Conversion to the Euro

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-110332-98]

RIN 1545-AW43

Conversion to the Euro

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary

regulations and notice of public hearing.

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SUMMARY: In the Rules and Regulations of this issue of the Federal

Register, the IRS is issuing temporary regulations relating to the

change to the euro. The text of those temporary regulations also serves

as the text of these proposed regulations. This document also provides

a notice of public hearing on these proposed regulations.

DATES: Written comments must be received by October 1, 1998. Requests

to speak and outlines of oral comments to be discussed at the public

hearing scheduled for October 20, at 10 a.m., must be received by

September 29, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-110332-98), room

5226, Internal Revenue Service, POB 7604, Ben Franklin Station,

Washington, DC 20044. Submissions may be hand delivered between the

hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-110332-98) Courier's

Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,

Washington, DC. Alternatively, taxpayers may submit comments

electronically via the Internet by selecting the ``Tax Regs'' option of

the IRS Home Page, or by submitting comments directly to the IRS

Internet site at: http://www.irs.ustreas.gov/prod/tax__regs/

comments.html. The public hearing will be held in room 2615, Internal

Revenue Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Howard

Wiener, (202) 622-3870 or Thomas Preston, (202) 622-3930; concerning

submissions and the hearing, LaNita VanDyke, 202-622-7190 (not toll-

free numbers).

SUPPLEMENTARY INFORMATION:

Background

Temporary regulations in the Rules and Regulations section of this

issue of the Federal Register amend the Income Tax Regulations (26 CFR

part 1) relating

[[Page 40384]]

to sections 985 and 1001. The temporary regulations contain rules

relating to conversion to the euro.

The text of those temporary regulations also serves as the text of

these proposed regulations. The preamble to the temporary regulations

explains the temporary regulations.

Request for Additional Comments

The Treasury and IRS request additional comments on the following

issues.

(1) Whether the final regulations should contain guidance (and the

substance of any such guidance) concerning the application of sections

1092 and 1259. Comments should separately address the rules for periods

before May 3, 1998, between May 3, 1998 and December 31, 1998, and

after December 31, 1998.

(2) Whether guidance is necessary with respect to section 905,

relating to the redetermination of taxes in post-conversion years.

(3) Whether a QBU whose functional currency was a currency other

than a legacy currency, but whose functional currency should properly

be the euro after the conversion, should be deemed to have

automatically changed its functional currency to the euro.

(4) Whether the regulations adequately address QBUs with functional

currencies of countries that adopt the euro in the future. The Treasury

and IRS also request comments regarding guidance clarifying the

treatment of section 988 transactions that are held by euro functional

currency QBUs and that are denominated in a currency that is replaced

by the euro in the future.

(5) Whether guidance is necessary to address integrated section 988

hedging transactions. It is intended that these regulations be applied

to section 988 integrated hedging transactions under section 988(d) on

an integrated basis. If a QBU subsequently legs out of a position of a

section 988 integrated hedging transaction after the euro conversion, a

leg that formerly was a legacy currency position prior to the

conversion will be a euro denominated position after the conversion,

and the section 988 rules should then be applied to the euro

denominated position.

Special Analyses

It has been determined that this notice of proposed rulemaking is

not a significant regulatory action as defined in EO 12866. Therefore,

a regulatory assessment is not required. It has also been determined

that section 553(b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do

not apply to these regulations, and, therefore, a Regulatory

Flexibility Analyses is not required. Pursuant to section 7805(f) of

the Internal Revenue Code, this notice of proposed rulemaking will be

submitted to the Chief Counsel for Advocacy of the Small Business

Administration for comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,

consideration will be given to any written comments (preferably a

signed original and eight (8) copies) that are submitted timely to the

IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled for Tuesday, October 20, 1998,

at 10 a.m., in room 2615, Internal Revenue Building, 1111 Constitution

Avenue NW., Washington, DC. Because of access restrictions, visitors

will not be admitted beyond the building lobby more than 15 minutes

before the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons that wish to present oral comments at the hearing must

submit written comments by October 1, 1998, and submit an outline of

the topics to be discussed and the time to be devoted to each topic

(signed original and eight (8) copies) by September 29, 1998.

A period of 10 minutes will be allotted to each person for making

comments.

An agenda showing the scheduling of the speakers will be prepared

after the deadline for receiving outlines has passed. Copies of the

agenda will be available free of charge at the hearing.

Drafting Information

The principal authors of these regulations are Howard A. Wiener, of

the Office of Associate Chief Counsel (International) and Thomas

Preston of the Office of Associate Chief Counsel (Domestic). However,

other personnel from the IRS and Treasury Department participated in

their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendment to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in

part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.985-8 is added to read as follows:

Sec. 1.985-8 Special rules applicable to the European Monetary Union

(conversion to the euro).

[The text of this proposed section is the same as the text of

Sec. 1.985-8T published elsewhere in this issue of the Federal

Register.]

Par. 3. Section 1.1001-5 is added to read as follows:

Sec. 1.1001-5 European Monetary Union (conversion to the euro).

[The text of this proposed section is the same as the text of

Sec. 1.1001-5T published elsewhere in this issue of the Federal

Register.]

Michael P. Dolan,

Deputy Commissioner of Internal Revenue Service.

[FR Doc. 98-20024 Filed 7-28-98; 8:45 am]

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