Title 26 — Internal Revenue CodeRelease 119-73
§989 Other Definitions and Special Rules
Title 26 › Subtitle Subtitle A— Income Taxes › Chapter 1— NORMAL TAXES AND SURTAXES › Subchapter N— Tax Based on Income From Sources Within or Without the United States › Part III— INCOME FROM SOURCES WITHOUT THE UNITED STATES › Subpart J— Foreign Currency Transactions › § 989
Summary
These definitions support the rules for taxing income earned in foreign currencies. A qualified business unit is any separate and clearly identified unit of a trade or business that keeps its own books and records. The appropriate exchange rate depends on the income. For an actual distribution of earnings, it is the spot rate on the day the distribution is counted as income, and the same goes for stock sales treated as dividends. For certain income from foreign corporations that is taxed as it is earned, and for other qualified business units, it is the average exchange rate for the year. The Treasury writes regulations to fill in the details, including rules on currency losses and hyperinflationary currencies.
Full Legal Text
Title 26, §989
Internal Revenue Code — Source: USLM XML via OLRC
(a)For purposes of this subpart, the term “qualified business unit” means any separate and clearly identified unit of a trade or business of a taxpayer which maintains separate books and records.
(b)Except as provided in regulations, for purposes of this subpart, the term “appropriate exchange rate” means—
(1)in the case of an actual distribution of earnings and profits, the spot rate on the date such distribution is included in income,
(2)in the case of an actual or deemed sale or exchange of stock in a foreign corporation treated as a dividend under section 1248, the spot rate on the date the deemed dividend is included in income,
(3)in the case of any amounts included in income under section 951(a)(1)(A) or 1293(a), the average exchange rate for the taxable year of the foreign corporation, or
(4)in the case of any other qualified business unit of a taxpayer, the average exchange rate for the taxable year of such qualified business unit.
(c)The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subpart, including regulations—
(1)setting forth procedures to be followed by taxpayers with qualified business units using a net worth method of accounting before the enactment of this subpart,
(2)limiting the recognition of foreign currency loss on certain remittances from qualified business units,
(3)providing for the recharacterization of interest and principal payments with respect to obligations denominated in certain hyperinflationary currencies,
(4)providing for alternative adjustments to the application of section 905(c),
(5)providing for the appropriate treatment of related party transactions (including transactions between qualified business units of the same taxpayer), and
(6)setting forth procedures for determining the average exchange rate for any period.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The enactment of this subpart, referred to in subsec. (c)(1), probably means the date of enactment of Pub. L. 99–514, which was approved Oct. 22, 1986.
Amendments
2004—Subsec. (b)(3). Pub. L. 108–357 struck out “, 551(a),” after “section 951(a)(1)(A)”. 1997—Subsec. (b)(3), (4). Pub. L. 105–34, § 1102(b)(3), struck out “weighted” before “average exchange rate”. Subsec. (c)(6). Pub. L. 105–34, § 1102(b)(2), added par. (6). 1996—Subsec. (b). Pub. L. 104–188 substituted “section 951(a)(1)(B)” for “subparagraph (B) or (C) of section 951(a)(1)” in closing provisions. 1993—Subsec. (b). Pub. L. 103–66 substituted “subparagraph (B) or (C) of section 951(a)(1)” for “section 951(a)(1)(B)” in last sentence. 1988—Subsec. (b). Pub. L. 100–647 substituted in par. (3) “section 951(a)(1)(A)” for “section 951(a)” and inserted at end “For purposes of the preceding sentence, any amount included in income under section 951(a)(1)(B) shall be treated as an actual distribution made on the last day of the taxable year for which such amount was so included.”
Statutory Notes and Related Subsidiaries
Effective Date
of 2004 AmendmentAmendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004
Amendments
note under section 1 of this title.
Effective Date
of 1997 AmendmentAmendment by Pub. L. 105–34 applicable to taxes paid or accrued in taxable years beginning after Dec. 31, 1997, see section 1102(c)(1) of Pub. L. 105–34, set out as a note under section 986 of this title.
Effective Date
of 1996 AmendmentAmendment by Pub. L. 104–188 applicable to taxable years of foreign corporations beginning after Dec. 31, 1996, and to taxable years of United States shareholders within which or with which such taxable years of foreign corporations end, see section 1501(d) of Pub. L. 104–188, set out as a note under section 904 of this title.
Effective Date
of 1993 AmendmentAmendment by Pub. L. 103–66 applicable to taxable years of foreign corporations beginning after Sept. 30, 1993, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 13231(e) of Pub. L. 103–66, set out as a note under section 951 of this title.
Effective Date
of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 1261(e) of Pub. L. 99–514, set out as a note under section 985 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 989
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73