Trump’s Executive Orders Create Uncertainty for the Implementation of Sec. 987 Tax Regulations

After taking office on January 20, 2025, President Trump issued numerous executive orders. While orders addressing what the new administration believes to be regulatory overreach were expected, some of the orders will have outsized impacts on taxpayers. Many of these orders directly impact international tax provisions.   

Collectively, the numerous executive orders impact global tax agreements negotiated with the Organization for Economic Cooperation and Development (OECD), Pillar 2 implementation, and IRS regulations and guidance. Other orders impact tax issues, including suspending hiring at the IRS, freezing all regulatory action, and limiting energy credit projects.  For example, one executive order issued on January 20, 2025, directs that the OECD be notified by the Treasury Secretary and the U.S. Permanent Representative to the OECD that any commitments made by the Biden Administration will have no force and effect in the U.S.  

Under another executive order issued on January 31, 2025, tax regulations will be subject to White House review. This order revives a policy from the first Trump administration that adds a new layer of review for tax regulations. The order also says that for every new rule, regulation, or guidance issued, an agency must get rid of 10 existing guidance documents.   

Regulatory Uncertainty  

An examination of one such executive order highlights the issues and potential confusion created by these orders. Issued on January 20, 2025, the Regulatory Freeze Pending Review executive order was issued, freezing all regulatory rulemakings in progress or not yet published in the Federal Register. This order additionally directs agencies to consider a 60-day postponement from January 20, 2025, for any rules that have been published in the Federal Register or issued in any manner, but that have not taken effect. Accordingly, this executive order partially affects regulations published on December 11, 2024, for IRC Sec. 987.  

Final Regulations Under IRC Sec. 987 

Final regulations for Sec. 987(final regulations) were published in the Federal Register on December 11, 2024. These final regulations retain the basic approach of regulations proposed in November 2023 and December 2016 and include:   

1. an election to treat all items of a qualified business unit (QBU) as marked items (subject to a loss suspension rule);  
2. an election to recognize all foreign currency gain and loss with respect to a QBU on an annual basis; and  
3. a new transition rule.  

The final regulations were effective December 10, 2024, and generally apply to tax years beginning after December 31,2024. These final Sec. 987 Regulations would not be impacted by the Executive Order freezing regulations. 

Proposed Regulations Under IRC Sec. 987 

By contrast, proposed regulations for IRC Sec. 987 (proposed regulations) also issued on December 11, 2024, are impacted by this executive order. These aimed to reduce the compliance burden of accounting for certain disregarded transactions between a QBU and its owner.   

Taxpayers may rely on the proposed regulations, as well as on proposed regulations previously issued in December 2016 that have not been finalized or withdrawn, for tax years in which the final regulations issued on December 11, 2024, apply. These are the rules regarding QBUs with the U.S. dollar as their functional currency and rules requiring the deferral of certain IRC Sec. 988 losses that arise with respect to related-party loans. The taxpayer and each member of the consolidated group and IRC Sec. 987 electing group, as applicable, must follow the proposed regulations in their entirety and in a consistent manner.  

The comment period for the proposed regulations was scheduled through March 25, 2025. The proposed regulations were intended to become effective for tax years beginning after they are finalized. Given the complexity and the storied history of the Sec. 987 regulations, it is not clear that these proposed regulations will be finalized as they must clear a new level of review by the President’s appointee. 

The second Trump administration is moving quickly to make significant changes. Taxpayers who are unsure how these changes may impact them should reach out below.