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On February 25, 2026, the Treasury Department and the IRS issued Notice 2026-17, 2026-12 I.R.B. 698. The notice announced that forthcoming proposed regulations would contain proposed rules that would permit taxpayers to determine section 987 taxable income or loss and section 987 foreign currency gain or loss using the equity and basis pool method described in section 3 of the notice. Taxpayers are permitted to rely on the rules described in Notice 2026-17 to the extent provided in section 6 of the notice.
On August 14, 2026, the Treasury Department and the IRS issued proposed regulations under section 987 (REG-103844-26) that provide rules relating to the CFC exemption election. A CFC that is subject to a CFC exemption election is referred to as an “exempt CFC.” A partnership in which at least 80% of the capital and profits interests are owned by exempt CFCs (an “exempt partnership”) generally would be treated in the same manner as an exempt CFC. Taxpayers are permitted to rely on the rules of the proposed regulations to the extent provided in the preamble to the 2026 proposed regulations.
Additional Instructions
In order to make a CFC exemption election in reliance on the 2026 proposed regulations or an election to use the equity and basis pool method in reliance on Notice 2026-17, the authorized person must attach a statement to Form 8964-ELE indicating the election(s) the authorized person chooses to make with respect to the QBU(s) identified in Part I or Part II of Form 8964-ELE. The statement for the CFC exemption election should be titled “Section 987 CFC Exemption Election.” The statement for the equity and basis pool method should be titled “Section 987 Equity and Basis Pool Method Election.”
In the case of a CFC exemption election that is made for a tax year after the first tax year to which the 2024 final regulations apply, the statement attached to Form 8964-ELE should report the amount of pre-election section 987 gain or loss with respect to each QBU. If an exempt CFC or exempt partnership is deemed to have no pre-election section 987 gain or loss with respect to a QBU under Proposed Regulations section 1.987-15(e)(2)(iii), the statement should indicate that the QBU is deemed to have no pre-election section 987 gain or loss under Proposed Regulations section 1.987-15(e)(2)(iii) and should report the amount of the QBU’s assets described in Proposed Regulations section 1.987-15(e)(2)(iii)(B).
If Form 8964-ELE is required to be separately filed before the due date (with extensions) for filing the authorized person’s tax return, information relating to pre-election section 987 gain or loss should be included in a statement attached to Form 8964-ELE when Form 8964-ELE is attached with the authorized person’s tax return (but need not be included with the separately filed Form 8964-ELE).