What Form 8858 Is For

Form 8858 is an information return used by U.S. taxpayers to report their ownership or operation of foreign business entities that are "disregarded" for U.S. tax purposes, as well as foreign branches of their business operations. IRS.gov

What's a Foreign Disregarded Entity (FDE)?

Think of it as a foreign business entity—often a single-member limited liability company (LLC) or similar structure—that the IRS doesn't treat as a separate taxpayer. Instead, all the income, expenses, and activities of the FDE "flow through" directly to the U.S. owner's tax return. Common examples include a U.S. citizen who forms a single-member LLC in Mexico to run a consulting business, or an American operating a Canadian unlimited liability company (ULC). IRS Instructions 2019

What's a Foreign Branch (FB)?

This is any qualified business unit or trade/business activity you operate in a foreign country—like an office, factory, or sales operation abroad. Even if an FDE itself has a branch in another country, each branch must be reported separately.

Form 8858 doesn't create any new taxes—it's purely informational. The IRS uses it to track foreign business activities and ensure proper reporting of income and transactions between related entities. You must file a separate Form 8858 for each FDE or FB you own or operate. IRS Instructions 2019

When You’d Use Form 8858 (Including Late and Amended Returns)

Regular Filing

Form 8858 is due when your regular income tax return is due, including any extensions. For most individuals, this means April 15 (or October 15 with an extension). You attach Form 8858 to your main return—Form 1040 for individuals, Form 1120 for corporations, Form 1065 for partnerships, or to Forms 5471/8865 if you're reporting through a controlled foreign corporation or partnership. IRS Instructions 2019

Who Must File

You must file if you're a U.S. person (citizen, resident, domestic corporation, partnership, estate, or trust) who:

• Directly owns or is the "tax owner" of an FDE
• Indirectly owns an FDE through a chain of entities or partnerships
• Operates a foreign branch
• Files Form 5471 for a controlled foreign corporation (CFC) that owns an FDE or operates an FB
• Files Form 8865 for a controlled foreign partnership (CFP) that owns an FDE or operates an FB
• Are a U.S. corporate partner in a partnership that owns FDEs or FBs

Late or Amended Returns

If you missed the deadline or need to correct previously filed information, you should file as soon as possible. For corrections involving foreign tax adjustments (like additional tax payments or refunds), you generally need to file an amended Form 8858 for the tax year to which the adjustment relates, not the current year. This follows section 905(c) rules for foreign tax credit adjustments. IRS Instructions 2019

Key Rules or Details for 2019

Several important rules applied to Form 8858 in the 2019 tax year:

Separate Forms Required

You cannot aggregate multiple FDEs or FBs on one form. Each entity gets its own Form 8858, which can make filing quite extensive if you have multiple foreign operations. IRS Instructions 2019

Schedule M Mandatory

Most filers must also complete Schedule M (Form 8858), which reports transactions between the FDE/FB and the filer or other related entities. This includes sales, purchases, rents, royalties, loans, and other financial dealings. The IRS wants to see how money and assets move between related parties. IRS Instructions 2019

Clarification on Foreign Branches

The 2019 instructions clarified that items of income and expense from a foreign branch owned by an FDE are not attributed up to the FDE. Each must be reported separately on its own Form 8858. IRS Instructions 2019

Reference ID Numbers

If your FDE or FB doesn't have an Employer Identification Number (EIN), you must create and use a unique "reference ID number." This alphanumeric code (up to 50 characters) must be used consistently year after year and cannot be reused for other entities once it falls out of use. FDEs electing disregarded status on Form 8832 must obtain an EIN. IRS Instructions 2019

Dual Consolidated Loss Rules

Lines 10-13 of Schedule G address whether your FB or FDE interest qualifies as a "separate unit" subject to dual consolidated loss (DCL) rules—special provisions that prevent the same loss from being claimed in both the U.S. and a foreign country. IRS Instructions 2019

Step-by-Step (High Level)

Step 1: Gather Basic Information

Collect the names, addresses, tax identification numbers (EINs or SSNs), and functional currency information for yourself, the FDE/FB, the direct owner, and the tax owner. You'll also need the annual accounting period covered by the form. IRS Instructions 2019

Step 2: Create an Organizational Chart

Prepare a chart showing the ownership structure from the tax owner down to the FDE/FB, including all entities in the chain, their tax classifications, countries of organization, and ownership percentages. This gives the IRS a visual map of your foreign structure. IRS Instructions 2019

