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What is Form 8858 and Who is Required to File?

January 31, 2022

Are you a Schedule C or Schedule F filer? You may be required to file Form 8858. There are penalties associated with not filing. Read on.

What is Form 8858?

Form 8858, Information Return of U.S. Persons with Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs), is one of a series of IRS informational forms related to ownership of foreign entities such as corporations, partnerships, or other foreign businesses. Form 8858 was originally designed specifically to capture information on what was referred to as a “disregarded entity.” This was a foreign entity that was considered as not having a separate legal existence for US tax purposes.

In conjunction with recent tax legislation, the IRS broadened the filing requirement to those having an ownership interest in a foreign “branch”. This latter determination is much more subjective in nature. Not surprisingly in today’s environment there has been a lack of definitive guidance on whether a Schedule C/Schedule E tax filer is required to file the Form 8858 for their foreign activity.

At a base level a Foreign Disregarded Entity (FDE) is an entity that is not created or organized in the United States, and it is disregarded as an entity separate from its owner for US income tax purposes. A Foreign Branch is defined as an integral business operation carried on by a US person outside of the United States. These can pertain to any Schedule C business or Schedule E property, along with foreign corporations organized outside of the United States.

Who must File Form 8858?

  • U.S. Persons are obligated to file Form 8858
  • A U.S. Person is defined as:
    • Citizens or Resident Aliens of the U.S.
    • Domestic Partnerships
    • Domestic Corporations
    • Estates, (other than foreign estates)
    • Domestic Trusts

What triggers a filing requirement?

Well, there isn’t necessarily one definitive test, it’s rather a combination of rules put into effect by the IRS. Here are a few of the triggers:

  • Separate books and records
  • Where is the business conducted?
  • Do the activities carried out in the foreign country constitute a permanent establishment?
    • paying into foreign pension plans
    • filing foreign tax returns
    • living in the specific foreign country

If you have any questions contact us and we can assist.

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