Today, the Treasury Department and IRS issued important corrections (REG-111629-23; the Corrections) restoring taxpayers' ability to make or revoke certain foreign-currency elections.

Proposed regulations issued in 2017 (the 2017 Proposed Regulations) permitted taxpayers to rely on their provisions so taxpayers could make or revoke proposed foreign-currency elections, including mark-to-market elections, for tax years ending on or after December 19, 2017. Proposed regulations issued in August 2024 (the 2024 Proposed Regulations) eliminated taxpayers' ability to rely on the 2017 Proposed Regulations, thereby limiting their ability to make or revoke those elections. For many taxpayers, the inability to rely on the 2017 Proposed Regulations meant they could not make or revoke a mark-to-market election on their 2023 or 2024 tax returns. See Tax Alert 2024-1600 for additional background on the 2024 Proposed Regulations.

The Corrections modify the applicability dates of the 2024 Proposed Regulations and the partial withdrawal of certain of the 2017 Proposed Regulations. They also clarify the procedures for making a mark-to-market election under Prop. Treas. Reg. Section 1.988-7 for tax years beginning after August 19, 2024. As a result of these changes, taxpayers can once again make (but not revoke) a mark-to-market election under Prop. Treas. Reg. 1.988-7 for tax years beginning on or before August 19, 2024, under the procedures described in the 2017 Proposed Regulations. Thus, taxpayers generally may make that election for their 2023 and 2024 tax years on their timely filed (including extensions) return for the 2023 and 2024 tax years. For tax years beginning after August 19, 2024, taxpayers (including CFCs) must follow the procedures specified in the 2024 Proposed Regulations to make the mark-to-market election under Prop. Treas. Reg. Section 1.988-7.

The Corrections also permit the following:

• The controlling US shareholder(s) of a CFC may revoke the Treas. Reg. Sections 1.954-2(g)(3) and -2(g)(4) elections for tax years beginning on or before August 19, 2024, based on the procedures specified in Prop. Treas. Section 1.954-2(g)(3)(iii) and -2(g)(4)(iii) of the 2017 Proposed Regulations. For tax years beginning after August 19, 2024, the controlling US shareholder(s) of a CFC must follow the procedures specified in the 2024 Proposed Regulations to revoke the Treas. Reg. Sections 1.954-2(g)(3) and -2(g)(4) elections.
• For tax years beginning after August 19, 2024, existing taxpayers may make the Prop. Treas. Reg. Section 1.988-7 election by filing a statement that clearly indicates the election has been made with the taxpayer's timely-filed (excluding extensions) original federal income tax return for the tax year immediately preceding the year for which the election is made or with a request for an extension of time to file that return, if applicable (i.e., by April 15, 2025, for a calendar-year taxpayer that is making the election for its 2025 tax year).

Implications

The Corrections are welcome news, as they restore taxpayers' ability to make certain foreign-currency elections, including the mark-to-market elections (in general) on their 2023 and 2024 returns. Thus, taxpayers that may not have made the mark-to-market election previously (e.g., taxpayers with newly-formed CFCs) may consider making the election on their 2023 returns.