Foreign Currencies: QBUs and Their New 2025 Filing Requirements

By Torakichi Jesús Oba Pérez, EA, CPA, CalCPAs

Truth be told, I’ve never minded being insulted, as long as it’s a quality insult. There’s something to being called ”Mr. Economic Jingoist,” which cannot be fully appreciated until you’ve been referred to as a “dullard” as many times as I have. But there I was being called the aforementioned by a Swiss banker over breakfast when I could not get an acceptable answer to why anyone would want their hard earned money in a currency other than the U.S. Dollar: ”Let me put this as simply as I can to you Mr. Economic Jingoist: a 1% annual interest rate on a securities backed line of credit, but the securities must be denominated in Swiss Francs.” With that on my mind, I was off to the races wondering how much leverage I could apply to my meager future CHF denominated brokerage account …

For accountants who have clients with foreign Qualified Business Units (QBUs), there has long been the dance between the foreign currencies and the eventual exchange rate to get back to their U.S. reporting (think 5471s, 8858s and the like). It turns out that the swings in the currency create any number of gains and losses unless you happen to be the lucky individual to both transmit and receive funds to a foreign QBU at the same exchange rate, and starting with 2025 tax returns, foreign QBUs will have to file IRS Form 8964-TRA and Form 8964-ELE to disclose the transition treatment and any elections made to treat IRC 987 currency considerations.

Beware that the regulations broadly define QBU as activities undertaken by a corporation, partnership, trust, estate or entity qualifying as a QBU if the activities constitute a trade or business and a separate set of books and records is maintained with respect to the activities. While an individual is excluded as a QBU by definition, an individual’s activities qualify as a QBU if the activity constitutes a trade or business and a separate set of books and records is maintained with respect to the activities. This would mean something as straightforward as an individual’s foreign rental property may constitute a QBU, which would require the filing of the new set of 8964 forms.

Here’s a list of resources I would keep handy when trying to ensure compliance:

1. Definition of a qualified business unit:

• Tax Code: https://www.law.cornell.edu/uscode/text/26/989
• Regulation: https://www.law.cornell.edu/cfr/text/26/1.989(a)-1

2. IRS Resources:

• IRS Form 8964-TRA: https://www.irs.gov/pub/irs-pdf/f8964tra.pdf
• IRS Form 8964-TRA Instructions: https://www.irs.gov/pub/irs-pdf/i8964tra.pdf
• IRS Form 8964-ELE: https://www.irs.gov/pub/irs-pdf/f8964ele.pdf
• IRS Form 8964-ELE Instructions: https://www.irs.gov/pub/irs-pdf/i8964ele.pdf