By Anthony Diosdi
This article discusses most of the Form 8858 questions and schedules. This article is designed to supplement the instructions promulgated by the Internal Revenue Service (“IRS”) for Form 8858. Form 8858 is used by certain U.S. persons that operate a foreign branch or own a foreign disregarded entity directly, indirectly, or constructively. A foreign disregarded entity is an entity that is not created or organized in the United States and that is disregarded as an entity separate from its owner for U.S. income tax purposes. A foreign branch is defined as a “qualified business unit” or “QBU.” Section 989(a) of the Internal Revenue Code defines a QBU as “any separate and clearly identified unit of a trade or business of a taxpayer which maintains separate books and records.” A foreign branch operation of a U.S. corporation would in most instances be a QBU. The branch must, however, be conducting activities that constitute a trade or business and maintain a separate set of books and records with respect to such activities. If the branch is an integral extension of a U.S. operation not capable of producing income independently (such as a financing vehicle), it will not be a QBU. In that event, the transaction of the foreign branch would be treated with all other transactions of the corporation of which it is a part.
The Form 8858 is used to satisfy the reporting requirements of Internal Revenue Code Sections 6011, 6012, 6031, and 6038. The following U.S. persons that are owners of foreign disregarded entities, operate an foreign branch, or that own certain interests in tax owners of foreign disregarded entities or foreign branches must file Form 8858 and Schedule M of Form 8858.
1. A U.S. person that is an owner of an foreign disregarded entity or operates a foreign branch at any time during the U.S. person’s tax year or annual accounting period. Complete the entire Form 8858, including the separate Schedule M entitied “Transactions Between Foreign Disregarded Entity (FDE) or Foreign Branch (FB) and the Filer or Other Related Entities.”
2. A U.S. person that directly (or indirectly through a tier of a foreign disregarded entity or partnerships) is a tax owner of a foreign disregarded entity or operates a foreign branch.
3. Certain U.S. persons that are required to file Form 5471 with respect to a controlled foreign corporation (“CFC”) that is a tax owner of a foreign disregarded entity or operates an foreign branch at any time during the CFC’s annual accounting period.
Category 4 filers of Form 5471. Category 4 filers must complete the entire Form 8858 and the separate Schedule M. Category 5 filers of Form 5471 should only complete the identifying information on page 1 of Form 8858 (for example, everything before Schedule C) and Schedules G, H, and J. However, Category 5 filers do not need complete Schedule M.
4. Certain U.S. persons that are required to file Form 8865 with respect to a controlled foreign partnership that is a tax owner of an foreign disregarded entity or operates a foreign branch at any time during the foreign partnership’s annual accounting period. If the U.S. person required to file by operation of this rule is a U.S. individual, the U.S. person is not required to complete lines 10 through 13 of Schedule G. If the U.S. person is not an individual, the U.S. person is required to report its distributive share of the items on lines 10 through 13 of Schedule G. Category 1 filers of Form 8865 must complete the entire Form 8858 and Schedule M. Category 2 filers of Form 8865 should only file the identifying information on page 1 of Form 8858 (for example, everything above Schedule C) and Schedules G, H, J, and Schedule M. Category 1 filers of Form 8865 are not required to complete the entire Form 8858 and Schedule M with respect to a foreign disregarded entity or a foreign branch.
5. A U.S. partnership that directly (or indirectly through a tier of foreign disregarded entities or partnerships) is a tax owner of an foreign disregarded entity or operates a foreign branch. Lines 10 and 11 of Schedule G should be completed as if the U.S. partnership filing the Form 8858 were a U.S. corporation. A U.S. partnership is not required to complete lines 10 and 11 of Schedule G if all partners are individuals, regulated investment companies (RICs), real estate investment trusts (REITs), and/or S corporations.
6. A U.S. corporation (other than a RIC, a REIT, or an S corporation) that is a partner in a U.S. partnership, which is required to file a Form 8858 because the U.S. partnership is the tax owner of an foreign disregarded entity or an foreign branch. Even though the U.S. corporation is not the tax owner of the foreign disregarded entity and/or the foreign branch, the U.S. corporation must complete the entire Form 8858, including lines 1 and 2 of the identifying information section and report its distributive share of the items on lines 10 through 13 of Schedule G for each foreign disregarded entity and foreign branch of the U.S. partnership. The U.S. partnership must furnish all information necessary to the U.S. corporate partner for the partner to complete the entire Form 8858.
The IRS may assess civil and/or criminal penalties for failure to comply with the international informational return filing requirements of Sections 6038. A civil penalty may be assessed for failing to file, or for delinquent, incomplete or materially incorrect filing of a Form 8858. Internal Revenue Code Section 6038 imposes a flat penalty of $10,000 per tax year for which failure exists, with additional $10,000 penalties accruing (ninety days after notification of failure by the IRS) every thirty days thereafter to a $50,000 maximum. There may also be an additional 5 percent reduction of foreign tax credits made for each 3-month period, or fraction thereof for 90 days.
The Form 8858 consists of a number of schedules such as Schedule C, C-1, F, G, H, I, J, and M,
Exchange Rate to be Used for Form 8858
When translating amounts from functional currency to U.S. dollars, all exchange rates must be reported using a “divide-by convention” rounded to at least 4 places. That is, the exchange rate must be reported in terms of the amount by which the functional currency amount must be divided in order to reflect an equivalent amount of U.S. dollars. As such, the exchange rate must be reported as the units of foreign currency that equal 1 U.S. dollar, rounded to at least 4 places.
A Closer Look at the Form 8858’s Schedules
Schedule C
Schedule C is the income statement of the reporting entity. It is used to report a summary income statement for the foreign disregarded entity or foreign branch figured in the foreign disregarded entity’s or foreign branch’s functional currency in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparer will need to enter in the U.S. dollar column each line item functional currency amount translated into dollars using U.S. GAAP translation rules. If the foreign disregarded entity or foreign branch does not maintain U.S. GAAP income statements in U.S. dollars, the average exchange rate as determined under section 989(b) should be used.
Section 989(b)(4) provides that in the case of any other qualified business unit of a taxpayer, the average exchange rate for the taxable year of such qualified unit should be used. Section 989(b) also provides that the translation of foreign currency into dollars generally is made using the “spot rate” on the date of the transaction. A spot rate is the exchange rate on the day of the particular transaction. The regulations define spot rate as one “demonstrated to the satisfaction of the [IRS] to reflect a fair market rate of exchange available to the public for currency under a spot contract in a free market and involving representative amounts.” In the absence of such showing, the regulations state that the IRS may make a determination in its “sole discretion.” See Treas. Reg. Section 1.988-1(d)(1). The rate used should be the rate stated on Schedule H, line 8. If the preparer elects to use the average exchange rate rather than the U.S. GAAP translation rules, the preparer should check the box above line 1 on Schedule C.
