---
kind: "section"
citation: "26 U.S.C. § 987"
title: "26"
title_heading: "Internal Revenue Code"
number: "987"
heading: "Branch transactions"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/987"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter N — Tax Based on Income From Sources Within or Without the United States"
  - "Part III — Income from Sources Without the United States"
  - "Subpart J — Foreign Currency Transactions"
---

# §987. Branch transactions


In the case of any [taxpayer](/usc/26/1313.md?p=b) having 1 or more [qualified business units](/usc/26/989.md?p=a) with a functional currency other than the dollar, [taxable income](/usc/26/63.md?p=a) of such [taxpayer](/usc/26/1313.md?p=b) shall be determined—

- (1) by computing the [taxable income](/usc/26/63.md?p=a) or loss separately for each such unit in its functional currency,
- (2) by translating the income or loss separately computed under [paragraph (1)](#1) at the [appropriate exchange rate](/usc/26/989.md?p=b), and
- (3) by making proper adjustments (as prescribed by the Secretary) for transfers of [property](/usc/26/317.md?p=a) between [qualified business units](/usc/26/989.md?p=a) of the [taxpayer](/usc/26/1313.md?p=b) having different functional currencies, including—
  - (A) treating post-1986 remittances from each such unit as made on a pro rata basis out of post-1986 accumulated earnings, and
  - (B) treating gain or loss determined under this paragraph as ordinary income or loss, respectively, and sourcing such gain or loss by reference to the source of the income giving rise to post-1986 accumulated earnings.

## Source credit

(Added Pub. L. 99–514, title XII, § 1261(a), Oct. 22, 1986, 100 Stat. 2586; amended Pub. L. 100–647, title I, § 1012(v)(1)(B), Nov. 10, 1988, 102 Stat. 3528.)

## Notes

### Editorial Notes

### Amendments

1988—Par. (4). Pub. L. 100–647 struck out par. (4) which provided for translation of foreign income taxes paid by each qualified business unit of the taxpayer in the same manner as provided under section 986(b).

### Statutory Notes and Related Subsidiaries

### Effective Date of 1988 Amendment

Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

### Effective Date

Section applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 1261(e) of Pub. L. 99–514, set out as a note under section 985 of this title.