Step 3: Complete Schedule C (Income Statement)

Report a summary income statement for the FDE/FB in its functional currency (the currency of the country where it primarily operates) and translate it to U.S. dollars. This includes gross receipts, cost of goods sold, expenses, and net income. You'll generally use U.S. GAAP accounting principles or, alternatively, the average exchange rate for the tax year. IRS Instructions 2019

Step 4: Complete Schedule F (Balance Sheet)

Provide a summary balance sheet showing assets, liabilities, and equity in U.S. dollars as of the beginning and end of the tax year, following U.S. GAAP translation rules. IRS Instructions 2019

Step 5: Complete Schedule G (Other Information)

Answer various questions about the nature of the entity, including whether it's a qualified business unit (QBU), whether base erosion payments were made or received, and (if applicable) whether dual consolidated losses apply. IRS Instructions 2019

Step 6: Complete Schedule H (Current Earnings or Taxable Income)

Calculate the FDE's current earnings and profits (if owned by a CFC) or taxable income (if owned by a U.S. person or controlled foreign partnership). This is the bottom-line figure the IRS uses to verify proper income reporting. IRS Instructions 2019

Step 7: Complete Schedule M (Transactions)

Detail all transactions between the FDE/FB and you (the filer) or other related entities. This includes sales, services, rents, royalties, interest, and other payments in both directions. IRS Instructions 2019

Step 8: Attach to Your Tax Return

Include Form 8858 and all schedules with your annual tax return or information return (Forms 1040, 1120, 1065, 5471, or 8865 as appropriate).

Common Mistakes and How to Avoid Them

Mistake #1: Not Filing at All Because There's No Income

Even if your FDE or FB generated no income or was inactive (dormant), you still must file Form 8858. However, dormant FDEs may use a simplified summary filing procedure under Announcement 2004-4, where you complete only limited identifying information and label the form "Filed Pursuant to Announcement 2004-4 for Dormant FDE." IRS Instructions 2019

Mistake #2: Aggregating Multiple Entities on One Form

Each FDE and FB requires its own separate Form 8858. You cannot combine them. If you operate three foreign branches, you need three Forms 8858. IRS Instructions 2019

Mistake #3: Writing "See Attached" Instead of Completing Form Fields

The IRS explicitly prohibits leaving sections blank with notes like "see attached." You must complete all available entry spaces on the form itself. If you have more information than fits, complete what you can in the spaces provided and attach additional sheets that conform to the IRS format. IRS Instructions 2019

Mistake #4: Inconsistent or Reused Reference ID Numbers

If you create a reference ID number for an FDE/FB, you must use it consistently every year. Once that entity no longer exists, you cannot reuse that number for a different entity. Changing numbers arbitrarily creates confusion and compliance issues. IRS Instructions 2019

Mistake #5: Incorrect Exchange Rate Reporting

Exchange rates must be reported using the "divide-by" convention, showing how many units of foreign currency equal one U.S. dollar (not the reverse), rounded to at least four decimal places. For example, 118.5050 Japanese Yen = 1 USD. IRS Instructions 2019

Mistake #6: Omitting Schedule M

Most filers must include Schedule M to report related-party transactions. Forgetting this schedule can result in an incomplete filing and potential penalties. Only certain limited exception filers (like Category 5 filers of Form 5471 or Category 1 filers of Form 8865) can skip Schedule M. IRS Instructions 2019

Mistake #7: Reporting Current-Year Adjustments for Prior-Year Foreign Taxes

If you receive a foreign tax refund or pay additional foreign taxes related to a prior year, don't report those adjustments on the current year's Form 8858. Instead, file an amended return for the year to which the taxes relate. IRS Instructions 2019

What Happens After You File

Information Matching

Form 8858 is primarily an information return, so it doesn't generate a separate tax bill. However, the IRS uses the information to verify that you've properly reported the FDE's or FB's income on your main tax return. They'll cross-check the income, expenses, and transactions to ensure consistency.

Audit Risk

Missing or incomplete Forms 8858 can trigger IRS scrutiny. Since the form provides detailed financial information about foreign operations, discrepancies between Form 8858 and your tax return can lead to audits or examination letters.