If the foreign disregarded entity or foreign branch uses the “U.S. dollar approximate separate transaction method or accounting or “DASTM,” the functional currency column should reflect local hyperinflationary currency amounts figured in accordance with U.S. GAAP. The U.S. dollar column should reflect such amounts translated into dollars under U.S. GAAP translation rules. Differences between this U.S. dollar GAAP column and the U.S. dollar income or loss determined for tax purposes under Treas. Reg. Section 1.985-3(c) should be accounted for on Schedule H.
Schedule C-1
Schedule C-1 is used to report Section 987 gain or loss information. Section 987 prescribes the regime for dealing with a foreign branch that is a QBU using a foreign functional currency. The basic approach is to determine profit or loss of the foreign disregarded entity or foreign branch for the tax year in its functional currency and then to translate the profit or loss at the “appropriate exchange rate.” The appropriate exchange rate is the average exchange rate for the tax year. See IRC Section 989(b)(4).
To determine the profit or loss of the branch, the branch preparers a profit and loss statement from the branch’s books and records, makes adjustments necessary to conform the statement to U.S. tax principles (called the “adjusted statement” in the proposed regulations) and translates the amount shown on the adjusted statement into U.S. dollars at the average exchange rate for the tax year. The branch must translate any amount shown on the adjusted statement attributable to actual dividends or deemed dividends under Section 1248 into U.S. dollars at the spot rate when the amount is included in income. When there is a remittance from the foreign branch to the U.S. parent entity (or another QBU having a different functional currency), the entity recognizes gain or loss to the extent that the dollar value of the foreign currency at the time of its remittance differs from its dollar value when earned.
The Treas. Reg. Section 1.987-2 provides a number of examples for determining the tax consequences of remittances from QBUs:
Example 1. X owns Business A and Business B, both of which are Section 987 QBUs of X. X owns equipment in Business A and is reflected on the books and records of Business A. Because Business A has excess manufacturing capacity and X intends to expand the manufacturing capacity of Business B, the equipment formerly used in Business A is transferred to Business B for use by Business B. As a result, the equipment is removed from the books and records of Business A and is recorded on the books and records of Business B.
The transfer of the equipment from the books and records of Business A to the books and records of Business B is not regarded for Federal income tax purposes (because it is an inter branch transaction), and therefore it is a disregarded transaction. Therefore, for purposes of Section 987, the Business A Section 987 QBU is treated as transferring the equipment to X, and X is subsequently treated as transferring the equipment to Business B Section 987 QBU. These transfers are taken into account in determining the amount of any remittance for the taxable year.
Example 2. X owns all of the interests in DE1 and DE2. DE1 and DE2 own Business A and Business B, respectively, both of which are Section 987 QBUs of X. DE1 owns equipment that is used in Business A and is reflected on the books and records of Business A. For business reasons, DE1 sells a portion of the equipment used in Business A to DE2 in exchange for a fair market value amount of Japanese yen. The yen used by DE2 to acquire the equipment was generated by Business B and was reflected on Business B’s books and records. Following the sale, the yen and the equipment will be used in Business A and Business B, respectively. As a result of such sale, the equipment is removed from the books and records of Business A and is recorded on the books and records of Business B. Similarly, as a result of the sale, the yen is removed from the books and records of Business B and is recorded on the books and records of Business A.
The sale of equipment between DE1 and DE2 is a transaction that is not regarded for Federal income tax purposes (because it is an interbranch transaction). Therefore the transaction is a disregarded transaction. As a result, the sale does not give rise to an item of income, gain, deduction, or loss for purposes of determining Section 987 taxable income. However, the yen and equipment exchange by DE1 and DE2 in connection with the sale must be taken into account as a disregarded transaction. As a result of the disregarded transaction, the equipment ceases to be reflected on the books and records of Business A and becomes reflected on the books and records of Business B. Therefore, the Business A Section 987 QBU is treated as transferring the equipment to X, and X is subsequently treated as transferring such equipment to the Business B section 987 QBU. Additionally, as a result of the disregarded transaction, the yen currency ceases to be reflected on the books and records of Business B and becomes reflected on the books and records of Business A. Therefore, the Business B section 987 QBU is treated as transferring the yen to X, and X is subsequently treated as transferring such yen from X to the Business A Section 987 QBU. The transfers among Business A, Business B and X are taken into account in determining the amount of any remittance for the taxable year.
If an owner would be treated as owning multiple QBUs, complete a separate Schedule C-1 with respect to each QBU of the owner.
If a QBU has multiple owners, complete a separate Schedule C-1 for each owner.
However, if the U.S. person filing Form 8858 knows that the owner of a QBU has the same functional currency as a QBU owned by that person, the U.S. person filing Form 8858 is not required to complete Schedule C-1 with respect to that owner’s interest in the QBU. If the U.S. person filing Form 8858 does not know and does not have reason to know the functional currency of the owner of a QBU, leave column (b) of lines 1 and 2 blank.
For line 2b of Schedule C-1, the preparer should report the amount of Section 987 gain or loss recognized by the recipient owner that results from a remittance from a QBU or a termination of a QBU. For amounts reported on line 2b of Schedule C-1, the preparer should include a statement with the following information.
1) A description of the methodology used to determine the Section 987 gain or loss;
2) The amount of Section 987 gain or loss included on line 2b that was previously deferred under Treas. Reg. Section 1.987-12 and that is being recognized in the current year. Below, please find examples provided in Treas. Reg. Section 1.987-12 regarding previously deferred gain or loss under Section 987 and how these transactions should be treated.
Example 1. DC1 owns all of the interests in Business A. The balance sheet of Business A reflects assets with an aggregate adjusted basis of €1,000x and no liabilities. DC1 contributes €900x of Business A’s assets to DC2 in an exchange to which section 351 applies. Immediately after the contribution, the remaining €100x of Business A’s assets are no longer reflected on the books and records of a section 987 QBU. DC2, which has the U.S. dollar as its functional currency, uses the former Business A assets in a business (Business B) that constitutes a section 987 QBU. At the time of the contribution, Business A has net accumulated unrecognized section 987 gain of $100x.
