Key Takeaways:
- The IRS released final Forms 8964-ELE and 8964-TRA for taxpayers subject to the Section 987 regulations.
- Section 987 elections made for 2025 can have lasting implications and may limit election opportunities in future tax years.
- Taxpayers should review filing requirements early to meet election deadlines and transition reporting obligations.
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The IRS has released final Forms 8964-ELE and 8964-TRA, which affected taxpayers must use beginning with the 2025 tax year.
The forms support the final Section 987 regulations issued in December 2024, which provide guidance for determining taxable income, loss, and earnings and profits for qualified business units (QBUs) that use a different functional currency than their owners. The regulations apply to tax years beginning in 2025.
For affected taxpayers, understanding the new reporting requirements and making any necessary elections on time will be critical.
The Filing Requirements
The IRS introduced two new forms to support compliance with the final regulations:
Form 8964-ELE is used to make or revoke elections under the Section 987 regulations, and Form 8964-TRA is used to report transition information required under the regulations.
A Form 8964-TRA must be completed for each applicable Section 987 QBU. Specifically, Form 8964-TRA must be filed in the following situations:
- Owners of a Section 987 QBU. An owner must file Form 8964-TRA if it owned the Section 987 QBU on the “transition date,” generally the first day of the first tax year in which the Section 987 regulations apply. The form should be filed with the Section 987 QBU for the tax year beginning on that transition date.
- Deferral QBUs and outbound loss QBUs. A deferral QBU owner or the owner of an outbound loss QBU must file Form 8964-TRA if the applicable deferral event or outbound loss event occurred before the transition date. The form should be filed for the tax year beginning on the transition date.
- Terminating QBUs. The owner of a terminating QBU must complete Form 8964-TRA for that QBU. The form should be filed with the first tax year beginning after December 31, 2024.
Why the 2025 Elections Matter
The 2025 tax year is particularly important because it establishes how taxpayers make Section 987 elections under the new regulations. Elections are made by filing Form 8964-ELE with the taxpayer’s timely filed 2025 federal income tax return, including extensions. After the initial year, however, the timing rules become much more restrictive. Beginning in subsequent tax years, taxpayers generally must make or revoke certain elections before the first day of the tax year to which the election applies.
For example, if a taxpayer does not make any Section 987 elections with its 2025 tax return, any election for the 2026 tax year would have needed to be made by December 31, 2025. If no election is made with the 2025 return and no election was made by that deadline, the taxpayer generally would not have another opportunity to make those elections until December 31, 2026, for the 2027 tax year. Because of these deadlines, taxpayers should carefully evaluate their election options before filing their 2025 returns.
More About Form 8964-ELE
Taxpayers use Form 8964-ELE to make or revoke elections under the Section 987 regulations and to satisfy the reporting requirements under Treasury Regulation Section 1.987-1(g).
Section 987 elections are made by the owner of the Section 987 QBU and apply to every Section 987 QBU owned by that taxpayer. Once made, the elections remain in effect until they are revoked.
For consolidated groups, the group makes the elections on behalf of all members, and elections or revocations must be applied consistently across the same Section 987 electing group.
In the first year the regulations apply, Form 8964-ELE must be attached to the taxpayer’s original, timely filed return, including extensions.
In later years, taxpayers may make or revoke the current rate election, annual recognition election, or Section 988 mark-to-market election only by filing Form 8964-ELE before the beginning of the applicable tax year. Other Section 987 elections generally cannot be made or revoked in subsequent years without the Commissioner’s consent.
More About Form 8964-TRA
Form 8964-TRA is used to report the transition information required under Treasury Regulation Section 1.987-10, which governs the transition from a taxpayer’s prior method of accounting for Section 987 gain or loss to the method required under the final regulations.
Under these transition rules, taxpayers must calculate pre-transition gain or loss for each Section 987 QBU, deferral QBU, and outbound loss QBU and report that information using Form 8964-TRA.
How MGO Can Help
The Section 987 regulations introduce complex reporting and election requirements that can significantly affect taxpayers with foreign qualified business units.
MGO’s International Tax team helps businesses evaluate how the regulations apply to their operations, prepare Forms 8964-ELE and 8964-TRA, assess transition reporting requirements, and make timely elections that align with their long-term tax strategy.
By planning ahead and understanding the available election options, organizations can help minimize compliance risk and avoid missed opportunities under the new rules. Contact us to learn more.