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IRS Finalizes Regulations Regarding Tax Consequences Of Euro Conversion
Washington, DC, January 19, 2001 - The Internal Revenue Service has released the final regulations which provide that the conversion of certain European countries’ currencies (legacy currencies) to a single European currency (euro) generally will be a tax-neutral event for US taxpayers. The final regulations are substantially unchanged from the temporary regulations and apply to tax years ending after July 29, 1998.
The eleven members of the European Union that participated in the initial conversion to the euro on January 1, 1999 were Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. National coins and notes of the participating European Union countries will stay in use only until 2002 when they will be withdrawn permanently and replaced by the euro. The members of the European Union that have not participated or agreed to participate in the conversion to the euro are the United Kingdom, Denmark and Sweden. Greece agreed to adopt the euro as of January 1, 2001.
The final IRS regulations provide that the conversion to the euro of a legacy currency held by a taxpayer and the conversion of legacy currency-denominated contractual relationships, financial instruments or other claims or obligations will not trigger recognition of gains or losses solely as a result of the euro-conversion. The final regulations also provide detailed guidance for taxpayers (such as some single-country funds) that use a legacy currency, rather than the US dollar, as their "functional currency."