Instructions for Form

Instructions for Form

8964-TRA

(December 2025)

Section 987 Transition Information

Section references are to the Internal Revenue Code

unless otherwise noted.

Future Developments

For the latest information about developments related to

Form 8964-TRA and its instructions, such as legislation

enacted after they were published, go to IRS.gov/

Form8964TRA.

What’s New

On December 11, 2024, final regulations were issued

under section 987 of the Internal Revenue Code (TD

10016, 89 FR 100138). Section 987 applies to any

taxpayer that has a qualified business unit (QBU) with a

functional currency other than the dollar.

filed with respect to the section 987 QBU for the tax year

beginning on the transition date.

• A deferral QBU owner or the owner of an outbound loss

QBU must complete Form 8964-TRA with respect to the

deferral QBU or outbound loss QBU if the deferral event or

outbound loss event occurred before the transition date.

Form 8964-TRA should be filed for the tax year beginning

on the transition date.

• The owner of a terminating QBU must complete Form

8964-TRA with respect to the terminating QBU. Form

8964-TRA should be filed in the first tax year beginning

after December 31, 2024.

Note: When a schedule is required but all reportable

amounts are zero, the schedule should still be filed with

one or more zero amounts.

The section 987 regulations provide rules for

determining and translating taxable income or loss with

respect to the QBU.

Note: Complete a separate Form 8964-TRA for each

applicable QBU.

In addition, the regulations provide rules for calculating

foreign currency gain or loss under section 987(3), which

requires proper adjustments for transfers of property

between QBUs of the taxpayer having different functional

currencies.

Attach Form 8964-TRA to your income tax return (or, if

applicable, exempt organization return) and file both by

the due date (including extensions) for that return.

General Instructions

Purpose of Form

Form 8964-TRA is used to report the section 987

transition information required under Regulations section

1.987-10(k).

The transition rules under Regulations section 1.987-10

address how taxpayers should transition from their

previous methods of accounting for section 987 gain or

loss to the method prescribed by the section 987

regulations. In particular, an owner is required to compute

pretransition gain or loss with respect to each section 987

QBU, deferral QBU, and outbound loss QBU under

Regulations section 1.987-10(e).

Who Must File

The following persons must complete Form 8964-TRA

and check the applicable box in Part I. However, a

partnership or S corporation is not required to file Form

8964-TRA. The filing of Form 8964-TRA in accordance

with these instructions satisfies an owner’s obligation to

file a section 987 transition information statement under

Regulations section 1.987-10(k).

• An owner must complete Form 8964-TRA with respect

to a section 987 QBU if it was the owner of the section 987

QBU on the transition date. Form 8964-TRA should be

Jan 5, 2026

When and Where To File

Definitions

QBU

A qualified business unit (QBU) is generally defined as

any separate and clearly identified unit of a trade or

business of a taxpayer provided that separate books and

records are maintained. See Regulations section

1.989(a)-1(b).

For this purpose, a corporation, partnership, trust,

estate, or disregarded entity is not itself a QBU, but the

activities of such an entity may be a QBU.

Section 987 QBU

A section 987 QBU is an eligible QBU that has a

functional currency different from that of its owner.

An eligible QBU means a QBU that is not subject to the

United States dollar approximate separate transactions

method (DASTM) rules of Regulations section 1.985-3.

An owner generally may elect to treat all section 987

QBUs with the same functional currency as a single

section 987 QBU. See Form 8964-ELE.

Owner of a Section 987 QBU

The owner of a section 987 QBU is generally the person

who is treated as owning the assets and liabilities of the

section 987 QBU for Federal income tax purposes.

A section 987 QBU cannot be the owner of another

section 987 QBU.

Instructions for Form 8964 (12-2025) Catalog Number 69579M

Department of the Treasury Internal Revenue Service www.irs.gov

For example, if DC (a domestic corporation) owns QBU

1 (a section 987 QBU), and QBU 1 wholly owns the

disregarded entity that owns QBU 2 (another section 987

QBU), QBU 1 is not the owner of QBU 2. Instead, DC is

the owner of both QBU 1 and QBU 2.

The following persons can be the owner of a section

987 QBU.

• A U.S. person.

• A controlled foreign corporation (CFC).

• A U.S. partnership.

• A foreign partnership (FP).

U.S. Person

A U.S. person includes:

• A citizen or resident alien of the United States (see Pub.