Under Section 1.987-2(c)(2)(ii), DC1’s contribution of €900x of Business A’s assets to DC2 is treated as a transfer of all of the assets of Business A to DC1, immediately followed by DC1’s contribution of €900x of Business A’s assets to DC2. The contribution of Business A’s assets is a deferral event because:
1) The transfer from Business A to DC1 is a transfer of substantially all of Business A’s assets to DC1, resulting in a termination of Business A under Section 1.987-8(b)(2); and
2) Immediately after the transaction, assets of Business A are reflected on the books and records of Business B, a section 987 QBU owned by a member of DC1’s controlled group and a successor QBU. Accordingly, Business A is a deferral QBU and DC1 is a deferral QBU owner of Business..
3) Under paragraph (b)(3) of this section, DC1’s taxable income in the taxable year of the deferral event includes DC1’s Section 987 gain or loss determined with respect to Business A under Section 1.987-5, except that, for purposes of applying Section 1.987-5, all assets and liabilities of Business A that are reflected on the books and records of Business B immediately after Business A’s termination are treated as not having been transferred and therefore as though they remained on Business A’s books and records (notwithstanding the deemed transfer of those assets under Section 1.987-8(e)). Accordingly, in the taxable year of the deferral event, DC1 is treated as making a remittance of €100x, corresponding to the assets of Business A that are no longer reflected on the books and records of a section 987 QBU, and is treated as having a remittance proportion with respect to Business A of 0.1, determined by dividing the €100x remittance by the sum of the remittance and the €900x aggregate adjusted basis of the gross assets deemed to remain on Business A’s books at the end of the year. Thus, DC1 recognizes $10x of section 987 gain in the taxable year of the deferral event. DC1’s deferred section 987 gain equals $90x, which is the amount of section 987 gain that, but for the application of paragraph (b) of this section, DC1 would have recognized under Section 1.987-5 ($100x), less the amount of section 987 gain recognized by DC1 under Section 1.987-5 and this section ($10x).
Example 2. DC1 owns all of the interests in Entity A, a DE that conducts Business A in Country X. During Year 1, DC1 contributes all of its interests in Entity A to DC2 in an exchange to which section 351 applies. At the time of the contribution, Business A has net accumulated unrecognized section 987 gain of $100x. After the contribution, Entity A continues to conduct business in Country X (Business B). In Year 3, as a result of a net transfer of property from Business B to DC2, DC2’s remittance proportion with respect to Business B, as determined under Section 1.987-5, is 0.25.
For the reasons described in the last example, the contribution of Entity A by DC1 to DC2 results in a termination of Business A and a deferral event with respect to Business A, a deferral QBU; DC1 is a deferral QBU owner within the meaning of paragraph (c)(1)(ii) of this section; Business B is a successor QBU with respect to Business A; DC2 is a successor QBU owner; and the $100x of net accumulated unrecognized Section 987 gain with respect to Business A becomes deferred Section 987 gain as a result of the deferral event. Under paragraph (c)(1) of this section, DC1 recognizes deferred section 987 gain with respect to Business A in accordance with paragraphs (c)(2) through (4) of this section. Under paragraph (c)(2)(i) of this section, DC1 recognizes deferred Section 987 gain in Year 3 as a result of the remittance from Business B to DC2. Under paragraph (c)(2)(ii) of this section, the amount of deferred Section 987 gain that DC1 recognizes is $25x, which is DC1’s outstanding deferred Section 987 gain or loss ($100x) with respect to Business A multiplied by the remittance proportion (0.25) of DC2 with respect to Business B for the taxable year as determined under Section 1.987-5(b).
For line 3, the preparer should attach a statement describing gain or loss deferred under Treasury regulation Section 1.987-12. Treasury Regulation Section 1.987-12 provides rules that defer the recognition of Section 987 gain or loss that, but for the regulation, would be recognized in connection with certain QBU terminations and certain transactions involving partnerships. Below, please find an example as to how this rule apporates.
Example. Under Treas. Reg. Section 1.987-2(c)(2)(ii), DC1’s contribution of €900x of Business A’s assets to DC2 is treated as a transfer of all of the assets of Business A to DC1, immediately followed by DC1’s contribution of €900x of Business A’s assets to DC2. The contribution of Business A’s assets is a deferral event within the meaning of paragraph (b)(2) of this section because:
The transfer from Business A to DC1 is a transfer of substantially all of Business A’s assets to DC1, resulting in a termination of Business A under Section 1.987-8(b)(2); andImmediately after the transaction, assets of Business A are reflected on the books and records of Business B, a Section 987 QBU owned by a member of DC1’s controlled group and a successor QBU within the meaning of paragraph (b)(4) of this section. Accordingly, Business A is a deferral QBU within the meaning of paragraph (b)(1) of this section, and DC1 is a deferral QBU owner of Business A within the meaning of paragraph (c)(1)(ii) of this section.Under paragraph (b)(3) of this section, DC1’s taxable income in the taxable year of the deferral event includes DC1’s section 987 gain or loss determined with respect to Business A under Section 1.987-5, except that, for purposes of applying Section 1.987-5, all assets and liabilities of Business A that are reflected on the books and records of Business B immediately after Business A’s termination are treated as not having been transferred and therefore as though they remained on Business A’s books and records (notwithstanding the deemed transfer of those assets under § 1.987-8(e)). Accordingly, in the taxable year of the deferral event, DC1 is treated as making a remittance of €100x, corresponding to the assets of Business A that are no longer reflected on the books and records of a Section 987 QBU, and is treated as having a remittance proportion with respect to Business A of 0.1, determined by dividing the €100x remittance by the sum of the remittance and the €900x aggregate adjusted basis of the gross assets deemed to remain on Business A’s books at the end of the year. Thus, DC1 recognizes $10x of section 987 gain in the taxable year of the deferral event. DC1’s deferred section 987 gain equals $90x, which is the amount of Section 987 gain that, but for the application of paragraph (b) of this section, DC1 would have recognized under Section 1.987-5 ($100x), less the amount of Section 987 gain recognized by DC1 under Section 1.987-5 and this section ($10x).
For line 4, the preparer should state whether or not there were any remittances from the foreign disregarded entity or foreign branch treated as made to the direct owner.
For line 5, the preparer should describe any changes to the accounting method being used by the foreign disregarded entity or foreign branch.
Schedule F
The preparer uses Schedule F to report a summary balance for the foreign disregarded entity or foreign branch translated into U.S. dollars in accordance with U.S. GAAP.
Schedule G
Schedule G is entitled “Other Information.” Schedule G asks a number of questions about the disregarded entity or foreign branch.
Question 1.
Questions one asks the preparer if the foreign disregarded entity or foreign branch owns an interest in any trust.
