U.S. Individual Income Tax Return Forms

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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.

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.

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
Dec 4, 2025

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

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What’s New

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.

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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.

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.
2

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.

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Controlled Group

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.

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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.
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:

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.

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Additional Filing Requirements

Internal Revenue Service
Attention: Substitute Forms Program
C:DC:TS:CAR:MP:P:TP
1111 Constitution Ave. NW
Room 6554
Washington, DC 20224

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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TREASURY/IRS AND OMB USE ONLY DRAFT
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

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.

4

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

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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.

• Complete Part II if the owner applied an eligible
pretransition method.
• Complete Part III if the owner did not apply an eligible
pretransition method.

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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 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 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.

5

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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 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.