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Title 26 — Internal Revenue CodeRelease 119-73not60

§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

Last updated Apr 5, 2026|Official source

Summary

Sets rules for what counts as a separate business unit for tax purposes, how to pick the right currency exchange rate for different income events, and orders the Treasury Department to write detailed rules to make the rules work. Qualified business unit: a separate, clearly identified part of a taxpayer’s trade or business that keeps its own books and records. Appropriate exchange rate: (1) for an actual distribution of earnings and profits, use the spot rate on the date the distribution is included in income; (2) for an actual or treated sale of foreign stock that is treated as a dividend under section 1248, use the spot rate on the date the deemed dividend is included in income; (3) for amounts included under sections 951(a)(1)(A) or 1293(a), use the average exchange rate for the foreign corporation’s taxable year; (4) for any other qualified business unit, use the average exchange rate for that unit’s taxable year. The Treasury must write rules covering several topics, including preexisting net‑worth accounting procedures, limits on foreign‑currency loss recognition for certain remittances, recharacterizing payments in hyperinflationary currencies, alternative adjustments under section 905(c), treatment of related‑party transactions (including between a taxpayer’s own QBUs), and how to determine average exchange rates.

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 5, 2026

Release point: 119-73not60