IRS Releases Final Forms in Connection with Section 987 Regulations

The IRS has published final Forms 8964-ELE and 8964-TRA required to be completed beginning with the 2025 tax year.  

These forms relate to the final Section 987 regulations issued in December 2024, which provide guidance for determining taxable income or loss or earnings and profits of a taxpayer with respect to a qualified business unit  that uses a different functional currency than its owner (Section 987 QBU). The final regulations apply for tax years beginning in 2025. Form 8964-TRA must be filed for each Section 987 QBU, and Form 8964-ELE must be filed by each owner of a Section 987 QBU. 

Form 8964-ELE

Taxpayers use Form 8964-ELE to make or revoke an election under the Section 987 regulations and satisfy reporting requirements under Reg. §1.987-1(g). Owners of Section 987 QBUs make Section 987 elections for a tax year on Form 8964-ELE and the elections apply to every Section 987 QBU owned by the owner. The elections remain in effect until revoked. In the case of a consolidated group, the group makes the Section 987 elections for all members of the group. Section 987 elections and revocations must be made consistently across the same “Section 987 electing group.”

In the first year in which the Section 987 regulations apply, filers must attach Form 8964-ELE with their original, timely filed (including extensions) return for the tax year for which the elections are made. In subsequent years, certain elections — current rate election, annual recognition election, or Section 988 mark-to-market election — must be made or revoked by filing Form 8964-ELE before the start of the tax year to which the elections relate. Other Section 987 elections cannot be made or revoked in subsequent years without the Commissioner’s consent. 

Form 8964-TRA

Taxpayers file Form 8964-TRA to report the Section 987 transition information required under Reg. §1.987-10, which addresses how taxpayers should transition from their previous methods of accounting for Section 987 gain or loss to the method prescribed by the Section 987 regulations. Under these rules, owners must compute pretransition gain or loss with respect to each Section 987 QBU, deferral QBU, and outbound loss QBU.

A separate Form 8964-TRA must be completed for each applicable QBU. The instructions specify that the form must be completed for each of the following:

• An owner must complete Form 8964-TRA with respect to a Section 987 QBU if it was the owner of the Section 987 QBU on the “transition date” (generally, the first day of the first tax year in which the Section 987 regulations apply). Form 8964-TRA should be filed with respect to the Section 987 QBU for the tax year beginning on the transition date.
• A deferral QBU owner or the owner of an outbound loss QBU must complete Form 8964-TRA with respect to the deferral QBU or outbound loss QBU if the deferral event or outbound loss event occurred before the transition date. Form 8964-TRA should be filed for the tax year beginning on the transition date.
• The owner of a terminating QBU must complete Form 8964-TRA with respect to the terminating QBU. Form 8964-TRA should be filed in the first tax year beginning after December 31, 2024.