26 U.S.C. § 985: Functional currency

Unless otherwise provided in regulations, all determinations under this subtitle shall be made in the taxpayer’s functional currency. except as provided in subparagraph (B), the dollar, or 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. The functional currency of any qualified business unit shall be the dollar if activities of such unit are primarily conducted in dollars. such unit keeps its books and records in dollars, or the taxpayer uses a method of accounting that approximates a separate transactions method. 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. Except as provided in paragraph (2), the amendments made by this section [enacting this subpart and amending sections 1092 and 1256 of this title] shall apply to taxable years beginning after December 31, 1986 . earnings and profits of the foreign corporation for taxable years beginning after December 31, 1986 , and foreign taxes paid or accrued by the foreign corporation with respect to such earnings and profits.”