IRS Instruction 8964-ELE – In the complex world of international taxation, understanding foreign currency gains and losses is crucial for U.S. taxpayers with overseas operations. The IRS has introduced Form 8964-ELE to streamline the process of making or revoking elections under Section 987 regulations. This article provides a comprehensive, SEO-optimized overview of IRS Instruction 8964-ELE, covering its purpose, filing requirements, key elections, and more. Whether you’re a multinational corporation or a tax professional, this guide will help you navigate the latest rules effective for tax years beginning after December 31, 2024.
What Is IRS Section 987?
Section 987 of the Internal Revenue Code addresses branch transactions for taxpayers operating qualified business units (QBUs) with a functional currency other than the U.S. dollar. A QBU is typically a foreign branch, division, or disregarded entity that conducts a trade or business and maintains separate books and records. The section requires computing taxable income or loss in the QBU’s functional currency, translating it at the appropriate exchange rate, and adjusting for remittances or other transfers that may trigger foreign currency gains or losses.
The Treasury and IRS finalized regulations under Section 987 in December 2024 (T.D. 10016), replacing older frameworks with a foreign-exchange-exposure-pool (FEEP) method, also known as a balance sheet approach. These rules aim to accurately account for currency fluctuations between when income is earned or assets are contributed and when they are remitted to the owner. The regulations apply to tax years starting after December 31, 2024, making 2025 the first year of mandatory compliance for most taxpayers.
Purpose of Form 8964-ELE
Form 8964-ELE, titled “Section 987 Elections,” is specifically designed for making or revoking elections under the Section 987 regulations. It satisfies the reporting requirements outlined in the regulations, allowing taxpayers to choose methods that simplify compliance or align with their business needs. This form is part of a broader update that includes enhanced disclosures on Form 8858 (Information Return of U.S. Persons With Respect to Foreign Disregarded Entities and Foreign Branches) for detailed QBU-level reporting on profits, losses, balance sheets, and foreign currency gains or losses.
Unlike Form 8964-TRA, which handles transition information for adopting the new regulations, Form 8964-ELE focuses solely on elections. It helps taxpayers transition from prior methods, such as earnings-only or earnings-and-capital approaches, to the new FEEP methodology.
Who Must File Form 8964-ELE?
Any U.S. taxpayer—individual or corporation—that owns a Section 987 QBU must consider filing Form 8964-ELE if they wish to make or revoke specific elections under the regulations. This includes multinational companies with foreign branches or disregarded entities using non-USD functional currencies. Partnerships and S corporations are generally not subject to transition rules but may need to apply certain provisions.
Filing is required only if an election is being made or revoked. Owners of QBUs must identify all applicable QBUs, confirm their functional currencies, and report any pretransition gains or losses as part of the broader compliance shift. If no election is needed, the form isn’t mandatory, but taxpayers should review their operations to ensure compliance with the default FEEP method.
Key Elections Available on Form 8964-ELE
The form allows for several simplifying elections under the 2024 final regulations, providing flexibility in recognizing foreign currency gains and losses. Key options include:
- Annual-Recognition Election (ARE): This election permits annual recognition of Section 987 gains or losses, rather than deferring them until a remittance or termination event. It’s useful for taxpayers seeking consistent annual reporting.
- Current-Rate Election (CRE): Under this election, translations use current exchange rates, simplifying calculations for certain assets and liabilities. Taxpayers can choose one, both, or neither of these elections.
- Group Election: An owner may elect to treat all Section 987 QBUs with the same functional currency as a single QBU.
Other elections may involve revoking prior choices or specifying QBUs not listed on the form. Taxpayers should consult the regulations (Regs. Sec. 1.987-15) for applicability. All elections must be made on Form 8964-ELE to be valid.
How to File Form 8964-ELE: Step-by-Step Instructions?
While specific line-by-line guidance is in the official IRS instructions, here’s a high-level overview based on the latest regulations:
- Gather Information: List all QBUs, their functional currencies, and any pretransition methods used (e.g., earnings-only or earnings-and-capital).
- Complete the Form Sections:
- Section A: Identify QBUs for which elections are being made.
- Part III: Specify the elections (e.g., ARE, CRE, or group election). Attach statements for additional QBUs.
- Include details on revocations if applicable.
- Filing Deadline and Method: Attach the form to your timely filed federal income tax return for the year the election applies. Electronic filing may be available; check IRS.gov for updates.
- Cautions: Elections are generally binding and can only be revoked with IRS consent. Failure to file properly may result in default application of the regulations, potentially leading to unexpected tax consequences. Consult a tax advisor for complex scenarios.
For the full instructions, download the PDF from the IRS website.
Download the Official IRS Instruction 8964-ELE PDF
To access the complete Instructions for Form 8964-ELE (Rev. December 2025), download the PDF directly from the IRS: https://www.irs.gov/pub/irs-pdf/i8964ele.pdf. This document includes detailed specific instructions, examples, and worksheets to assist with completion.
Potential Impact and Compliance Tips
The new Section 987 rules could increase compliance burdens, with more detailed tracking and reporting required. U.S. companies should review their foreign operations now to identify QBUs and evaluate election options. Accounting for income taxes may also be affected, as the shift to FEEP methodology impacts deferred tax calculations.
Stay updated via IRS.gov, as draft forms were released in December 2025, and final versions are now available. Professional advice is recommended to avoid penalties and optimize tax positions.
By understanding and properly utilizing Form 8964-ELE, taxpayers can better manage foreign currency risks and ensure compliance with the latest IRS requirements.