Question 2.
Question 2 asks the preparer if the foreign disregarded entity or foreign branch owns at least a 10 percent interest in a foreign partnership.
Question 3.
Question 3 asks the preparer if the tax owner of the foreign disregarded entity is claiming a Section 165 loss (in general, under Section 165(a), a taxpayer can claim a deduction for any loss that is sustained during the tax year for a qualifying worthless stock) with respect to worthless stock or with respect to certain obligations. See Treas. Reg. Section 1.6011-4 for information relating to a disclosure statement that must be attached to Form 8858 if certain requirements are satisfied.
Question 4.
Question 4 asks the preparer if during the tax year, did the foreign disregarded entity or foreign branch pay or accrue any foreign tax that was disqualified under Section 901(M) of the Internal Revenue Code. Section 901(m) partially denies a foreign tax credit in situations of additional asset basis eligible for recovery for U.S. tax purposes where there is no corresponding increase in the basis of the assets for foreign tax purposes. A foreign tax credit is denied to the extent of the aggregate basis differences allocable to a particular tax year with respect to all relevant foreign assets divided by the income on which the foreign income tax is determined. To the extent that a foreign tax credit is disallowed, the disqualified portion may be allowed as a deduction.
Question 5.
Question 5 asks the preparer if during the tax year did the foreign disregarded entity or foreign branch pay or accrue foreign taxes to which Section 909 apply and treat foreign taxes that were previously suspended under Section 909 as no longer suspended. This question requires an understanding of the foreign tax credit “splitter” rules. Foreign taxes are generally treated as paid by the person or entity on whom foreign law imposes legal liability. Under this rule, the person or entity who has legal liability for a foreign tax can be different from the person or entity who realizes the underlying income for U.S. income tax purposes. This may result in a “splitting” of the foreign taxes being creditable tax credit purposes without the associated income being subject to income tax in the United States. Congress enacted Internal Revenue Code Section 909 to deal with this situation. Under Internal Revenue Code Section 909, where there is a “foreign tax credit splitting event” with respect to foreign income tax paid or accrued by a U.S. taxpayer, the foreign income tax is not taken into account by the taxpayer. In the case of indirect credits, foreign income tax paid by a U.S. entity as part of a splitting event is taken into account in the tax year in which the related income is taken into account by the U.S. entity.
The definition of “foreign tax credit splitting event” is broad and could reach a variety of situations in addition to those discussed above, such as disregarded payments, transfer pricing adjustments, contributions of property resulting in a shift of deductions and timing differences under U.S. and foreign law. Specifically, a “foreign tax credit splitting event” arises with respect to a foreign income tax if the related income is (or will be) taken into account for U.S. tax purposes by a “covered person.” A “covered person” is defined as any entity in which the payor holds, directly or indirectly, at least a 10 percent ownership interest (determined by vote or value); any person that holds, directly or indirectly, at least a 10 percent ownership interest (by vote or value) in the payor; and “any other person specified by the Secretary.” See Foreign Tax Credit Planning- What Every Practitioner Should Know, (2015) Jeffrey L. Rubinger.
Question 6.
For Question 6, the preparer should check “Yes” if the foreign branch or foreign disregarded entity is a QBU as defined in Section 989(a). As discussed above, Section 989(a) defines a QBU as “any separate and clearly identified unit of a trade or business of a taxpayer which maintains separate books and records.”
Questions 7 and 8
Questions 7 and 8 ask the preparer a number of questions regarding the “base erosion alternative tax” or “BEAT.” In order to answer these questions, the preparer must have an understanding regarding the BEAT tax regime. The 2017 Tax Cuts and Jobs Act added Internal Revenue Code Section 59A which imposes the BEAT on certain large corporations that have substantial payments to related foreign parties. If the BEAT applies to a corporation, then the corporation is generally subject to an alternative minimum tax equal to the excess of i) 10 percent of the taxpayer’s “modified taxable income,” (i.e., net income without deductions related to interest and other expenses paid to foreign related parties), over ii) the taxpayer’s regular tax liability (reduced by certain credits).
A foreign person will be considered a foreign related party for BEAT purposes if it is 1) a 25 percent owner of a U.S. corporation; 2) related to a U.S. Corporation or any 25 percent owner of a U.S. corporation (within the meaning of Internal Revenue Code Section 267(b) or 707(b)(1)), or 3) related to a U.S. corporation under Section 482. The constructive ownership rules of Internal Revenue Code Section 318 apply (with certain modifications) in determining whether any non-U.S. interest holders are 25 percent owners of a U.S. corporation or a person related to a 25 percent owner.
The BEAT applies to corporations that have average annual gross receipts of at least $500 million for the preceding three taxable years. When calculating a corporation’s gross receipts under the BEAT, the corporation is also required to include the gross receipts of all related corporations that would be treated as a “single employer” with the corporation under Section 52(a). Because of this “single employer” group aggregation concept, it is possible for a corporation to be subject to BEAT even if the corporation’s gross receipts do not exceed $500 million as a result of the entity being imputed gross receipts from a related corporation.
The base erosion minimum tax is the excess of 10 percent of the taxpayer’s modified taxable income (as defined in Section 59A(c)) over the taxpayer’s regular tax liability (reduced to 5 percent for tax years beginning in 2018 increased to 12.5 percent for taxable years after 2025).
Question 7a.
For question 7a, the preparer should state whether or not the foreign disregarded entity or foreign branch received or accrued BEAT during the tax year. Check “Yes” if the foreign branch or foreign disregarded entity received (or accrued the receipt of) any base erosion tax payment, or had a base erosion tax benefit, from a foreign person which is a related party of the foreign branch or foreign disregarded entity. Otherwise, check “No.”
Question 7b.
For question 7b, the preparer should state the total amount of BEAT erosion payments.Enter the total amount of BEAT payments received (or accrued the receipt of) by the foreign branch or foreign disregarded entity for the tax year.
Question 7c.
For question 7c, the preparer should state the total amount of base erosion tax benefits.Enter the total amount of base erosion tax benefit recognized by the payor relating to BEAT payments reported on line 6b. Also include on line 6c any BEAT tax benefit taken into account in the current year from a base erosion payment in a previous year, for example, depreciation described in Section 59A(c)(2)(A)(ii).
Question 8a.
For question 8, the preparer should indicate if the foreign branch or foreign disregarded entity received BEAT payments or a BEAT benefit from a related party. Check “Yes” if the foreign branch or foreign disregarded paid (or accrued the payment of) any base erosion tax payment, or had a base erosion tax benefit, to a foreign person which is a related party of the foreign branch or foreign disregarded entity. Otherwise, check “No.” Thus, for question 8a, the preparer should state the amount of BEAT payments received. Enter the total amount of BEAT payments paid or accrued by the foreign branch or foreign disregarded entity for the tax year.
