Unless otherwise provided in regulations, all determinations under this subtitle shall be made in the taxpayer's functional currency.
For purposes of this subtitle, the term "functional currency" means—
(A) except as provided in subparagraph (B), the dollar, or
(B) in the case of a qualified business unit, the currency of the economic environment in which a significant part of such unit's activities are conducted and which is used by such unit in keeping its books and records.
The functional currency of any qualified business unit shall be the dollar if activities of such unit are primarily conducted in dollars.
To the extent provided in regulations, the taxpayer may elect to use the dollar as the functional currency for any qualified business unit if—
(A) such unit keeps its books and records in dollars, or
(B) the taxpayer uses a method of accounting that approximates a separate transactions method.
Any such election shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
Any change in the functional currency shall be treated as a change in the taxpayer's method of accounting for purposes of section 481 under procedures to be established by the Secretary.
(Added Pub. L. 99–514, title XII, §1261(a), Oct. 22, 1986, 100 Stat. 2585.)
Pub. L. 99–514, title XII, §1261(e), Oct. 22, 1986, 100 Stat. 2591, provided that:
"(1)
"(2)
"(A) earnings and profits of the foreign corporation for taxable years beginning after December 31, 1986, and
"(B) foreign taxes paid or accrued by the foreign corporation with respect to such earnings and profits."
| § 1.985-0 | Outline of regulation |
| § 1.985-1 | Functional currency |
| § 1.985-2 | Election to use the United States dollar as the functional currency of a QBU |
| § 1.985-3 | United States dollar approximate separate transactions method |
| § 1.985-4 | Method of accounting |
| § 1.985-5 | Adjustments required upon change in functional currency |
| § 1.985-6 | Transition rules for a QBU that uses the dollar approximate separate transactions method for its first taxable year beginning in 1987 |
| § 1.985-7 | Adjustments required in connection with a change to DASTM |
| § 1.985-8 | Special rules applicable to the European Monetary Union (conversion to euro) |
The Regulations cited above were determined based on programmatic database analysis using data provided by the Government Publishing Office. TouchTax attempts to hide unrelated regulation provisions. Due to limited GPO data, however, certain unrelated regulations may appear in some instances.
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