Cross-border Tax Talks Lost in FX Translation: The latest 987 regs
Mar 30, 2026
Laura Valestin, an international tax partner at PwC who specializes in financial transactions, walks through the latest Section 987 developments after Notice 2026-17. She explains the simplified equity-and-basis-pool method, remittance and loss-suspension mechanics, hedging rules, and a proposed CFC election. Practical next steps and comment opportunities for taxpayers are also highlighted.
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What Section 987 Actually Does
- Section 987 captures foreign currency translation gain or loss for flow-through entities like branches, disregarded entities, or partnerships whose functional currency differs from their owner.
- It taxes the FX difference between tracked basis while operating and the value when property or cash is remitted to the owner, covering both earnings and capital.
Returning To The 91 Equity And Basis Pool
- Treasury issued Notice 2026-17 to allow a simplified 91-style equity-and-basis-pool method as an elective alternative to the complex FEEP and current-rate methods.
- Doug McHoney recalled being the firm's early 987 modeler and welcomed the simpler, familiar approach for practitioners.
Simplified Method Mechanics And Annual Remittance
- The simplified method uses equity pools in the QBU functional currency and basis pools in the owner's currency, with transfers entered at spot or average rates when allowed.
- Annual netting replaces daily netting: compute net transfers in the QBU currency, compare remittance against gross assets to determine the proportion of accumulated 987 gain/loss recognized.