Question 8b.
For question 8b, the preparer should enter the total amount of BEAT payments paid or accrued by the foreign branch or foreign disregarded entity for the tax year.
Question 8.
For question 8c, the preparer should enter the total amount of base erosion tax benefit relating to base erosion payments reported on line 8b. The preparer should also include on line 8c any base erosion tax benefit taken into account in the current year from a base erosion payment in a previous year, for example, depreciation described in Section 59A(c)(2)(A)(ii).
Question 9.
For question 9, the preparer should only answer this question if the tax owner of the foreign branch or foreign disregarded entity is a CFC. Question 9 asks asks the preparer to state if during the tax year were there any intracompany transactions between the foreign branch or foreign disregarded entity and the CFC or any other branch of the CFC during the year in which the foreign disregarded entity or foreign branch acted as a manufacturer, selling, or purchasing branch. Examples of intercompany transactions include recording receivables and payables between related companies, as well as interest income or expenses, payment of dividends to the parent, and loans to or between subsidiaries.
Question 10.
For question 10a, the preparer must state if the foreign disregarded entity or foreign branch is a separate unit under Treas. Reg Section 1.1503(d)-1(b)(4), is not part of a combined separate unit under Regulations Section 1.1503(d)-1(b)(4)(ii), and has a dual consolidated loss for the tax year. If you checked “Yes” on line 10a, enter the amount of the dual consolidated loss on line 10b.
In order to answer question 10, the preparer must understand the rules governing dual consolidated losses. Opportunities for tax savings through international tax arbitrage can arise when there are inconsistencies between the rules in two relevant countries for determining the residence of corporations. For example, a corporation organized in the United States is treated as a U.S. resident, subject to U.S. tax on its worldwide net income with losses whenever incurred being deductible. Under Section 1501 of the Internal Revenue Code, a U.S. corporation is permitted to file a consolidated tax return with other U.S. corporations in an affiliated group. An affiliated group consists of one or more chains of U.S. corporations connected by stock ownership (in some cases excluding preferred stock) of at least 80 percent of the vote and value with a common parent. If two or more U.S. corporations are members of an affiliated group that files a consolidated return, the losses of any one of the group generally may offset eliminate tax on the income of another member of the group.
Inconsistencies arise because some other countries use criteria other than place of incorporation to determine whether a corporation is a domestic resident for their tax purposes. For example, countries, such as the United Kingdom and Australia, treat a corporation as a domestic resident if it is managed or controlled there, regardless of where the corporation is incorporated. If a corporation is a resident under this test, it will typically be taxed by the country of residence on its worldwide net income with losses wherever incurred being deductible. If certain conditions are met, these countries allow losses of a resident corporation to reduce or eliminate tax on income of other commonly controlled domestic corporations. See generally Staff of Joint Comm. on Tax’n, 100th Cong., 1st Sess., General Explanations of the Tax Reform Act of 1986, at 1063 (1987).
Because of the application of differing criteria for determining corporate residence it is possible for a U.S. corporation to incorporate a foreign subsidiary under the laws of a foreign country that determines the residence of a corporation not on the basis that it is incorporated there but on the basis of where the corporation’s management or control is located. If the foreign corporation’s top management is located in the United States, the corporation might be exempt from income tax in the United States and in the country in which it is incorporated.
A dual resident corporation is frequently the U.S. parent corporation of one affiliated group of corporations in the United States and another affiliated group in the foreign country that also treats the group as a taxable resident. Such a dual resident corporation might find opportunities to engage in “double-dipping” with respect to losses and expense items that may be deducted under the tax laws of both the United States and the foreign country concerned.
To deal with the double-dip international tax arbitrage opportunities for dual resident corporations, Congress enacted Internal Revenue Code Section 1503(d). Section 1503(d) provides that the dual consolidated loss of a dual resident corporation for any tax year cannot reduce the taxable income of any other U.S. member of the affiliated group for that or any other tax year. A dual consolidated loss is defined essentially as a net operating loss of a U.S. corporation that is taxed by a foreign country on its worldwide income or on a residence basis. See IRC Section 1503(d)(2)(A). The Staff of the Joint Committee describes Section 1503(d) as follows:
Section 1503 provides that if a U.S. corporation is subject to a foreign country’s tax on worldwide income, or on a residence basis as opposed to a source basis, any net operating loss it incurs cannot reduce the taxable income of any other member of a U.S. affiliated group for that or any other taxable year. (A net operating loss of such a corporation is referred to as a “dual consolidated loss”). A company may be subject to foreign tax on a residence basis because its place of effective management is in a foreign country or for other reasons. Where a U.S. corporation is subject to foreign tax on a residence basis, then, under Section 1503, for U.S. purposes, its loss will be available to offset income of that corporation in other years, but not income of another U.S. corporation. See Taxation of International Transactions, Thomson West (2006), Charles H. Gustafson, Robert J. Peroni, and Richard Crawford Pugh.
Congress did not perceive any relevant distinction between a deduction that arises on account of interest expense and one that arises on account of some other expense, or between a deduction for a payment to a related party and one for a payment to an unrelated party. Therefore, the provision applies to any dual consolidated loss regardless of the type of deductions that caused it. Since the enactment of Section 1503(d), the Department of Treasury has issued a number of regulations, which have been updated over the years. The regulations state the general principle that a dual consolidated loss cannot offset the taxable income of any U.S. affiliate for the tax year of the loss or any other tax year. The same limitation on loss use applies to a separate unit of a U.S. corporation as if the separate unit were the corporation’s wholly owned subsidiary. See Treas. Reg. Section 1.1503-2(b)(1). “Separate unit” for purposes of Section 1503(d) includes a foreign branch, a partnership interest, a trust interest and an interest in a hybrid entity treated as a corporation under foreign law. See Treas. Reg. Section 1.1503-2(c)(i).
The dual consolidated loss limitations is illustrated in the regulations under Section 1505(b) in the following examples:
Example 1. X, a member of a consolidated group, conducts business through a branch in Country Y. Under Country Y’s income tax laws, the branch is taxed as a permanent establishment and its losses may be used under the Country Y form of consolidation to offset the income of Z, a Country Y affiliate of X. In Year 1, the branch of X incurs an overall loss that would be treated as a net operating loss if the branch were a separate domestic corporation. Under paragraph (c)(3) of Treas. Reg. Section 1.1503-2, the branch of X is treated as a separate domestic corporation and a dual resident corporation. Thus, under paragraph (c)(5), its loss constitutes a dual consolidated loss. Unless X qualifies for an exception under paragraph (g) of this section, paragraph (b) of this section precludes the use of the branch’s loss to offset any income of X not derived from the branch operations or any income of a domestic affiliate of X.
