IRS Form 8848: Purpose and Filing Instructions

Determining the Filing Requirement for Form 8848

The obligation to file documentation for certain corporate liquidations arises from specific international transactions. A trigger is a distribution made by a domestic corporation to a foreign corporation in a complete liquidation. This scenario falls under Section 332, which would typically allow for the tax-free liquidation of a subsidiary into its parent. When the parent corporation is foreign, however, Section 367 intervenes, generally requiring the domestic liquidating corporation to recognize gain or loss on the distributed property as if it had been sold at its fair market value.

This gain recognition rule is designed to prevent assets from leaving the U.S. tax jurisdiction without a final tax being assessed on any appreciation. The domestic corporation making the distribution is responsible for this reporting. The default rule is that gain must be reported on the corporation’s final income tax return, Form 1120.

Certain exceptions can alter this default gain recognition requirement. If the domestic corporation distributes property that will be used by the foreign parent in a U.S. trade or business immediately after the liquidation, gain may be deferred. This exception applies because the assets remain within the U.S. tax system. Another exception applies to the distribution of stock in a U.S. subsidiary in which the liquidating corporation held an 80% or greater interest. In these cases, the corporation must adhere to reporting and certification requirements.

These exceptions transform the compliance burden into a long-term reporting obligation. The domestic corporation must agree to certain terms, effectively entering into an agreement with the IRS. This consent ensures the IRS has adequate time to enforce the rules if the conditions of the exception are later violated by the foreign parent corporation.

Required Filings and Information

When a domestic corporation seeks to defer gain under an exception, it must file specific forms with its final tax return. The reporting document is Form 926, “Return by a U.S. Transferor of Property to a Foreign Corporation.” A statement must be attached to this form providing full details of the transaction.

The first part of the required filing must clearly identify the parties involved. This includes the full legal name, U.S. Employer Identification Number (EIN), and the last known address of the distributing domestic corporation. It must also provide details for the foreign distributee corporation, including its legal name, address, and any U.S. or foreign taxpayer identification numbers.

Next, the filings must thoroughly describe the transaction itself. This requires detailing the liquidation, including the date the plan was adopted and distributions were made. A description of the property distributed is required. If an exception is claimed for the distribution of stock in an 80% domestic subsidiary, the corporation must list the stock’s fair market value and adjusted basis as of the distribution date, which is used to calculate the total amount of deferred gain.

To formalize the deferral, the domestic corporation must also file Form 8838, “Consent to Extend the Time to Assess Tax—Gain Recognition Agreement.” This form extends the period during which the IRS can assess tax on the deferred gain. The length of this extension depends on the exception being claimed. For distributions of U.S. subsidiary stock, the agreement extends the assessment period through the eighth full taxable year after the transfer. For distributions of property to be used in a U.S. trade or business, the extension lasts until three years after the property is no longer used in that business, with a maximum duration of 13 years from the filing of the original return.

Submission Process and Annual Certification

After Form 926 and Form 8838 are prepared, they must be attached to the domestic corporation’s final federal income tax return, Form 1120, for the taxable year in which the liquidating distribution occurs. This return must be timely filed, including any extensions.

The filing of the initial forms marks the beginning, not the end, of the compliance obligations. When gain is deferred through a Gain Recognition Agreement, the domestic distributing corporation, or its successor, has a continuing reporting duty. This takes the form of an annual certification that must be attached to an income tax return for each of the five full taxable years following the year of the liquidation. This requirement persists even if the domestic corporation has ceased operations, often requiring a successor to assume the responsibility.

This annual certification serves to confirm that the conditions for deferral continue to be met. The statement must verify that the foreign distributee corporation has not disposed of the domestic subsidiary stock it received in the liquidation during the preceding year. The 10-year period often associated with these rules refers to the length of time property must remain in a U.S. trade or business to qualify for that specific exception, not the duration of annual filings. If a disposition that triggers the deferred gain occurs, it must be reported on this annual filing. Failure to provide this certification can be a triggering event, making the deferred gain immediately taxable.