Cross-border Tax Talks

Lost in FX Translation:  The latest 987 regs

Doug McHoney (PwC’s International Tax Services Global Leader) is joined by Laura Valestin, an International Tax Services Partner in PwC’s Washington National Tax Services practice, where she focuses on financial transactions. In this episode, recorded at PwC’s International Tax Conference in Carlsbad, Laura unpacks the latest Section 987 developments following Notice 2026-17. Doug and Laura discuss what Section 987 is, why it matters for foreign currency gain or loss in branch and disregarded entity structures, the long regulatory history from the 1991 proposed regulations through the 2024 final rules, the new simplified equity-and-basis-pool method, remittance and loss-suspension mechanics, hedging rules, the proposed CFC election, reliance and applicability dates, and practical taxpayer action items, including comment opportunities and modeling decisions for 2025 and beyond. 

• [01:20] St. Norbert College; Laura’s Green Bay Packers recruiting pitch 
• [02:40] What is Section 987 and why should taxpayers care? 
• [04:25] The tortured regulatory history of Section 987 
• [06:05] Notice 2026-17 and the return of a simplified, 1991-modeled approach 
  • [07:05] Why the equity-and-basis-pool method is back as an elective option 
  • [08:45] Core mechanics: equity pool, basis pool, earnings, capital, and transfers 
  • [09:50] Reoccurring transfer group election and average-rate treatment for certain recurring transactions 
  • [11:10] Annual netting of remittances and proportional recognition from the pools 
  • [13:30] Why taxpayers should comment, and the April 26 deadline 
  • [14:55] Current rate requirement and how the election is made on a timely filed return 
• [15:40] Loss suspension rules and the simplification of recognition groupings 
  • [17:35] CFCs move to four buckets: tested income, subpart F, ECI, and other 
  • [18:15] Foreign tax credit sourcing still follows existing bucket and asset-method rules 
• [19:20] Section 987 hedging transactions and relief from the GAAP net-investment-hedge designation requirement 
• [20:50] The proposed CFC election, including compliance relief, limits, and inbound gain consequences 
• [23:15] What taxpayers can rely on now, and what still awaits future guidance? 
• [24:50] Next steps: comments, 2025 modeling, election timing, and controlled-group implications; Accounting and provision considerations when elections may change taxable income. 

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