Example 2. X is classified as a partnership for U.S. income tax purposes. A, B, and C are the sole partners of X. A and B are domestic corporations and C is a Country Y corporation. For U.S. income tax purposes, each partner has an equal interest in each item of partnership profit or loss. Under Country Y’s law, X is classified as a corporation and its income and losses may be used under the Country Y form of consolidation to offset the income of companies that are affiliates of X. Under paragraph (c)(3) and (4) of this section, the partnership interests held by A and B are treated as separate domestic corporations and as dual resident corporations. Unless an exception under paragraph (g) of this section applies, losses allocated to A and B can only be used to offset profits of X allocated to A and B, respectively.
See Treas. Reg. Section 1.1503-2(b)(4), Exs. 1, 3.
For question 10a, the preparer must state if the foreign foreign branch or disregarded entity is not a separate unit subject to the dual consolidated loss rules.
For question 10b, the preparer must state the amount of consolidated loss (if any).
Question 11.
For question 11a, if the foreign branch or the interest in the foreign disregarded entity is a separate unit and part of a combined separate unit, the preparer must state if it is subject to the consolidated loss rules. If the foreign branch or interest in the foreign disregarded entity is treated as a separate unit under Regulations section 1.1503(d)-1(b)(4), is part of a combined separate unit, and the combined separate unit has a dual consolidated loss for the tax year, check “Yes” and go to lines 11b and 11c. Otherwise, check “No,” then skip lines 11b through 12e and go to line 13a.
Line 11b, the preparer should enter the amount of dual consolidated loss.
Line 11c, the preparer should enter the net income (loss) attributed to the individual foreign branch or the individual interest in the foreign disregarded entity as determined under Treasury Regulation Section 1.1503(d)-5(c)(4)(ii)(A).
Line 12a, asks if any portion of a dual consolidated loss taken into account in computing U.S. taxable income. Subject to certain exceptions, a domestic use of a DCL is not permitted (“domestic use limitation rule”). A domestic use is deemed to occur in the year the DCL is included in the computation of the taxable income of a consolidated group, unaffiliated dual resident corporation, or unaffiliated domestic owner, as applicable. See Regulations section 1.1503(d)-2. Check “Yes” on line 12a if any portion of the DCL on line 10b or 11b was taken into account in figuring U.S. taxable income for the year. If “Yes,” go to line 12b. If “No,” go to line 13a.
Question 12.
Line 12b asks if there was a permitted use of a dual consolidated loss. A domestic use of a dual consolidated loss is permitted if an exception to the domestic use limitation rule applies. See Regulations section 1.1503(d)-6 for exceptions. For example, a domestic use election made pursuant to Treas. Reg. Section 1.1503(d)-6(d) is such an exception. If the preparer checks “Yes,” the preparer may need to include a domestic use election with the income tax return. If the answer to line 12b is “Yes,” the preparer should go to line 12c. If the answer to line 12b is “No,” the preparer should skip line 12c and go to line 12d.
For line 12c, if the preparer checked “Yes” on line 12b, the regulations require the preparer to file documentation for an exception to apply. If the preparer checks “Yes” on line 12c, the preparer should attach any of the following documents to the tax return: 1)The document(s) required to be filed under an elective agreement between the United States and a foreign country; see Treas. Reg. Section 1.1503(d)-6(b)(1); 2) “No Possibility of Foreign Use of Dual Consolidated Loss Statement”; See Treas. Reg. Section 1.1503(d)-6(c); or 3)”Domestic Use Election and Agreement.” See Treas. Reg. Section 1.1503(d)-6(d)(1).
If the dual consolidated loss amount exceeds the separate unit’s cumulative register as of the beginning of the tax year, the amount of dual consolidated loss claimed is limited to the extent of the cumulative register and should be reflected on line 10b or 11b, as appropriate. Any excess dual consolidated loss is treated as a loss carryover subject to the separate return limitation year provisions of Treas. Reg. Section 1.1502-21(c), as modified by Treas. Reg. Section 1.1503(d)-4. The preparer should not answer “Yes” to line 12d if the dual consolidated loss was used to figure consolidated taxable income pursuant to one of the exceptions under Treas. Reg. Section 1.1503(d)-6. If the answer to line 12d is “Yes,” the preparer should go to line 12e.
The preparer should check “No” on line 12d if the dual consolidated loss was not used to figure consolidated taxable income or the separate unit’s cumulative register as of the beginning of the tax year is less than or equal to zero. In such a case, the dual consolidated loss is treated as a loss carryover subject to the yearly provisions of
Treas. Reg. Section 1.1502-21(c), as modified by Treas. Reg. Section 1.1503(d)-4.
For line 12e, if the preparer answered “Yes” to line 12d, the preparer should enter the separate unit’s contribution to the cumulative consolidated taxable income as of the beginning of the tax year.
Question 13.
For Question 13a, the preparer is asked if there were any triggering events that occurred which require the recapture of any dual consolidated losses. The preparer should check “Yes” if a triggering event occurred under Treas. Reg. Section 1.1503(d)-6(e) that requires recapture of any dual consolidated losses attributable to the foreign branch or interest in the foreign disregarded entity, individually or as part of a combined separate unit, in any prior tax years. If the preparer answers “Yes” for Question 13a, the preparer must then enter the total amount of recapture on line 13b. In addition, the preparer must attach a statement to Form 8858 that provides a detailed description of the triggering event, the regulation citation for the triggering event, and a schedule of the prior year(s) dual consolidated losses being recaptured by year.
Schedule H
The preparer should use Schedule H to report the foreign disregarded entity’s current E&P or the foreign branch’s income (if the tax owner is a CFC) or the foreign disregarded entity’s or foreign branch’s taxable income (if the tax owner is a U.S. person or a CFP). Generally, the preparer should enter the amounts on lines 1 through 6 in functional currency. Special rules for DASTM. If the foreign disregarded entity or foreign branch uses DASTM, enter on line 1 the U.S. dollar GAAP income or loss from line 14 of Schedule C. On lines 2 and 3, any adjustments should be made in determining current E&P or taxable income for U.S. tax purposes. These amounts should be reported in U.S. dollars.
Questions 2 and 3.
