IRS Form 8964-TRA – Section 987 Transition Information

IRS Form 8964-TRA – The IRS introduced Form 8964-TRA (Section 987 Transition Information) as a new requirement for taxpayers with foreign branches or disregarded entities operating in non-U.S. dollar functional currencies. This form helps comply with the final Section 987 regulations (TD 10016, issued December 11, 2024), which overhaul how U.S. taxpayers calculate and recognize foreign currency gains or losses for qualified business units (QBUs).

The form reports pretransition gain or loss under Regulations section 1.987-10, bridging prior accounting methods to the new rules. It applies starting with tax years beginning after December 31, 2024 (transition date generally January 1, 2025, for calendar-year taxpayers).

What Is Section 987 and Why the Transition Form Matters?

Section 987 addresses foreign currency translation for QBUs (e.g., foreign branches or disregarded entities) with a functional currency different from their owner’s (usually USD). The 2024 final regulations require a more precise method for determining taxable income, gain/loss recognition on remittances, and character/source rules.

The transition rules in Reg. §1.987-10 prevent double-counting or omitting unrecognized Section 987 gain/loss accrued before the transition date. Form 8964-TRA documents:

  • Your prior method (eligible or not).
  • Computation of pretransition gain or loss.
  • Treatment as unrecognized gain/loss, deferred gain/loss, or suspended loss.

Failure to file properly can lead to IRS scrutiny during audits of international operations.

Who Must File Form 8964-TRA?

File a separate Form 8964-TRA for each applicable QBU if you are:

  • The owner of a Section 987 QBU on the transition date (file for the tax year beginning on the transition date).
  • The owner of a deferral QBU or outbound loss QBU where the deferral/outbound event occurred before the transition date.
  • The owner of a terminating QBU (file in the first tax year beginning after December 31, 2024).

Partnerships and S corporations generally do not file (but their owners may need to). A small business election under Reg. §1.987-10(e)(7) may treat pretransition amounts as zero for qualifying QBUs.

Note: Attach the form to your income tax return (e.g., Form 1040, 1120, or 5471). Continue reporting ongoing Section 987 gain/loss on Form 8858 until tax year 2027 to minimize burden.

Key Definitions and Concepts

  • QBU: Separate unit of a trade or business with its own books/records (Reg. §1.989(a)-1).
  • Section 987 QBU: Eligible QBU with functional currency different from owner’s.
  • Transition Date: Generally the first day of the first tax year the regulations apply (often Jan. 1, 2025).
  • Pretransition Gain/Loss: Amount computed as if the QBU terminated the day before the transition date.
  • Eligible Pretransition Method: Reasonable prior method (e.g., earnings-and-capital, certain earnings-only methods applied consistently before Nov. 9, 2023).
  • Deferral/Outbound Loss QBU: Special rules for certain terminations.

How to Complete Form 8964-TRA (Step-by-Step)?

Use the December 2025 revision. Download the form and instructions from IRS.gov/Form8964TRA.

Identifying Information

Enter the QBU’s tax year (owner’s tax year), filer name (usually the owner), EIN/SSN, and QBU description.

Part I – Section 987 Transition Information

  • Describe your prior method for determining Section 987 gain/loss (including whether it was an eligible pretransition method per Reg. §1.987-10(e)(4)).
  • Note use of the small business election (pretransition gain/loss = $0) or fresh start transition method (if applicable).
  • Provide transition exchange rate and pretransition translation rate details.

Part II – Pretransition Gain or Loss (Eligible Pretransition Method)

Use this if you applied an eligible prior method:

  • Line 1: Deemed termination amount (gain/loss as if QBU terminated day before transition).
  • Lines 2–4: Owner functional currency net value adjustment (difference in translated net assets at transition vs. pretransition rates).
  • Line 5: Pretransition gain/loss = Line 1 + Line 4 (for regular Section 987 QBUs).
  • Special lines for deferral/outbound loss QBUs (Lines 6–7).
  • Line 8: Adjustments to avoid duplication/omission (attach statement).

Treatment:

  • Pretransition gain → unrecognized or deferred gain.
  • Pretransition loss → often suspended loss (unless current rate election applies).

You can elect 10-year amortization of pretransition amounts (Reg. §1.987-10(e)(5)(ii)).

Part III – Pretransition Gain or Loss (Non-Eligible Pretransition Method)

Use if prior method was ineligible:

  • Line 1: Aggregate annual unrecognized Section 987 gain/loss (post-9/7/2006, using modified rules with current rate election).
  • Line 2: Net recognized Section 987 gain/loss over the same period.
  • Compute pretransition amount as Line 1 – Line 2 (with adjustments for deferral/outbound cases).
  • Line 8: Duplication/omission adjustments.

Attach detailed statements for annual amounts, exchange rates (divide-by convention, ≥4 decimal places), and adjustments. If space is limited, complete core fields and continue on conforming sheets.

  • Form 8964-ELE — Make/revoke Section 987 elections (e.g., current rate, annual recognition, grouping QBUs).
  • Form 8858 — Report foreign disregarded entities/branches (ongoing gain/loss reporting).
  • Elections generally filed on Form 8964-ELE.

Practical Tips and Common Pitfalls

  • Compute on a QBU-by-QBU basis.
  • Document your historical method thoroughly — the IRS scrutinizes “reasonable” methods.
  • Consider the small business election if your QBU qualifies to simplify.
  • Track exchange rates carefully (spot rate, yearly average).
  • File with your original return (including extensions); correct via amended return if needed.
  • Consult a tax professional with Section 987 experience — calculations can be complex, especially for non-eligible methods.

Where to Get the Latest Forms and Guidance?

  • Current Form 8964-TRA → IRS.gov/pub/irs-pdf/f8964tra.pdf
  • Instructions → IRS.gov/pub/irs-pdf/i8964tra.pdf
  • About page → IRS.gov/forms-pubs/about-form-8964-tra
  • Full regulations → TD 10016 (Federal Register)

Staying compliant with these new Section 987 rules protects against unexpected tax liabilities on foreign currency fluctuations. Review your QBUs now and prepare Form 8964-TRA for your next filing season.

For personalized advice, contact a qualified international tax advisor or refer directly to the IRS instructions. This guide is based on official IRS materials as of early 2026.