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Subpart J of the Code governs the recognition of currency gains and losses and translation of certain assets from one currency environment to another.1 Specifically, under Code Section 989, individuals, corporations, and the "qualified business units" or "QBUs" that they own must have a "functional currency" in which he/she/it computes profit or loss. In broad strokes, Subpart J of the Code attempts to address what happens when a taxpayer or its QBU engages in a transaction that is denominated in a currency other than its functional currency (a.k.a., a non-functional currency). Subpart J also addresses what happens when assets, liabilities, profit or loss need to be translated from one functional currency environment to another.

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