Certain adjustments must be made to the foreign disregarded entity’s or foreign branch’s line 1 net book income or loss to determine its current E&P or taxable income. The adjustments may include those needed to conform the foreign book income to U.S. GAAP and to U.S. tax accounting principles. If the foreign disregarded entity’s or foreign branch’s books are maintained in functional currency in accordance with U.S. GAAP, the preparer should enter on line 1 the functional currency GAAP income or loss from line 14 of Schedule C, rather than starting with foreign book income, and show GAAP to tax adjustments on lines 2 and 3.
These adjustments may include the following: 1) capital gains and losses; 2) depreciation, amortization, and depletion; 3) investment or incentive allowance; 4) charges to statutory reserves; 5) inventory adjustments; and 6) taxes. The preparer should attach a separate schedule that lists each applicable adjustment item. For each adjustment item, the preparer should indicate the adjustment amount and whether the amount is a net addition or net subtraction. The separate schedule should also show two totals, the total net additions amount to be entered on line 2, and the total net subtraction amount to be entered on line 3.
Question 5.
For Question 5, the preparer should enter any DASTM gain or loss, reflecting unrealized exchange gain or loss. Line 5 is reserved only for foreign branches and foreign disregarded entities that utilize the DASTM method of tax accounting.
Question 7.
Question 7 asks the preparer to enter the current E&P in U.S. dollars from line 6 (translated into U.S. dollars using the average exchange rate for the taxable year of such qualified rate under Section 989(b)(4)). The preparer should use the exchange rate of the “divide-by-convention” specified under the Reporting Exchange Rates on Form 8858.
Schedule I
Schedule I is used to report transferred loss amounts. Schedule I should only be completed if the foreign branch or foreign disregarded entity is owned: 1) directly by a domestic corporation; or 2) indirectly by a domestic corporation through a tiered structure of foreign disregarded entities or foreign branches. Schedule I should not be completed if the foreign branch or foreign disregarded entity is owned by a CFC.
Question 1.
Question 1 asks if the assets of a foreign branch were transferred to a foreign corporation. The preparer should check “Yes” if any assets of an foreign branch (or a branch that is a foreign disregarded entity) was transferred to a foreign corporation during the tax year. If “Yes,” the preparer should continue to line 2; otherwise, the preparer should check “No” and move on to the next schedule.
Question 2.
The preparer should check “Yes” if the transferor was a domestic corporation that transferred substantially all of the assets of a foreign branch (or a branch that is an foreign disregarded entity) to a specified 10 percent owned foreign corporation. A specified 10 percent owned foreign corporation is defined in Internal Revenue Code Section 245A(b)(1) as any foreign corporation with respect to which any domestic corporation is a U.S. shareholder with respect to such corporation. If the preparer checks “Yes,” the preparer should continue to Question 3.
Question 3.
The preparer should check “Yes” for Question 3 if the transferor was a domestic corporation and immediately after the transfer the domestic corporation was a U.S. shareholder (10 percent or more shareholder) with respect to the transferee foreign corporation. If the preparer checks “Yes,” the preparer should continue to line 4..
Question 4.
Under Internal Revenue Code Section 91, if a domestic corporation transfers substantially all of the assets of a foreign branch (within the meaning of Section 367(a)(3)(C)), to a specified 10 percent owned foreign corporation (as defined in Section 245A) with respect to which it is a United States shareholder after such transfer, such domestic corporation shall include in gross income for the taxable year which includes such transfer an amount equal to the transferred loss amount with respect to such transfer. For purposes of Section 91, the term “transferred loss amount” means, with respect to any transfer of substantially all of the assets of a foreign branch, the excess (if any) of: 1) the sum of losses which were incurred by the foreign branch after December 31, 2017 and before the transfer, and with respect to which a deduction was allowed to the taxpayer; over 2) the sum of any taxable income of such branch for a taxable year after the taxable year in which the loss was incurred and through the close of the taxable year of the transfer; and 2) any amount which is recognized under Section 904(f)(3) on account of the transfer. See IRC Section 91(b)
Under Section 91, the U.S. transferor must include in gross income an amount equal to the transferred loss amount, if any, as defined in Section 91(b) upon a transfer of substantially all of the assets of a foreign branch (including a foreign branch that is a foreign disregarded entity) to a foreign corporation. The TLA amount may be reduced (but not below zero) by the amount of gain recognized on account of the transfer, other than the amounts recognized under section 904(f)(3), if any. Enter the amount of the TLA included in gross income as a positive number on line 4. If the amount is equal to or less than zero, enter zero and no transferred loss amount is required to be recognized by the U.S. transferor on the transfer under Section 91. If the amount is greater than zero, the preparer should enter the transferred loss amount on line 4 and report this amount as other income on the applicable Form 1120 (for Form 1120 filers, page 1, line 10, Other income) and identify the amount as “Section 91 Transferred Loss Amount.” In addition, the preparer should attach a “Schedule I—Transferred Loss Amount Additional Information” statement to the Form 8858 and provide the following information: 1) A detailed calculation of the transferred loss amount reflecting amounts of the losses generated by such foreign branches after 2017 by year, and any income amounts by year generated after such loss year; 2) The amount, if any, recognized under Section 904(f)(3) on account of the transfer; 3) A detailed summary of the gain recognized (other than Section 91) by the transferor, including any Section 367(a)(1) gain on the transfer of property; and 4) A calculation of the net sum of the previously deducted losses incurred by such foreign branch for tax years prior to January 1, 2018, that would have been recaptured under Section 367(a)(3)(C), as determined without regards to the repeal of the Section 367(a)(3) active trade or business exception by Section 14102 of the Tax Cuts and Jobs Act.
Schedule J
Schedule J is used to report foreign income taxes paid or accrued by a foreign branch or foreign disregarded entity. The preparer should report. The preparer should report foreign taxes paid or accrued by a disregarded entity or foreign branch on Schedule J. The preparer should not include foreign taxes for which a credit is disallowed under Internal Revenue Code Section 901(j), (k), (l), or (m). Except as provided below, adjustments to foreign income taxes paid or accrued in a prior year should not be reflected on the Form 8858 in the year of adjustment. Instead, these foreign taxes are reported in the year to which such taxes relate.
Column (a)
For Column (a), the preparer should enter the two-letter country code (from the list at IRS.gov/CountryCodes) of all foreign countries and U.S. possessions within which income is sourced and/or to which taxes were paid, accrued, or deemed paid.
Column (b)
For Column (b), the preparer should enter the foreign tax year (YYYY-MM-DD) of the foreign entity to which the tax relates.
