988 FX Currency (IRC Section 988) , 987 Branch (IRC Section 987)

988 FX Currency (IRC Section 988)

This section covers Foreign Currency Transactions.

  • What it is: It is the rulebook for how to calculate taxes on gains or losses from changes in currency exchange rates.3

  • When it applies: If you (or your business) hold foreign money, debt, or futures contracts and the value of that money changes against the U.S. Dollar, Section 988 dictates how you report that profit or loss.4

  • Key Detail: Unlike normal stock market gains (which are often "capital gains"), Section 988 gains are typically treated as "ordinary income" (taxed at your regular tax rate).5


987 Branch (IRC Section 987)

This section covers Branch Transactions.

  • What it is: It governs how to report income from a "branch" of a business that operates in a different currency than the main owner.6

  • When it applies: If a U.S. company has a branch in London that operates in British Pounds (GBP), that branch is considered a "Qualified Business Unit" (QBU). Section 987 rules tell the company how to translate the branch's profits from Pounds back into Dollars for U.S. tax reporting.7

  • Key Detail: It specifically deals with the "remittance" (transfer) of money from the foreign branch back to the home office.


Why are you seeing them together?

  • "987 Branch" calculates the profit the foreign office made.

  • "988 FX Currency" calculates the extra profit or loss caused specifically by the fluctuating exchange rate (e.g., the Dollar getting stronger or weaker) during the transaction.


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