Understanding IRS Form 8964-ELE

From AIM Financial | Tax Preparation and Tax Planning

Businesses with international operations may face complicated tax reporting requirements when their foreign business activities use a currency different from the currency used by the business owner. One important tax form for certain taxpayers is IRS Form 8964-ELE, Section 987 Elections.

Form 8964-ELE allows eligible taxpayers to make or revoke certain elections under Section 987 of the Internal Revenue Code. These elections can affect how foreign currency income, losses, and exchange-rate changes are calculated for federal income tax purposes. The form is specialized and generally does not apply to an ordinary individual tax return. It is most relevant to businesses and tax professionals handling international tax matters. IRS Form 8964-ELE instructions.

What Is Section 987 of the Internal Revenue Code?

Section 987 addresses certain qualified business units, commonly called QBUs, that use a functional currency different from the currency of their owner. A functional currency is the primary currency in which a business unit conducts its activities and maintains its financial records for tax purposes.

For example, imagine a U.S. company operates a foreign business branch that keeps its books in euros. The U.S. company generally reports its federal taxes in U.S. dollars. Changes in the exchange rate between the euro and the dollar may affect the calculation of taxable income or loss.

Section 987 regulations establish rules for translating income and calculating foreign currency gains and losses. The correct treatment depends on the facts, the applicable regulations, and any elections properly made by the taxpayer. IRS instructions for Form 8964-ELE.

Who May Need to File Form 8964-ELE?

Form 8964-ELE may be required when an authorized person makes or revokes a Section 987 election for an owner of a Section 987 QBU.

Potentially affected taxpayers and structures include:

• U.S. businesses operating qualifying foreign business units.
• Certain domestic corporations with foreign branches or qualifying business activities.
• Certain controlled foreign corporations and foreign partnerships.
• Businesses with multiple qualified business units or international entities that must coordinate their tax elections.

A QBU generally refers to a separate, clearly identified business unit that maintains its own books and records. Not every foreign subsidiary or overseas activity automatically qualifies as a Section 987 QBU. The specific ownership structure and tax rules must be reviewed before determining whether the form applies.

The IRS instructions identify who is authorized to make elections based on the owner’s circumstances. For example, the owner may act as the authorized person for a U.S. person, while special rules apply to consolidated groups and certain controlled foreign corporations.

What Elections Are Reported on Form 8964-ELE?

The form covers several elections that can affect foreign currency tax calculations. These are not interchangeable options, and each has its own requirements.

Examples include:

1. Current rate election. This election generally treats all items of a qualifying business unit as marked items for purposes of the applicable Section 987 rules. It can change how exchange-rate movements affect the calculation.

2. Annual recognition election. This election provides for annual recognition of net unrecognized Section 987 gain or loss associated with a qualifying business unit.

3. Section 988 mark-to-market election. This election relates to recognizing certain foreign currency gains or losses using a mark-to-market accounting approach.

4. Section 987 grouping election. Under applicable rules, an owner may elect to treat certain qualified business units with the same functional currency as a single unit.

5. Spot rate convention election. This election concerns how an appropriate spot exchange rate is determined using a reasonable convention permitted under the regulations.

Other elections address inventory exchange-rate methods, certain foreign currency gain or loss characterization, and transition rules. The availability and impact of each election should be confirmed using the current IRS instructions and applicable regulations.

How Do You Complete Form 8964-ELE?

The December 2025 revision of Form 8964-ELE requests identifying information about the filer, the authorized person, the QBU owner, and the relevant business unit or units.

In general, preparing the form involves these steps:

1. Identify the filer and authorized person. Enter the appropriate names and identifying information.
2. Provide owner and QBU details. Complete the applicable sections describing the owner, business unit, functional currency, and related information.
3. Address multiple owners or QBUs. Use the appropriate section when the authorized person has multiple owners or qualifying business units.
4. Identify the election. Complete the portion of the form that corresponds to the election being made or revoked.
5. Review consistency requirements. Determine whether related entities or members of a group must maintain consistent elections.
6. Attach supporting information when required. Confirm whether additional statements, transition reporting, or other forms are necessary.

These steps are a general overview, not a substitute for the line-by-line IRS instructions. The appropriate entries depend on the taxpayer’s facts and the specific election.

When Must Form 8964-ELE Be Filed?

Timing is especially important. In the first tax year in which the Section 987 regulations apply, elections generally are made by attaching Form 8964-ELE to the taxpayer’s original, timely filed federal return, including extensions.

For certain elections in subsequent years—including the current rate election, annual recognition election, and Section 988 mark-to-market election—the IRS instructions require Form 8964-ELE to be submitted before the beginning of the tax year and attached to the original, timely filed return. Other elections may require the Commissioner’s consent in later years.

The IRS also explains that some elections cannot be revoked freely within specified periods. A missed deadline or incorrectly handled revocation may therefore have consequences beyond a single tax filing. Taxpayers should review the current instructions before making decisions.

Why Professional Tax Preparation Matters

International tax reporting can involve foreign exchange rates, multiple business entities, specialized accounting methods, and detailed documentation. Choosing or changing an election without reviewing its effect may create reporting problems in the current year or future tax years.

A qualified tax professional can help determine whether Section 987 applies, identify the appropriate election requirements, review filing deadlines, and coordinate Form 8964-ELE with other relevant federal tax forms. Depending on the circumstances, related reporting may include Form 8964-TRA for Section 987 transition information or Form 8858 for certain foreign branches and foreign disregarded entities.

Contact AIM Financial for Tax Preparation Assistance

AIM Financial helps taxpayers and businesses understand their tax reporting responsibilities and prepare for accurate federal income tax filing. If your business has international operations, foreign currency transactions, or questions about specialized IRS forms, it is important to determine the correct reporting requirements before filing.

Businesses and taxpayers in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan can contact AIM Financial to discuss their tax preparation needs and determine what assistance may be appropriate for their situation.

Do not wait until a filing deadline to review a complex international tax issue. Contact AIM Financial to discuss your tax preparation needs and take the next step toward accurate, well-organized tax reporting.

Disclaimer: This article provides general educational information and is not individualized tax, legal, or accounting advice. Section 987 elections can involve technical requirements and deadlines. Consult the current IRS instructions and a qualified tax professional about your circumstances.