For Tax Professionals  
REG-110332-98 July 31, 1998

Conversion to the Euro

Internal Revenue Service 26 CFR Part 1 [REG-110332-98] RIN 1545-AW43

TITLE: 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.

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: The public
hearing will be held in the IRS Auditorium, 7400 Corridor, 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).



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 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 issU.S.
(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 addresses 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

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

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

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:


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:

1.985-8 Special reules applicable to the European Monetary Union
(conversion to the euro).

[The text of this proposed section is the same as the text of
1.985-8T published elsewhere in this issue of the Federal
Register.] Par. 3. Section 1.1001-5 is added to read as follows:

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

[The text of this proposed section is the same as the text of
1.1001-5T published elsewhere in this issue of the Federal

Michael P. Dolan
Deputy Commissioner of Internal Revenue Service


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