Foreign Tax Credit Implications

The information on Form 8858 helps establish your eligibility for foreign tax credits. Schedule H reports foreign taxes paid, which you may be able to claim as credits against your U.S. tax liability. Incomplete or late filing can result in reduction of these credits.

Ongoing Compliance

Form 8858 is an annual requirement. As long as you own or operate the FDE or FB, you'll need to file each year. If ownership changes (you sell the entity, it liquidates, or you acquire a new FDE/FB), you must file "Initial" or "Final" Forms 8858 to document these events. IRS Instructions 2019

Penalties for Non-Compliance

If the IRS determines your filing is late, incomplete, or missing, they can assess penalties (detailed below in FAQ #6). These penalties can be substantial and escalate if you don't respond to IRS notices.

FAQs

Q1: What's the difference between a Foreign Disregarded Entity and a Controlled Foreign Corporation?

A Foreign Disregarded Entity (FDE) is not treated as a separate taxable entity—its income flows directly to the U.S. owner's return. A Controlled Foreign Corporation (CFC), reported on Form 5471, is treated as a separate corporation for tax purposes. The key distinction: FDEs are "pass-through" entities (like single-member LLCs), while CFCs are taxed as corporations. Many foreign entities can elect their tax classification using Form 8832, which affects whether they file Form 8858 or Form 5471. IRS Instructions 2019

Q2: Can one person file Form 8858 on behalf of multiple filers?

Yes, in certain situations. If you're a Category 4 or 5 filer of Form 5471, or a Category 1 filer of Form 8865, one person can file Form 8858 on behalf of other persons who have the same filing requirements for the same FDE or FB. However, all persons remain liable for penalties if the form isn't filed correctly. IRS Instructions 2019

Q3: Do I need a U.S. tax identification number for my foreign entity?

FDEs that elected disregarded status by filing Form 8832 must obtain an Employer Identification Number (EIN). Foreign branches may not need an EIN but must have a reference ID number. In the first year after making an entity classification election, report both the new EIN and the old reference ID number on Form 8858. IRS Instructions 2019

Q4: What if my FDE or FB uses a different currency than U.S. dollars?

You must report all financial information in the entity's "functional currency" (typically the currency of the country where it primarily operates) and then translate it to U.S. dollars using appropriate exchange rates and accounting methods. The 2019 instructions provide detailed rules for translation, including special rules for hyperinflationary currencies. IRS Instructions 2019

Q5: Are there any exceptions that would let me avoid filing?

Very limited exceptions exist. Dormant FDEs can use a simplified summary procedure. Additionally, if you're filing through a controlled foreign partnership (Form 8865 Category 1 filer) and they file a complete Form 8858 on behalf of all partners, you may not need to file separately. Otherwise, if you meet the "Who Must File" criteria, filing is mandatory regardless of income level or activity. IRS Instructions 2019

Q6: What are the penalties for not filing or filing incorrectly?

Penalties are serious:

• Initial Penalty: $10,000 per annual accounting period per CFC/CFP for failure to file complete and accurate information on time
• Continuing Penalty: If you don't file within 90 days after the IRS mails a notice, an additional $10,000 per 30-day period (or fraction thereof), up to $50,000 maximum per failure
• Foreign Tax Credit Reduction: 10% reduction of available foreign tax credits, with an additional 5% reduction for each 3-month period after the 90-day deadline (subject to statutory limits)
• Criminal Penalties: Willful failure to file or fraudulent filing can result in criminal prosecution under sections 7203, 7206, and 7207

These penalties apply even if someone else agreed to file on your behalf but failed to do so. IRS Instructions 2019

Q7: Can I file Form 8858 electronically?

Yes, if you're filing your main tax return electronically, you should attach Form 8858 electronically. For Forms 1040, 1040-SR, or 1041 filed electronically, attach Form 8858 using Form 8453. For electronic Forms 1120 or 1065, attach Form 8858 directly to the electronic return. The 2019 instructions encouraged electronic filing for faster processing. IRS Instructions 2019

For More Information

Official Form 8858 and Instructions: IRS.gov/Form8858
2019 Form 8858 Instructions (PDF): IRS.gov
IRS International Penalties Guidance: IRS Internal Revenue Manual

Form 8858 compliance is complex, and the penalties for errors or omissions are significant. If you have foreign business operations, consider consulting a tax professional with international expertise to ensure complete and accurate filing.