- Treasury and the IRS proposed Section 987 regulations on August thirteenth, twenty twenty-six, for certain foreign corporations.
- Qualifying CFCs can elect out of recognizing foreign-currency gains on ordinary remittances and business unit terminations.
- Public comments on the proposal are due by November twelfth, twenty twenty-six, via the regulatory portal.
Treasury and the IRS proposed new Section 987 regulations on August 13, 2026, creating a targeted CFC exemption election for certain controlled foreign corporations and related partnership structures. The proposal would let qualifying businesses avoid recognizing some foreign-currency gains and losses on ordinary remittances and certain QBU terminations.
The election would not erase the broader rules. Businesses would still need to track amounts accumulated before the election and follow consistency and anti-abuse provisions. The proposal also adds special rules for some inbound liquidations and reorganizations.
The new framework narrows the reach of final regulations issued in December 2024. Those rules generally require CFCs to calculate and recognize foreign-currency gain or loss when a qualified business unit remits property or terminates.
Free toolSubstantial Presence Test CalculatorComments on the proposal are due by November 12, 2026. That date is the immediate regulatory deadline connected to the new rules.
Relief would cover qualifying CFC and partnership structures
The proposal would allow an exempt CFC with a Section 987 QBU to elect out of calculating and recognizing foreign-currency gain or loss from ordinary remittances and certain terminations. The relief is limited.
The rules would also reach specified partnership arrangements. They include partnerships owned by exempt CFCs and QBUs owned by partnerships that are at least 80% owned by exempt CFCs within the same controlled group.
That ownership test makes entity mapping a central part of the analysis. A business may need to examine direct ownership, partnership interests, and the relationships among QBUs before deciding whether the election applies.
The proposal treats the election as a group-wide choice rather than a separate decision for each QBU. Consistency requirements would prevent a taxpayer from selecting relief for individual units solely because those units produce the most favorable result.
Pre-election amounts would continue through a 120-month schedule
Amounts generated before an election would not disappear. The proposal would preserve pre-election gain or loss through 120-month amortization, with an exception for QBUs that qualify under a $50 million asset test.
That treatment means a business must quantify its existing position before choosing relief. The election could change future recognition, but it would not eliminate every tax consequence created under the prior regime.
The proposal also requires attention to transactions that move assets or operations into the United States. Certain inbound liquidations and reorganizations can trigger special gain-recognition rules under the proposed framework.
A planned restructuring could therefore affect the timing or amount of recognized gain. Transaction teams should review those consequences before executing an inbound deal.
Forms already govern the 2025 transition period
The IRS released final Forms 8964-ELE and 8964-TRA for reporting under the new regime. Affected taxpayers must use them beginning with the 2025 tax year, filed in 2026.
| Form | Purpose | First required year |
|---|---|---|
Form 8964-ELE | Make or revoke elections | 2025 tax year |
Form 8964-TRA | Report transition information required under the final regulations | 2025 tax year |
Taxpayers make the relevant elections with a timely filed 2025 federal income tax return, including extensions.
A taxpayer that does not make an election with its 2025 return generally would not receive another opportunity until December 31, 2026, for the 2027 tax year. That timing creates a separate compliance issue from the proposal’s comment period.
Businesses should test status before choosing relief
The first review should identify every foreign branch, foreign-currency QBU, CFC, and partnership connection in the structure. The proposed relief applies only to qualifying arrangements.
Next, businesses should test CFC and ownership status, including the 80% partnership threshold. They should then measure pre-election gain or loss and determine whether any QBU falls within the $50 million asset exception.
Planned inbound restructurings require their own review. A liquidation or reorganization could produce a recognition event even when the broader election appears attractive.
The decision also needs to account for group-wide consistency. A QBU-by-QBU approach would not match the proposal’s stated election framework.
The proposed regulations remain subject to the comment process through November 12, 2026. Until the rules move beyond the proposal stage, businesses must coordinate the new framework with the final regulations and the filing requirements already applicable to the 2025 tax year.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.