519, U.S. Tax Guide for Aliens, available at IRS.gov/

Pub519, for guidance on determining resident alien

status);

• A domestic partnership; and

• A domestic corporation.

Controlled Group

A controlled group means all persons with the

relationships to each other specified in section 267(b) or

section 707(b).

Spot Rate

Spot rate generally means a rate that reflects a fair market

rate of exchange available to the public for currency under

a spot contract in a free market and involving

representative amounts.

An owner may elect to use a spot rate convention that

reasonably approximates the spot rate based on the spot

rate at the beginning of a reasonable period, the spot rate

at the end of a reasonable period, the average of spot

rates for a reasonable period, or spot and forward rates for

a reasonable period. A reasonable period cannot exceed

three months. See Form 8964-ELE.

Yearly Average Exchange Rate

The yearly average exchange rate is a rate that represents

an average exchange rate for the tax year (or, if the

section 987 QBU existed for less than the full tax year, the

portion of the year during which the section 987 QBU

existed) calculated under any reasonable method.

Termination of a Section 987 QBU

A section 987 QBU terminates when one of the following

events occurs.

1. The section 987 QBU ceases its trade or business.

2. The section 987 QBU transfers substantially all of its

assets to its owner.

3. The CFC owner of a section 987 QBU ceases to be

a CFC in a transaction described in Regulations section

1.987-8(b)(3).

4. The owner of the section 987 QBU ceases to exist

(except in the case of a liquidation or reorganization

described in Regulations section 1.987-8(c)).

5. The section 987 QBU ceases to be an eligible QBU

that has a functional currency different from its owner.

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6. An individual or corporation that was the owner of

the section 987 QBU begins to own the section 987 QBU

indirectly through a partnership.

Deferral Event

A deferral event generally means a termination of a

section 987 QBU in which the assets of the terminated

section 987 QBU are reflected on the balance sheet of a

successor deferral QBU immediately after the termination.

See Regulations section 1.987-12(g)(1).

The terminated section 987 QBU is referred to as the

original deferral QBU, and the person that owned the

original deferral QBU immediately before the termination

is referred to as the original deferral QBU owner.

A successor deferral QBU generally means a section

987 QBU that holds the assets of the original deferral

QBU immediately after the deferral event and is owned by

a member of the same controlled group as the original

deferral QBU owner.

However, a section 987 QBU that receives the assets of

the original deferral QBU in an outbound transaction is not

a successor deferral QBU. See Regulations section

1.987-12(g)(2).

The person that owns the successor deferral QBU

immediately after the deferral event is referred to as the

successor deferral QBU owner.

Outbound Loss Event

An outbound loss event generally means a termination of

a section 987 QBU that has unrecognized section 987

loss due to a transaction in which a U.S. person transfers

assets of the section 987 QBU to a related foreign person.

See Regulations section 1.987-13(h). The terminated

section 987 QBU is referred to as an outbound loss QBU.

Suspended Section 987 Loss

Suspended section 987 loss means foreign currency loss

that is recognized only to the extent of section 987 gain

recognized by the same owner. See Regulations section

1.987-11(e) (the loss-to-the-extent-of-gain rule).

Successor Suspended Loss QBU

A successor suspended loss QBU is an eligible QBU to

which suspended section 987 loss is attributed after the

termination of a section 987 QBU (or the termination of a

successor suspended loss QBU).

If, immediately after the termination, a significant

portion of the terminated QBU’s assets are held by an

eligible QBU that carries on a trade or business of the

terminated QBU and is owned by the same owner or by a

member of its controlled group, then the eligible QBU is a

successor suspended loss QBU.

The person that owned the terminated section 987

QBU immediately before the termination is referred to as

the original suspended loss QBU owner.

If a corporation acquires the assets of the original

suspended loss QBU owner in a transaction described in

section 381(a), then the acquiring corporation becomes

the original suspended loss QBU owner.

Instructions for Form 8964-TRA (December 2025)

The person that owns the successor suspended loss

QBU immediately after the termination is referred to as the

successor suspended loss QBU owner.

Terminating QBU

A terminating QBU is a section 987 QBU that terminated

on or after November 9, 2023, and before the first day of

the first tax year beginning after December 31, 2024

(unless the section 987 regulations were adopted before

the termination).

