Tax Insight

Notice 2026-17 charts a simpler Section 987 path with targeted loss relief

Insight
5 minute read
March 04, 2026

What happened?

Treasury and the IRS on February 25, 2026 issued Notice 2026-17 (the Notice), which provides that Treasury and the IRS plan to issue proposed regulations under Section 987 that would permit taxpayers to elect a simplified method—modeled on the 1991 proposed regulations—to compute a Section 987 qualified business unit’s (QBU’s) taxable income or loss and related foreign currency gain or loss. The forthcoming proposed regulations also would provide additional simplification and clarification for the suspended loss rules, the deferral rules, and hedging rules as well as an election to exclude CFCs from the requirement to compute or recognize Section 987 gain or loss, except in connection with certain inbound transactions (the CFC election).

Why is it relevant? 

The rules in the Notice are expected to be consistent with the rules in the forthcoming proposed regulations and may be relied on (subject to consistency rules), except for the rules with respect to the CFC election. Reliance is permitted for a tax year ending before the proposed regulations are published and to which the 2024 final regulations apply.

Actions to consider

Companies should model the tradeoffs between the regime computations in the final regulations issued in December 2024 (the 2024 final regulations) and the elective equity and basis pool method (including how remittance patterns may affect recognized gain or loss). Companies should assess loss utilization under the proposed loss suspension thresholds and simplified recognition grouping approach, particularly if a structure has historically ‘trapped’ Section 987 losses. Companies also should consider taking inventory of, and documenting, hedges tied to QBU exposures to determine whether the expanded hedging definition (and any identification relief) is relevant. Companies should consider whether to submit comments on the new rules provided in the Notice, especially the CFC election. Comments are due April 26, 2026.