IRS Instruction 8964-TRA – Instructions for Form 8964-TRA, Section 987 Transition Information

IRS Instruction 8964-TRA – Businesses with foreign operations through qualified business units (QBUs) face major compliance changes under the final Section 987 regulations issued in December 2024. The new IRS Form 8964-TRA and its instructions help taxpayers report required transition information and compute pretransition gain or loss.

This comprehensive guide explains everything about IRS Instruction 8964-TRA, who must file, key rules, how to complete the form, and official download links. Whether you operate foreign branches, disregarded entities, or subsidiaries with different functional currencies, understanding these rules prevents compliance issues and optimizes tax outcomes.

What Is Form 8964-TRA and Why Does It Matter?

Form 8964-TRA, Section 987 Transition Information, reports the transition information required under Treasury Regulations section 1.987-10(k). It helps taxpayers shift from prior methods of accounting for Section 987 gain or loss to the new regulations that apply starting in tax years beginning after December 31, 2024 (the “transition date”).

Section 987 addresses foreign currency translation issues for QBUs—separate and clearly identified units of a trade or business that maintain their own books and records but use a functional currency different from their owner. Common examples include foreign branches or disregarded entities of U.S. corporations.

The form primarily requires computation and reporting of pretransition gain or loss—unrecognized Section 987 gains or losses that accumulated before the new rules took effect. Filing Form 8964-TRA satisfies the owner’s obligation to provide a Section 987 transition information statement.

Key point: Partnerships and S corporations generally do not file Form 8964-TRA themselves, though their owners may have obligations.

Who Must File Form 8964-TRA?

You must file a separate Form 8964-TRA for each applicable QBU in these situations:

  • Section 987 QBU owners — If you owned the QBU on the transition date (typically the first day of your tax year beginning after December 31, 2024).
  • Deferral QBU or outbound loss QBU owners — If a deferral event or outbound loss event occurred before the transition date.
  • Terminating QBU owners — For QBUs that terminated on or after November 9, 2023, and before the first tax year beginning after December 31, 2024. File in the first tax year beginning after December 31, 2024.

Attach the form to your timely filed income tax return (including extensions), such as Form 1120, 1065, 5471, or others as applicable.

Pro tip: Even if all amounts on a required schedule are zero, you must still file the form with zeros reported.

Key Definitions You Need to Know

Understanding these terms is essential for accurate compliance:

  • Qualified Business Unit (QBU): Any separate and clearly identified unit of a trade or business with its own books and records.
  • Section 987 QBU: An eligible QBU (not subject to DASTM rules) with a functional currency different from its owner.
  • Owner: The person treated as owning the QBU’s assets and liabilities for U.S. tax purposes (e.g., U.S. persons, CFCs, partnerships).
  • Transition Date: Generally the first day of the first tax year beginning after December 31, 2024. For terminating QBUs, it is the day after the termination date.
  • Pretransition Gain or Loss: The amount of unrecognized Section 987 gain or loss determined as of the day before the transition date.
  • Deferral Event / Outbound Loss Event: Specific termination events that trigger special deferred or suspended loss rules.

Owners may make various elections (e.g., to combine QBUs with the same functional currency or use spot rate conventions) using Form 8964-ELE.

How to Complete Form 8964-TRA: Step-by-Step Overview?

The form has three main parts:

Part I – Section 987 Transition Information
Describe your prior method for determining Section 987 gain or loss and state whether it qualified as an “eligible pretransition method” (a reasonable method under the prior rules).

Part II – Pretransition Gain or Loss (Eligible Pretransition Method)
Use this part if you applied an eligible method previously. Key lines include:

  • Line 1: Deemed termination amount (gain/loss as if the QBU terminated the day before the transition date).
  • Lines 2–4: Owner functional currency net value adjustment using transition and pretransition exchange rates.
  • Lines 5–7: Specific computations for Section 987 QBUs, deferral QBUs, and outbound loss QBUs.
  • Line 8: Adjustments to prevent duplication or omission of income (attach a statement).

Part III – Pretransition Gain or Loss (Non-Eligible Method)
Use this part if your prior method was not eligible. It requires reconstructing annual unrecognized gains/losses from tax years after September 7, 2006, then netting recognized amounts.

Exchange Rate Rules
Report rates using a “divide-by” convention (foreign currency units per U.S. dollar), rounded to at least four decimal places. Use the spot rate on the day before the transition date for many translations.

Special Elections and Treatments:

  • Small business election → May treat certain QBUs as having zero pretransition gain/loss.
  • Fresh start transition method → Simplified approach for some taxpayers.
  • Amortization election → Recognize pretransition gain/loss ratably over 10 years (with potential modifications for short years).
  • Form 8964-ELE — Make or revoke elections under the Section 987 regulations.
  • Form 8858 — Information return for foreign disregarded entities and branches (Section 987 amounts may still be reported here through tax year 2026 in some cases).
  • Future years → Once transitioned, use the new rules to compute and recognize Section 987 gain or loss annually.

Download Official IRS Form 8964-TRA and Instructions

Always use the latest official versions directly from the IRS:

Visit the official IRS page for more details: About Form 8964-TRA.

Important: Tax rules can change. Consult a qualified tax professional familiar with international tax and Section 987 for your specific situation. These instructions are for informational purposes only and are not a substitute for professional advice.

Frequently Asked Questions (FAQs)

Q: When is the first year I may need to file Form 8964-TRA?
A: For most calendar-year taxpayers, the tax year beginning January 1, 2025.

Q: Do I need to file for every foreign subsidiary?
A: Only for those that qualify as Section 987 QBUs with a different functional currency from the owner.

Q: What if my prior method was not an “eligible pretransition method”?
A: Use Part III and reconstruct historical unrecognized gains and losses.

Q: Where can I find the final Section 987 regulations?
A: Search for TD 10016 on FederalRegister.gov or IRS.gov.

Stay Compliant with Section 987 Transition Rules

The introduction of Form 8964-TRA represents a significant step in modernizing U.S. taxation of foreign currency gains and losses for multinational businesses. Proper transition reporting ensures accurate recognition of pretransition amounts and smooth adoption of the new regime.

Bookmark the official IRS download links above and review your foreign operations now to determine filing requirements. For complex structures involving controlled groups, deferral events, or outbound losses, early planning with a tax advisor is strongly recommended.

Last updated: February 2026. Always verify the latest guidance on IRS.gov as forms and instructions may be revised.