Form 8858 Rev December 2012 Checklist Tax Year 2012
Purpose
Form 8858 is an information return for U.S. taxpayers who own or operate a foreign disregarded entity through direct or indirect ownership structures, and the Internal Revenue Service uses it to track annual accounting results and ownership arrangements. Unlike Form 5471 for foreign corporations or Form 8865 for foreign partnerships, it focuses on entities treated as transparent under the check-the-box regulations.
The 2012 revision strengthened Section 987 remittance tracking and expanded dual consolidated loss compliance under Regs. Sec. 1.1503(d)-2, Regs. Sec. 1.1503(d)-5, and Regs. Sec. 1.1503(d)-6, requiring documentation of permitted domestic uses and consolidated computations. Form 8858 also coordinates with other international information returns, such as Form 3520 for foreign trusts, Form 926, and Form 8938 for foreign specified assets.
Filing Steps
Step 1: Entity Classification and Filer Verification
Enter the filer name, Employer Identification Number, or social security number, and applicable tax year on Form 1040 income tax return or business return, such as Form 990 for Tax-Exempt Organizations. Confirm that the foreign entity qualifies as disregarded under 2012 tax law standards, typically single-owner structures such as a single-member LLC organized outside the United States' jurisdiction.
Step 2: Foreign Disregarded Entity Identification
Complete the identification block with entity name, foreign address, US identifying number if applicable, and mandatory Unique Reference Identification Number on line 1b(2) when no Employer Identification Number exists. Enter the country of organization, entity type under local legal entity structures, organization dates, effective disregarded status date, principal business activity country, functional currency, and treaty article claimed.
Step 3: Functional Currency and Translation
Identify functional currency following Internal Revenue Code section 985 and related regulations, selecting appropriate translation methodology by checking the box if using average exchange rate methodology under section 989(b). For hyperinflationary currency situations requiring the Dollar Approximate Separate Transactions Method, consult specialized DASTM provisions to ensure that all financial statements are translated using the divide-by convention exchange rate reporting, rounded to four decimal places.
Step 4: Income Statement Completion
Schedule C requires comprehensive income and deduction reporting in functional currency with US dollar translation, including gross receipts net of returns, cost of goods sold, and gross profit. Enter other income, total income, total deductions, including organizational expenses such as legal fees and business license costs, as per Treasury Regulations. Secs. 1.263(a)-5(d)(1) and (3), other adjustments, and net income or loss.
Step 5: Section 987 Remittances and Currency Gains
Schedule C-1 documents remittances in both the Foreign Disregarded Entity's functional currency and the recipient's functional currency when different, including Section 987 gain or loss attributable to remittances. Answer whether all remittances were treated as made to the direct owner and whether accounting method changes occurred during 2012, noting that reporting operated under proposed Section 987 regulations.
Step 6: Balance Sheet Reporting
Schedule F requires the presentation of beginning and ending period balance sheets, showing cash, current assets, other assets, total assets, liabilities, and owner's equity, all translated into US dollars using US GAAP. Verify that assets equal liabilities plus equity for both periods, providing the Internal Revenue Service with comprehensive visibility into the Foreign Disregarded Entity's financial position, supporting transfer-pricing rules compliance.
Step 7: Related Entity Disclosures
Schedule G questions one through three address foreign trust ownership, foreign partnerships interests exceeding 10 percent direct or indirect ownership, and loss claims resulting from disregarded entity elections. These questions integrate with Form 3520 reporting for foreign trusts, Form 8865 requirements for foreign partnerships, and Form 926 for property transfers, ensuring comprehensive international information returns filing.
Step 8: Dual Consolidated Loss Analysis
Schedule G questions four and five implement the Regs. Sec. 1.1503(d)-5 dual consolidated loss calculation and usage tracking, determining whether the entity constitutes a separate unit, and whether any dual consolidated loss exists. Report the Net Operating Loss amount and indicate whether any portion is entered into the consolidated taxable income computation, documenting whether usage qualifies as permitted domestic use under the Regs. Sec. 1.1503(d)-6.
Step 9: Foreign Tax Credit Provisions
Schedule G questions six and seven address section 901(m) disqualified taxes and section 909 suspended foreign tax credit situations affecting overall foreign tax credit calculations reported on tax returns. Section 901(m), enacted in 2010, applies to covered asset acquisitions after December 31, 2010, while Section 909 prevents foreign tax credit claims before related foreign income recognition.
Step 10: Controlled Foreign Corporation Transactions
Schedule G question eight applies when the tax owner is a Controlled Foreign Corporation, which means it must report transactions between its own companies if a Foreign Disregarded Entity was involved in manufacturing, selling, or buying. This reporting supports the enforcement of transfer pricing rules and the proper allocation of foreign income within complex foreign subsidiary structures, while integrating with Form 5471 reporting requirements for the parent foreign corporation.
Step 11: Earnings and Profits Reconciliation
Schedule H reconciles book income to current earnings and profits or taxable income by entering current year net income or loss per foreign books in functional currency on line one. Add net additions and subtract net subtractions, reflecting adjustments for capital items, depreciation, inventory methods, statutory reserves, and US tax principle conformity. Then translate the total into US dollars.
Step 12: Assembly and Submission
Attach an organizational chart showing all ownership chain entities between the tax owner and the foreign disregarded entity, plus downstream 10 percent ownership interests, including entity names, ownership percentages, tax classifications, and organization countries. Ensure English language presentation and US-dollar reporting, except where dual reporting in the functional currency is required. Attach Form 8858 to the tax professional-prepared return when due, along with Form 1040 income tax return extensions.
Year-Specific 2012 Updates
The December 2012 revision emphasized Section 987 remittance tracking, adding a checkbox to verify that remittances were treated as made to owners during Tax Filing Season 2012. The 2012 tax filing season operated under proposed Section 987 regulations, not the final rules issued in December 2016, which affect reporting coordination for foreign branch entities.
The Unique Reference Identification Number became mandatory on line 1b(2) when an Employer Identification Number is not provided, improving Foreign Disregarded Entity tracking across filings. Form 8858 coordination with Foreign Bank and Financial Accounts reporting, Form 2555, Form 8938, and check-the-box regulations ensures accurate application of exchange rates across the required schedules.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
