IRS Form 8964-ELE – In the complex world of international taxation, businesses operating across borders often face unique challenges related to foreign currency fluctuations. IRS Form 8964-ELE plays a crucial role in managing these issues under Section 987 of the Internal Revenue Code. This form allows taxpayers to make or revoke specific elections that impact how foreign currency gains and losses are recognized and reported. Whether you’re a multinational corporation, a tax professional, or an individual with foreign business units, understanding Form 8964-ELE is essential for compliance and optimizing tax outcomes in 2025 and beyond.
What Is Section 987 of the Internal Revenue Code?
Section 987 addresses the taxation of qualified business units (QBUs)—separate units of a trade or business that maintain books and records in a functional currency different from the taxpayer’s. These rules are designed to account for currency exchange rate changes that affect income, gain, or loss calculations. The regulations under Section 987 were finalized in December 2024, introducing standardized methods for computing and reporting these amounts. This section ensures that taxpayers properly recognize foreign currency translations, preventing mismatches in taxable income due to exchange rate volatility.
Key aspects of Section 987 include determining the net unrecognized gain or loss from QBUs and applying transition rules for prior methods of accounting. For businesses with foreign branches or disregarded entities, compliance with these rules is mandatory to avoid penalties.
Purpose of IRS Form 8964-ELE
Form 8964-ELE, titled “Section 987 Elections,” is a new form introduced for tax year 2025. Its primary purpose is to allow eligible taxpayers to make or revoke elections under the Section 987 regulations. These elections provide flexibility in how foreign currency items are treated, potentially simplifying calculations or aligning them with business operations.
The form must be attached to the taxpayer’s original, timely filed return (including extensions) for the year the election is made or revoked. It applies to owners of QBUs, including corporations, partnerships, and individuals, and covers elections that affect the recognition of gains and losses from foreign currency transactions.
Types of Elections Available on Form 8964-ELE
Form 8964-ELE facilitates three main elections under the Section 987 regulations:
- Current Rate Election (Regulations Section 1.987-1(d)(2)): This election treats all items of a Section 987 QBU as “marked items,” meaning they are translated using the current exchange rate. It can simplify accounting by applying a uniform rate to assets and liabilities.
- Annual Recognition Election (Regulations Section 1.987-5(b)(2)): Under this option, taxpayers recognize all net unrecognized Section 987 gain or loss for a QBU on an annual basis rather than deferring it until a remittance or termination event. This may help in smoothing out tax liabilities over time.
- Section 988 Mark-to-Market Election (Regulations Section 1.987-3(b)(4)(ii)): This allows recognition of Section 988 gain or loss (related to foreign currency transactions) using a mark-to-market method for the QBU. It’s particularly useful for entities with significant currency-denominated financial instruments.
These elections can be made for specific QBUs and must be consistently applied unless revoked with IRS approval. Revocations follow similar filing procedures as initial elections.
Who Needs to File Form 8964-ELE?
You should file Form 8964-ELE if you own a Section 987 QBU and wish to make or revoke one of the eligible elections. This includes:
- U.S. corporations with foreign branches or subsidiaries using a different functional currency.
- Partnerships or S corporations with international operations.
- Individuals with foreign disregarded entities that qualify as QBUs.
The form is required only when an election is being made or revoked; it’s not an annual filing unless changes occur. Taxpayers transitioning from prior accounting methods may also need to file Form 8964-TRA for transition information, but elections are handled separately on Form 8964-ELE.
If you’re unsure about eligibility, consult the IRS instructions or a tax advisor, as improper elections could lead to audit risks or recalculations.
How to File IRS Form 8964-ELE: Step-by-Step Guide?
Filing Form 8964-ELE is straightforward but requires attention to detail. Here’s a step-by-step overview:
- Gather Information: Identify the owner of the QBU, the QBU’s details (including EIN or taxpayer ID), and the specific election(s) being made or revoked.
- Complete the Form:
- Part I: Provide identifying information for the owner and QBU.
- Part II: Specify the election type, effective date, and any required attachments.
- If space is insufficient, do not use “See attached”; instead, use additional forms as needed.
- Attach to Your Return: Submit the form with your federal income tax return (e.g., Form 1120, 1065, or 1040) by the due date, including extensions.
- Electronic Filing: For eligible returns, e-file the form as part of your tax software submission. Paper filers should mail it to the address specified in your return instructions.
Deadlines align with your tax return due date. For calendar-year filers, this is typically April 15, 2026, for individuals or March 15, 2026, for corporations, with extensions available.
Implications and Benefits of Section 987 Elections
Making a Section 987 election can offer several advantages, such as:
- Simplified Compliance: Elections like the current rate option reduce complexity in tracking historical rates.
- Tax Deferral or Acceleration: The annual recognition election allows for predictable income inclusion, aiding cash flow management.
- Alignment with Business Needs: Mark-to-market methods can better reflect economic realities for volatile currencies.
However, elections are binding and may increase taxable income in certain years. Consider consulting a tax professional to model the impact. Note that until tax year 2027, Section 987 gain or loss reporting continues on Form 8858, with Form 8964-ELE used solely for elections.
Common Mistakes to Avoid When Filing Form 8964-ELE
- Missing Deadlines: Elections must be timely; late filings may not be accepted without reasonable cause.
- Incomplete Information: Ensure all QBU details are accurate to avoid processing delays.
- Failing to Attach: The form must be physically or electronically attached to your return.
- Ignoring Transition Rules: If applicable, coordinate with Form 8964-TRA filings.
Where to Find More Resources
For the latest form and instructions, visit the official IRS website at IRS.gov/Form8964ELE. Draft versions were released in December 2025, with final updates in January 2026. Additional guidance is available in Publication 54 for taxpayers with foreign income.
Staying informed about Section 987 elections ensures compliance and can lead to significant tax savings. If your business involves foreign currencies, review your QBUs today to determine if Form 8964-ELE is right for you.