Transition Date

The transition date generally is the first day of the first tax

year in which the section 987 regulations apply (which is

generally the first tax year beginning after December 31,

2024). However, in the case of a terminating QBU, the

transition date is the day after the termination date.

Additional Filing Requirements

Form 8964-ELE. All elections under the section 987

regulations must be made by filing Form 8964-ELE,

Section 987 Elections.

For more information, go to IRS.gov/Form8964ELE for

specific requirements for making or revoking elections.

Form 8858. U.S. persons that operate a foreign branch

(FB) or own a foreign DE (FDE) directly or, in certain

circumstances, indirectly or constructively must file Form

8858, Information Return of U.S. Persons With Respect to

Foreign Disregarded Entities (FDEs) and Foreign

Branches (FBs).

For more information, go to IRS.gov/Form8858.

Other Reporting Requirements

Reporting Exchange Rates on Form 8964-TRA

When translating amounts from one currency to another,

you must use the method specified in these instructions.

All exchange rates must be reported using a “divide-by

convention” rounded to at least four places. That is, the

exchange rate must be reported in terms of the number by

which the amount that is being translated must be divided

in order to reflect an equivalent amount in a different

currency.

As such, when translating a foreign currency amount

into U.S. dollars, the exchange rate must be reported as

the units of foreign currency that equal one U.S. dollar,

rounded to at least four places. Do not report the

exchange rate as the number of U.S. dollars that equal

one unit of foreign currency.

Note: You must round the result to more than four places

if failure to do so would materially distort the exchange

rate or the translated amount.

Computer-Generated Form 8964-TRA and

Schedules

Generally, all computer-generated forms must receive

prior approval from the IRS and are subject to an annual

review. However, see the Exception below. Requests for

approval may be submitted electronically to

substituteforms@irs.gov, or requests may be mailed to:

Instructions for Form 8964-TRA (December 2025)

Internal Revenue Service

Attention: Substitute Forms Program

C:DC:TS:CAR:MP:P:TP

1111 Constitution Ave. NW

Room 6554

Washington, DC 20224

Exception. If a computer-generated Form 8964-TRA and

its schedules conform to and do not deviate from the

official form and schedules, they may be filed without prior

approval from the IRS.

Important. Be sure to attach the approval letter to Form

8964-TRA. However, if the computer-generated form is

identical to the IRS-prescribed form, it does not need to go

through the approval process, and an attachment is not

necessary.

Every year, the IRS issues a revenue procedure to

provide guidance for filers of computer-generated forms.

In addition, every year, the IRS issues Pub. 1167, General

Rules and Specifications for Substitute Forms and

Schedules, which reprints the most recent applicable

revenue procedure.

For more information, go to IRS.gov/Pub1167.

Corrections to Form 8964-TRA

If you file a Form 8964-TRA that you later determine is

incomplete or incorrect, file a corrected Form 8964-TRA

with an amended tax return, using the amended return

instructions for the return with which you originally filed

Form 8964-TRA. Enter “Corrected” at the top of the form

and attach a statement identifying the changes.

Specific Instructions

Important. If the information required in a given section

exceeds the space provided within that section, do not

enter “See attached” in the section and then attach all of

the information on additional sheets. Instead, complete all

entry spaces in the section and attach the remaining

information on additional sheets.

The additional sheets must conform with the IRS

version of that section.

Products to which Form 8964-TRA can be attached.

Form 8964-TRA can be attached to Forms 1040, 1120,

and 5471.

Identifying Information

Tax Year

Enter, in the space provided below the title of Form

8964-TRA, the tax year of the QBU for which you are

furnishing information.

The tax year of a QBU is the tax year of the owner.

Therefore, in the case of a U.S. owner, the tax year of the

QBU is the tax year of the U.S. owner; and, in the case of

a CFC that is an owner, the tax year of the QBU is the tax

year of the CFC.

Name of Filer of Form 8964-TRA

The name of the person filing Form 8964-TRA is generally

the owner of the section 987 QBU. If a domestic

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corporation is the U.S. person filing Form 8964-TRA and is

a member of a consolidated group, list the common parent

as the person filing the return and enter its identifying

information in the spaces provided at the top of page 1 of

the form.

Name change. If the name of either the person filing the

return or the section 987 QBU whose activities are being

reported changed within the past 3 years, show the prior

name(s) in parentheses after the current name.

