Form 8858 Instructions: Who Must File and How

Form 8858, “Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs),” is a disclosure document required by the Internal Revenue Service (IRS). Its function is to provide the IRS with information on the financial activities of foreign operations that are not considered separate from their U.S. owners for tax purposes. This reporting fulfills obligations under several sections of the Internal Revenue Code.

Who Must File Form 8858

A filing obligation for Form 8858 is triggered for “U.S. persons” who are the tax owner of a Foreign Disregarded Entity (FDE) or operate a Foreign Branch (FB). The term U.S. person includes U.S. citizens and residents, domestic corporations, domestic partnerships, and certain estates and trusts. An FDE is a business entity organized outside the United States that is disregarded as separate from its owner for U.S. income tax purposes, meaning its financial results are reported on the owner’s tax return.

A Foreign Branch (FB) is an integral business operation conducted by a U.S. person outside of the United States. The determination of an FB can be based on factors such as maintaining a separate set of books and records for the foreign operation or having activities in a foreign country that constitute a permanent establishment. The IRS outlines several categories of filers to clarify who holds the reporting responsibility.

A Category 1 filer is a U.S. person who is the direct tax owner of an FDE or directly operates an FB. A Category 2 filer is a U.S. person who is an indirect tax owner of an FDE or operator of an FB through one or more tiers of other FDEs, which occurs when there is a chain of ownership. A U.S. person who is a partner in a U.S. partnership may also have a filing obligation if that partnership owns an FDE or operates an FB. In this case, the partner may need to file their own Form 8858, and the partnership is responsible for providing the necessary information to the partner.

Required Information by Schedule

Completing Form 8858 requires gathering specific financial and identifying information. The form is organized into several schedules, each requesting a different category of information about the foreign operation. All financial data reported on the form must be translated into U.S. dollars.

The top portion of Form 8858 requires identifying information for the filer, such as their name, U.S. taxpayer identification number, and address. It also asks for the filer’s category. Schedule A collects details about the FDE or FB itself, including its name, address, the date it was organized, and its principal business activity code. Filers must also specify the functional currency of the foreign operation.

Schedule C

Schedule C details the income statement of the FDE or FB. Filers must report financial data such as gross receipts or sales, cost of goods sold, and various deductions like salaries, rent, and taxes. The schedule culminates in the calculation of the net income or loss for the entity’s tax year.

Schedule F

Schedule F requires the balance sheet information for the FDE or FB at the end of its annual accounting period. This includes a breakdown of assets, such as cash, accounts receivable, and inventory. It also requires a detailed listing of liabilities and the owner’s equity.

Schedule H

Schedule H is used to report the current earnings and profits (E&P) of the FDE or FB. This calculation starts with the net income or loss from Schedule C and then requires adjustments for items like foreign income taxes and certain non-deductible expenses. The resulting figure represents the entity’s E&P for the tax year.

Schedule I

Schedule I is used by U.S. persons who are partners in a U.S. partnership that is the tax owner of an FDE or operates an FB. It requires the partner to report their share of the entity’s income and deductions. This schedule is also used to report a “Transferred Loss Amount” related to certain transfers of property to foreign corporations.

Schedule J

Schedule J is used to report foreign income taxes paid or accrued by the FDE or FB during the tax year. Filers must list the taxes in the foreign currency in which they were paid or accrued and then translate those amounts into U.S. dollars. This information is for filers who may be eligible to claim a foreign tax credit on their U.S. income tax return.

Schedule M

Schedule M is required if the FDE or FB engaged in any reportable transactions with the filer or other related entities. Filers must report the monetary value of various types of transactions, such as sales of stock-in-trade, sales of tangible property, and payments for services, rents, or royalties.

How to File Form 8858

Form 8858 is not a standalone submission and must be attached to the filer’s primary U.S. tax return, such as a Form 1040 for individuals, Form 1120 for corporations, or Form 1065 for partnerships. If filing due to an interest in a Controlled Foreign Corporation (CFC) or Controlled Foreign Partnership (CFP), the Form 8858 should be attached to the corresponding international information return, like Form 5471 or Form 8865.

The deadline for filing Form 8858 is the same as the due date of the tax return to which it is attached, including any extensions. For an individual filer, this means the form is due by April 15, or the extended deadline if a valid extension is filed.

Failure to file a required Form 8858, or filing a form that is late or incomplete, can lead to penalties. An initial penalty of $10,000 is imposed for each accounting period for which the failure exists. If the IRS mails a notice of the failure and it continues for more than 90 days, an additional penalty of $10,000 is applied for each 30-day period the failure continues. The additional penalty is capped at $50,000, bringing the total potential penalty to $60,000.