[Code of Federal Regulations]
[Title 26, Volume 10]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.985-4]

[Page 560]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.985-4  Method of accounting.

    (a) Adoption of election. The adoption of, or the election to use, a 
functional currency shall be treated as a method of accounting. The 
functional currency shall be used for the year of adoption (or election) 
and for all subsequent taxable years unless permission to change is 
granted, or considered to be granted under Sec. 1.985-2 or 1.985-8, by 
the Commissioner.
    (b) Condition for changing functional currencies. Generally, 
permission to change functional currencies shall not be granted unless 
significant changes in the facts and circumstances of the QBU's economic 
environment occur. If the determination of the functional currency of 
the QBU for purposes of United States generally accepted accounting 
principles (GAAP) is based on facts and circumstances substantially 
similar to those set forth in Sec. 1.985-1(c)(2), then ordinarily the 
Commissioner will grant a taxpayer's request to change its functional 
currency (or the functional currency of its branch that is a QBU) to a 
new functional currency only if the taxpayer (or its QBU) also changes 
to the new functional currency for purposes of GAAP. However, permission 
to change will not necessarily be granted merely because the new 
functional currency will conform to the taxpayer's GAAP functional 
currency.
    (c) Relationship to certain other sections of the Code. Nothing in 
this section shall be construed to override the provisions of any other 
sections of the Code of regulations that require the use of consistent 
accounting methods. Such provisions must be independently satisfied 
separate and apart from the identification of a functional currency. For 
instance, while separate geographical divisions of a taxpayer's trade or 
business may have different functional currencies, such geographical 
divisions may nevertheless be required to consistently use other methods 
of accounting.

[T.D. 8263, 54 FR 38661, Sept. 20, 1989, as amended by T.D. 8776, 63 FR 
40368, July 29, 1998; T.D. 8927, Jan. 11, 2001]