Column (c)
For Columns (c) through (e), the preparer should report foreign income taxes in Column (c) in the local currency in which the taxes are payable. The preparer should translate these amounts into U.S. dollars (Column (e)) at the average exchange rate for the tax year to which the tax relates (Column (d)) unless one of the exceptions below applies. See IRC Section 986(a).
Column (f) through (i)
For columns (f) through (i), the preparer must categories its foreign taxes for tax credit purposes. A foreign tax credit generally is limited to a taxpayer’s U.S. tax liability on its foreign-source taxable income (computed under U.S. tax accounting principles). This limitation is computed by multiplying a taxpayer’s total U.S. tax liability in that year by the ratio of the taxpayer’s foreign source taxable income in that year to the taxpayer’s worldwide taxable income in that year. The limitation is applied separately to a “foreign branch income” basket, “passive category income” basket (i.e., dividends, interest, and royalties), “general category income” basket, and “other category” (i.e., subpart F or GILTI income) basket.
In order to determine foreign source taxable income in each basket for purposes of calculating the foreign tax credit limitation, the preparer must allocate and apportion deductions between U.S.-source gross income and foreign-source gross income.
Schedule M
Schedule M for Form 8858 is used to report transactions between foreign disregarded entities or foreign branches and the filer or other related entities. Every U.S. person that is required to file Schedule M (Form 8858) must file the schedule to report the transactions that occurred during the foreign disregarded entity’s or foreign branch’s annual accounting period ending with or within the U.S. person’s tax year.
If a U.S. corporation is the U.S. person filing Schedule M (Form 8858) and is a member of a consolidated group, the preparer must list the common parent as the U.S. person filing Schedule M.
There are three sets of column headings for lines 1 through 21 for Schedule M. The first set of column headings is to be used in cases where the tax owner is a Controlled Foreogn Parent or “CFP.” The second set of column headings is to be used in cases where the tax owner is a CFC. The third set of column headings is to be used in cases where the tax owner is a U.S. person. If the preparer is completing Schedule M for an foreign disregarded entity or foreign branch for which the tax owner is a CFP, the preparer should check the box for CFPs and complete lines 1 through 21 using the headings in columns (a) through (e) of the CFP set of columns. If the preparer is completing Schedule M for an foreign disregarded entity or foreign branch for which the tax owner is a CFC, the preparer should check the box for CFCs and complete lines 1 through 21 using the headings in columns (a) through (f) of the CFC set of columns. If the preparer is completing Schedule M for an foreign disregarded entity or foreign branch for which the tax owner is a U.S. person, the preparer should check the box for U.S. Tax Owner and complete lines 1 through 21 using the headings in columns (a) through (e) of the U.S. Tax Owner set of columns.
Column (e)
For CFP- or CFC-owned foreign disregarded entities or foreign branches, the preparer should use Column (e) to report transactions between the foreign disregarded entity or foreign branch and any U.S. person with a 10 percent or more direct interest in the CFP or any 10 percent or more U.S. shareholder of any corporation controlling the CFC. If the filer is a Category 1 filer of Form 8865, or a Category 4 filer of Form 5471, the filer should not report transactions between itself and the foreign disregarded entity or foreign branch under column (e). The transactions should only be reported under Column (b).
In regards to a U.S. owner, the following instructions for Columns (b) through (e) apply only to an foreign disregarded entity or foreign branch with a U.S. tax owner.
The preparer should use column (b) to report transactions between the foreign disregarded entity or foreign branch with the U.S. person filing this return only if the U.S. person filing this return is other than the tax owner of the foreign disregarded entity or foreign branch. If the U.S. person filing this return is the tax owner of the foreign disregarded entity or foreign branch, the preparer should not enter any amounts in Column (b).
The preparer should use Column (c) to report transactions between the foreign disregarded entity or foreign branch with any domestic corporation or partnership controlled by the filer. The preparer should not include any transactions between the foreign disregarded entity or foreign branch with its direct U.S. tax owner that are treated as disregarded for U.S. tax purposes in Column (c).
The preparer should use Column (d) to report transactions between the foreign disregarded entity or foreign branch with any foreign corporation (including its foreign branches or foreign disregarded entities) controlling or controlled by the filer. This will include any transactions between the foreign disregarded entity or foreign branch with any foreign corporation (including its foreign branches or foreign disregarded entities) controlling or controlled by the foreign disregarded entity or foreign branch U.S. tax owner, if the U.S. tax owner of the foreign disregarded entity or foreign branch is not the U.S. person filing the return.
The preparer should use Column (e) to report transactions between the foreign disregarded entity or foreign branch with any foreign (including hybrid) partnerships (including its foreign branches or foreign disregarded entities) controlling or controlled by the filer. This will include any transactions between the foreign disregarded entity or foreign branch with any foreign (including hybrid) partnership (including its foreign branches or foreign disregarded entities) controlling or controlled by the foreign disregarded entity or foreign branch U.S. tax owner, if the U.S. tax owner of the foreign disregarded entity or foreign branch is not the U.S. person filing the return.
Question 6.
The preparer should report on line 6 dividends received by the foreign disregarded entity that were not previously taxed under subpart F in the current year or in any prior year.
Questions 20 and 21
The preparer should use lines 20 and 21 to report the largest outstanding balances during the year of gross amounts borrowed from, and gross amounts loaned to, the related parties described in columns (b) through (f). The preparer should not enter aggregate cash flows, year-end loan balances, average balances, or net balances.
Conclusion
The IRS Form 8858 is an incredibly complicated return. It is extremely important to work with an international tax attorney to ensure accurate preparation of your Form 8858. Having the wrong professional complete your Form 8858 can result in significant penalties. We have substantial experience advising U.S. persons investing abroad of their compliance obligations. We have provided assistance to many accounting and law firms (both large and small) in all areas of international taxation.
Anthony Diosdi is one of several tax attorneys and international tax attorneys at Diosdi Ching & Liu, LLP. Anthony focuses his practice on domestic and international tax planning for multinational companies, closely held businesses, and individuals. Anthony has written numerous articles on international tax planning and frequently provides continuing educational programs to other tax professionals.
He has assisted companies with a number of international tax issues, including Subpart F, GILTI, and FDII planning, foreign tax credit planning, and tax-efficient cash repatriation strategies. Anthony also regularly advises foreign individuals on tax efficient mechanisms for doing business in the United States, investing in U.S. real estate, and pre-immigration planning. Anthony is a member of the California and Florida bars. He can be reached at 415-318-3990 or adiosdi@sftaxcounsel.com.
This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.