The IRS this week issued new proposed regulations that limit or modify taxpayers' ability to make or revoke certain foreign currency elections. The proposed rules, under IRC Sections 954 and 988, would partially withdraw and modify proposed regulations from 2017 to promote consistency with other filing requirements for controlled foreign corporations (CFCs) and limit taxpayers' ability to make and revoke certain elections related to foreign currency gains or losses.

Treasury and the IRS specifically noted that the rules for making and revoking a Prop. Reg. Section 1.988-7 election under the 2017 Proposed Regulations provided an excessive amount of flexibility to taxpayers. Therefore, the 2024 Proposed Regulations withdraw former Prop. Reg. Section 1.988-7(c) through (e) of the 2017 Proposed Regulations and propose new amendments.

In a significant change from the 2017 Proposed Regulations, the 2024 Proposed Regulations generally amend the timing for making a Prop. Reg. Section 1.988-7 election to accord with the time for making an election under IRC Section 475(e) or (f). An election under IRC Section 475(e) or (f) permits a dealer in commodities or a trader in securities or commodities to use the mark-to-market method of accounting.

Consequently, under new Prop. Reg. Section 1.988-7(c), an existing taxpayer now would make the Prop. Reg. Section 1.988-7 election by filing a statement that clearly indicates 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 (i.e., by 15 April 2025 for a calendar year taxpayer that is making the election for its 2025 tax year).

The 2024 Proposed Regulations generally are proposed to apply to tax years ending on or after the date the final regulations are published in the Federal Register. Until final regulations are issued, taxpayers may rely on the 2024 Proposed Regulations in making and revoking elections, provided taxpayers apply them consistently to all such tax years. Taxpayers may no longer rely on the withdrawn sections of the 2017 Proposed Regulations as of 19 August 2024.

An imminent EY Tax Alert will provide details.

The UN Ad Hoc Committee on 16 August approved Terms of Reference (ToR) for a United Nations Framework Convention on International Tax Cooperation. The ToR are set to be presented to the UN General Assembly for a vote during its 79th session beginning in September 2024. The draft provides for the Framework Convention to be negotiated during 2025–-2027, after which it should be available for signature and ratification.

The ToR were supported by 110 UN member jurisdictions, with 44 abstentions -- including the European Union and its Member States -- and eight votes against, including the United States. Both the EU and the US provided explanations for their votes, citing concerns about the lack of consensus-based decision-making and the need for alignment with other international forums. A Global Tax Alert provides details.