What Is Form 8848 for the Branch Profits Tax?

Form 8848, “Consent to Extend the Time to Assess the Branch Profits Tax,” is a form filed by a foreign corporation with the Internal Revenue Service (IRS). Its primary function is to extend the legal deadline for the IRS to assess this specific tax. This document is used when a foreign corporation has completely terminated its U.S. trade or business. By filing this form, the corporation voluntarily gives the IRS more time to assess the branch profits tax, which is a condition for claiming an exemption from the tax in its final year of operation.

Understanding the Branch Profits Tax

The branch profits tax is a distinct tax imposed on foreign corporations that operate a business in the United States. This tax is levied on the U.S.-based earnings and profits that are not reinvested within the corporation’s American operations. It functions as a second layer of taxation, complementing the regular corporate income tax. This is intended to create tax parity with foreign corporations operating through U.S. subsidiaries.

At the core of this tax is the concept of “Effectively Connected Income” (ECI), which includes profits generated from the U.S. trade or business. The branch profits tax is calculated on the “dividend equivalent amount” (DEA), which is the ECI for the year, adjusted for any change in the U.S. net equity of the branch. A decrease in U.S. net equity is treated as a repatriation of profits and increases the DEA, while an increase in U.S. net equity, representing reinvestment, reduces it.

The tax rate is a flat 30%, although this can be reduced or eliminated by an applicable income tax treaty.

Purpose and Trigger for Form 8848

The trigger for filing Form 8848 is the complete termination of a foreign corporation’s U.S. trade or business. Under tax regulations, a corporation that ceases its U.S. operations can be exempt from the branch profits tax for that final year. However, this exemption is conditional. The corporation must not reinvest its accumulated earnings and profits in a U.S. trade or business during the three-year period following the termination.

To ensure compliance with this condition, the corporation must agree to extend the statute of limitations for the IRS to assess the branch profits tax for the termination year. The IRS generally has three years from the date a tax return was due or filed to assess any tax. By filing Form 8848, the corporation voluntarily extends this period, giving the IRS adequate time to verify that the profits were not repatriated back into a U.S. business.

This consent is a prerequisite for claiming the termination exemption. Without filing Form 8848, the corporation cannot benefit from the rule that eliminates the branch profits tax in its final year.

Information Required to Complete Form 8848

To complete Form 8848, a corporation must provide several pieces of information, including:

• The corporation’s full legal name
• Its U.S. Employer Identification Number (EIN)
• Its complete address, including the country of incorporation
• The specific tax year of the business termination
• The new expiration date for the assessment period

Executing and Submitting the Consent

Form 8848 must be signed by an individual authorized to sign tax returns on behalf of the foreign corporation, such as a president, vice president, treasurer, or another principal officer. If an external agent, such as an attorney or CPA, signs the form, a Power of Attorney (Form 2848) must be attached.

The signed Form 8848 must be attached to the corporation’s income tax return (Form 1120-F) for the tax year in which the complete termination occurred. The return and the attached form are then filed by the due date, including any extensions.