Part I—Section 987 Transition

Information

Provide a description of the prior method used by the

taxpayer to determine its section 987 gain or loss,

deferred section 987 gain or loss, or outbound section 987

loss with respect to the section 987 QBU including an

explanation as to whether such method was an eligible

pretransition method as defined in Regulations section

1.987-10(e)(4). An eligible pretransition method generally

means a reasonable method of applying section 987

before the transition date.

In order to calculate pretransition gain or loss and apply

the section 987 regulations in the tax year beginning on

the transition date, an owner must determine the transition

exchange rate and pretransition translation rate with

respect to the assets and liabilities of a section 987 QBU.

In the tax year beginning on the transition date, the

transition exchange rate is used to translate the assets

and liabilities attributable to a section 987 QBU into the

owner’s functional currency on the last day of the

preceding tax year for purposes of determining net

unrecognized section 987 gain or loss. In general, the

transition exchange rate is the spot rate applicable to the

day before the transition date. See Regulations section

1.987-10(d)(3).

The pretransition translation rate is the rate that would

be used under the eligible pretransition method to

determine the basis of an asset or the amount of a liability

in the hands of the owner of a section 987 QBU if the

section 987 QBU transferred all of its assets and liabilities

to the owner on the day before the transition date. See

Regulations section 1.987-10(e)(2)(i)(C).

In the case of a QBU that is subject to a small business

election under Regulations section 1.987-10(e)(7) and is

treated as having no pretransition gain or loss under

Regulations section 1.987-10(e)(7)(iv), explain in Part I

why the QBU qualifies for this election and do not

complete Part II or Part III.

In the case of a QBU described in Regulations section

1.987-10(f)(1) for which the fresh start transition method

was applied, explain in Part I that the fresh start transition

method was applied. In Part II, complete only line 8 (if

applicable) and do not complete Part III.

Part II—Pretransition Gain or Loss for

an Owner That Applied an Eligible

Pretransition Method

• Pretransition gain or loss is computed in Parts II and III.

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• Complete Part II if the owner applied an eligible

pretransition method.

• Complete Part III if the owner did not apply an eligible

pretransition method.

In general, pretransition gain with respect to a section

987 QBU is treated as net accumulated unrecognized

section 987 gain. If a current rate election is in effect (and

an annual recognition election is not in effect),

pretransition loss with respect to a section 987 QBU (other

than a terminating QBU) is treated as net accumulated

unrecognized section 987 loss. Otherwise, pretransition

loss with respect to a section 987 QBU is treated as

suspended section 987 loss.

Pretransition gain with respect to a deferral QBU is

treated as deferred section 987 gain. If a current rate

election is in effect (and an annual recognition election is

not in effect), pretransition loss with respect to a deferral

QBU is treated as deferred section 987 loss. Otherwise,

pretransition loss with respect to a deferral QBU is treated

as suspended section 987 loss. Pretransition loss with

respect to an outbound loss QBU is also treated as

suspended section 987 loss.

Pretransition gain or loss that is treated as deferred

section 987 gain or loss with respect to a deferral QBU is

attributed to one or more successor deferral QBUs under

the principles of Regulations section 1.987-12(b)(2) and

(c)(2). Pretransition loss that is treated as suspended

section 987 loss with respect to a deferral QBU or

outbound loss QBU is attributed to one or more successor

suspended loss QBUs under the principles of Regulations

section 1.987-13(b)(1) and (c)(1).

However, if an owner elects to amortize pretransition

gain or loss under Regulations section 1.987-10(e)(5)(ii),

pretransition gain or loss is recognized ratably over ten tax

years starting with the tax year that begins on the

transition date.

If this election is made, pretransition gain or loss is not

treated as either net accumulated unrecognized section

987 gain or loss, deferred section 987 gain or loss, or

suspended section 987 loss.

• For an owner of a section 987 QBU that applied an

eligible pretransition method, complete only lines 1

through 5 and 8.

• For a deferral QBU owner that applied an eligible

pretransition method, complete only lines 6 and 8.

• For an owner of an outbound loss QBU that applied an

eligible pretransition method, complete only lines 7 and 8.

Line 1. The deemed termination amount is the amount of

section 987 gain or loss that would have been recognized

by the owner under the eligible pretransition method if the

section 987 QBU terminated and transferred all of its

assets and liabilities to the owner on the day before the

transition date (without regard to any deferral or

suspension rules that might apply under Regulations

sections 1.987-12 and 1.987-13).

