recognition grouping
(f) Recognition groupings. The term recognition grouping means the section 987 gain or loss (including section 987 gain or loss that is recognized under 1.987-5, deferred section 987 gain or loss, suspended section 987 loss, or pretransition gain or loss that is recognized under 1.987-10(e)(5)(ii)) described in paragraph (f)(1) or (2) of this section, as applicable. If an owner has suspended section 987 loss with respect to a terminating QBU in a taxable year ending before the transition date described in 1.987-10(c)(1), section 987 gain or loss of the owner (other than section 987 gain or loss with respect to the terminating QBU) is assigned to a recognition grouping based on the method that is used to determine the source and character of section 987 gain or loss for that taxable year. (1) Sourcing and section 904 category. Except as provided in paragraph (f)(2) of this section, a recognition grouping includes only section 987 gain or loss that is initially assigned to one of the following statutory and residual groupings (i) U.S. source income; or (ii) Foreign source income in a single section 904 category. (2) Statutory and residual groupings for CFC owners. In the case of an owner that is a controlled foreign corporation, a recognition grouping includes only section 987 gain or loss that is initially assigned to one of the statutory and residual groupings described in paragraph (f)(1) of this section and that is also initially assigned to one of the following statutory and residual groupings (i) Tentative tested income; (ii) Each separate subpart F income group (as defined in 1.960-1(d)(2)(ii)(B)); (iii) Income described in section 952(b) (ECI that is excluded from subpart F income); or (iv) Income not described in paragraphs (f)(2)(i) through (iii) of this section.