# 26 U.S.C. § 985: Functional currency Source: OLRC release point 119-134 . Cite pinpoints as 26 U.S.C. § 985(a)(1). ## § 985(a) In general Unless otherwise provided in regulations, all determinations under this subtitle shall be made in the taxpayer’s functional currency. ## § 985(b) Functional currency **§ 985(b)(1) In general.** For purposes of this subtitle, the term “functional currency” means— **§ 985(b)(1)(A)** except as provided in subparagraph (B), the dollar, or **§ 985(b)(1)(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. **§ 985(b)(2) Functional currency where activities primarily conducted in dollars.** The functional currency of any qualified business unit shall be the dollar if activities of such unit are primarily conducted in dollars. **§ 985(b)(3) Election.** To the extent provided in regulations, the taxpayer may elect to use the dollar as the functional currency for any qualified business unit if— **§ 985(b)(3)(A)** such unit keeps its books and records in dollars, or **§ 985(b)(3)(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. **§ 985(b)(4) Change in functional currency treated as a change in method of accounting.** 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. ## Regulations - [Treas. Reg. § 1.985-0](/26/reg/1.985-0.md): Outline of regulation. (interprets § 985) - [Treas. Reg. § 1.985-1](/26/reg/1.985-1.md): Functional currency. (interprets § 985) - [Treas. Reg. § 1.985-2](/26/reg/1.985-2.md): Election to use the United States dollar as the functional currency of a QBU. (interprets § 985) - [Treas. Reg. § 1.985-3](/26/reg/1.985-3.md): United States dollar approximate separate transactions method. (interprets § 985) - [Treas. Reg. § 1.985-4](/26/reg/1.985-4.md): Method of accounting. (interprets § 985) - [Treas. Reg. § 1.985-5](/26/reg/1.985-5.md): Adjustments required upon change in functional currency. (interprets § 985) - [Treas. Reg. § 1.985-6](/26/reg/1.985-6.md): Transition rules for a QBU that uses the dollar approximate separate transactions method for its first taxable year beginning in 1987. (interprets § 985) - [Treas. Reg. § 1.985-7](/26/reg/1.985-7.md): Adjustments required in connection with a change to DASTM. (interprets § 985) - [Treas. Reg. § 1.985-8](/26/reg/1.985-8.md): Special rules applicable to the European Monetary Union (conversion to euro). (interprets § 985) ## Forms named in the regulations - [Form 8819](https://www.irs.gov/pub/irs-pdf/f8819.pdf) ## Final rules - [89 FR 100138](https://www.federalregister.gov/documents/2024/12/11/2024-28372/taxable-income-or-loss-and-currency-gain-or-loss-with-respect-to-a-qualified-business-unit) (2024): Taxable Income or Loss and Currency Gain or Loss With Respect to a Qualified Business Unit - [84 FR 69022](https://www.federalregister.gov/documents/2019/12/17/2019-24848/foreign-tax-credit-guidance-related-to-the-tax-cuts-and-jobs-act-overall-foreign-loss-recapture-and) (2019): Foreign Tax Credit Guidance Related to the Tax Cuts and Jobs Act, Overall Foreign Loss Recapture, and Foreign Tax Redeterminations - [81 FR 88806](https://www.federalregister.gov/documents/2016/12/08/2016-28381/income-and-currency-gain-or-loss-with-respect-to-a-section-987-qbu) (2016): Income and Currency Gain or Loss With Respect to a Section 987 QBU - [72 FR 15043](https://www.federalregister.gov/documents/2007/03/30/E7-5857/united-states-dollar-approximate-separate-transactions-method) (2007): United States Dollar Approximate Separate Transactions Method - [66 FR 2215](https://www.federalregister.gov/documents/2001/01/11/01-252/conversion-to-the-euro) (2001): Conversion to the Euro - [63 FR 40366](https://www.federalregister.gov/documents/1998/07/29/98-20023/conversion-to-the-euro) (1998): Conversion to the Euro - [63 FR 10772](https://www.federalregister.gov/documents/1998/03/05/98-5470/change-from-dollar-approximate-separate-transactions-method-of-accounting-dastm-to-the-profit-and) (1998): Change From Dollar Approximate Separate Transactions Method of Accounting (DASTM) to the Profit and Loss Method of Accounting/Change From the Profit and Loss Method to DASTM - [FR Doc. 94-17570](https://www.federalregister.gov/documents/1994/07/25/94-17570/computation-and-characterization-of-income-and-earnings-and-profits-under-the-dollar-approximate) (1994): Computation and Characterization of Income and Earnings and Profits Under the Dollar Approximate Separate Transactions Method of Accounting (DASTM) ## Leading cases - [Quijano v. United States, 93 F.3d 26 (1st Cir. 1996)](https://www.courtlistener.com/opinion/196933/quijano-v-united-states/) ## Proposed regulations (not in force) - [Prop. Treas. Reg. § 1.985-1](/26/prop/1.985-1_94-17569.md): Functional currency. (INTL-0066-92, proposed 1994-07-25) - [Prop. Treas. Reg. § 1.985-5](/26/prop/1.985-5_2024-27227.md): [Amended]. (REG-105479-18, proposed 2024-12-02) ## Connections Cites: § 481 Adjustments required by changes in method of accounting Cited by: § 856 Definition of real estate investment trust ## Amendments - 1986-10-22: [Pub. L. 99-514](/26/act/99-514.md), 100 Stat. 2585