Lines 2 through 4. The owner functional currency net

value adjustment is the difference between (i) the basis of

the section 987 QBU’s assets, reduced by liabilities,

translated into the owner's functional currency at the

transition exchange rate and (ii) the basis of the section

Instructions for Form 8964-TRA (December 2025)

987 QBU’s assets, reduced by liabilities, translated into

the owner's functional currency at the pretransition

translation rate.

Line 5. For an owner of a section 987 QBU that applied

an eligible pretransition method, pretransition gain or loss

is equal to the sum of the deemed termination amount

(line 1) and the owner functional currency net value

adjustment (line 4).

Line 6. For a deferral QBU owner that applied an eligible

pretransition method, pretransition gain or loss is equal to

the deferred section 987 gain or loss (determined under

prior Regulations section 1.987-12) that was not

recognized before the transition date with respect to the

deferral QBU.

Line 7. For an owner of an outbound loss QBU that

applied an eligible pretransition method, pretransition loss

is equal to the outbound section 987 loss that was not

added to the basis of stock or recognized under prior

Regulations section 1.987-12 before the transition date.

Line 8. Enter the amount of any adjustments made to

pretransition gain or loss in order to avoid duplication or

omission of income under Regulations section

1.987-10(j).

Attach a statement describing each adjustment and the

amount of each adjustment.

Part III—Pretransition Gain or Loss for an Owner

That Did Not Apply an Eligible Pretransition

Method

• For an owner of a section 987 QBU that did not apply

an eligible pretransition method, complete only lines 1

through 3 and 8.

• For a deferral QBU owner that did not apply an eligible

pretransition method, complete lines 1 through 5 and 8.

• For an owner of an outbound loss QBU that did not

apply an eligible pretransition method, complete lines 1

through 3 and 6 through 8.

• In the case of a deferral QBU owner or the owner of an

outbound loss QBU, the amounts in lines 1 and 2 are

determined as though the transition date was the day of

the deferral event or outbound loss event, as applicable.

Line 1. Annual unrecognized section 987 gain or loss is

determined by applying the rules of Regulations section

1.987-4(d) with certain modifications to all tax years

beginning after September 7, 2006. For this purpose, the

rules of Regulations section 1.987-4(d) are applied as

though a current rate election was in effect for all relevant

tax years, and only steps 1 and 10 of Regulations section

1.987-4(d) are applied.

Attach a statement listing the annual unrecognized

section 987 gain or loss for each tax year.

Line 2. Enter the net amount of section 987 gain or loss

recognized by the owner of the section 987 QBU in all tax

years ending before the transition date and beginning

after September 7, 2006.

Attach a statement listing the amount of section 987

gain or loss recognized in each tax year.

Line 3. If the owner of a section 987 QBU did not apply

an eligible pretransition method, pretransition gain or loss

is equal to the owner’s aggregate annual unrecognized

section 987 gain or loss over the relevant period (line 1)

minus the owner’s total net amount of recognized section

987 gain or loss over the relevant period (line 2).

Line 4. For a deferral QBU owner that did not apply an

eligible pretransition method, reduce the amount

determined in line 3 by the amount of deferred section 987

gain or loss recognized before the transition date.

Line 6. For an owner of an outbound loss QBU owner

that did not apply an eligible pretransition method, reduce

the amount determined on line 3 by the amount of

outbound section 987 loss recognized or added to the

basis of stock before the transition date.

Line 8. Enter the amount of any adjustments made to

pretransition gain or loss in order to avoid duplication or

omission of income under Regulations section

1.987-10(j).

Attach a statement describing each adjustment and

explaining the amount of each adjustment.

Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the

United States. You are required to give us the information. We need it to ensure that you are complying with these laws

and to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act

unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be

retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax

returns and return information are confidential, as required by section 6103.

The time needed to complete and file Form 8964-TRA will vary depending on individual circumstances. The estimated

burden for business taxpayers filing these forms is approved under OMB control number 1545-0123.

If you have comments concerning the accuracy of these time estimates or suggestions for making these forms

simpler, we would be happy to hear from you. You can send us comments through IRS.gov/FormComments. Or you can

write to: Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, DC

20224. Do not send the tax forms to this address. Instead, see When and Where To File, earlier, near the beginning of

these instructions.

Instructions for Form 8964-TRA (December 2025)

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