy o f a m pmjmph laY2)liii) of t h b &inn Ir
+
A
,
.
.

i
.
,