Form 8858 (Rev. December 2013) – 2013 Tax Year Checklist
Purpose
Form 8858 reports ownership and financial activities of foreign disregarded entities for the 2013 tax year under sections 6011, 6012, 6031, and 6038. The December 2013 revision clarifies Section 987 remittance gain and loss reporting, while addressing dual consolidated loss tracking under the Regulations. Sec. 1.1503(d) provisions.
This information return reflects updated Treasury guidance on branch currency elections and DASTM election mechanics effective for open tax years beginning in 2013. The revised form helps U.S. taxpayers comply with tax laws governing foreign entities that are disregarded as separate from their owners for tax purposes.
Filing Steps
Step 1: Confirm Disregarded Entity Status and Classification
Verify that the foreign disregarded entity election was valid under the Regs. Secs. 301.7701-1 and Regs. Sec. 301.7701-3(d)(1)(i) for the 2013 accounting period. Eligible entities use Form 8832 to make an Entity Classification Election under check-the-box regulations, with documentation of the effective date required on line 1e.
Step 2: Identify Functional Currency and Exchange Rate Methodology
Identify and report the functional currency of the foreign disregarded entity on line 1i, determined under sections 985 and 989, for each Qualified Business Unit. Confirm whether average exchange rates under Section 989(b) or DASTM were applied, marking the appropriate checkbox on Schedule C for the selected translation methodology.
Step 3: Complete Schedule C with Dual-Column Reporting
Complete Schedule C in both functional currency and U.S. dollar columns, choosing either U.S. GAAP translation methodologies or the average Exchange Rate method under Section 989(b). Line 7 adjustments should include extraordinary items, prior period adjustments, and provisions for income, war profits, and excess profits taxes, as deducted in accordance with U.S. GAAP requirements.
Step 4: Answer Schedule B Remittance Questions
Answer Schedule B remittance questions on lines 3 through 4, confirming whether remittances from the foreign disregarded entity flowed to the tax owner as defined. Disclose any 2013 method changes in accounting for Section 987 gain or loss on remittances, using separate functional currency and recipient currency columns as required.
Step 5: Provide Schedule F Balance Sheet Information
Provide Schedule F asset and liability balances as of the beginning and end of the 2013 accounting period, computed and translated into U.S. dollars only. Ensure the Balance Sheet reconciles at both dates where Total Assets equal Total Liabilities plus Owner’s Equity, applying DASTM rules under Regs. Sec. 1.985-3(d) if applicable.
Step 6: Address Dual Consolidated Loss Questions
Answer dual consolidated loss questions on Schedule D, lines 1 through 5c, identifying any losses and tracking amounts in the cumulative register per Regs. Sec. 1.1503(d)-4. The cumulative register balance tracks the separate unit’s cumulative contribution to consolidated taxable income, preventing the double use of losses across multiple consolidated groups in subsequent years.
Step 7: Disclose Section 901(m) and Section 909 Foreign Tax Issues
Disclose Section 901(m) disqualification and Section 909 suspension issues on Schedule D, lines 6 through 7, reporting any foreign taxes paid or accrued in 2013. Section 901(m), enacted by the Education Jobs and Medicaid Assistance Act in August 2010, limits foreign tax credits associated with covered asset acquisitions for U.S. taxpayers.
Step 8: Report Related-Party Transactions
Report whether the foreign disregarded entity engaged in intracompany manufacturing, selling, or purchasing transactions with Controlled Foreign Corporations or other CFC branches during the 2013 tax year. Retain contemporaneous transfer-pricing documentation and complete Schedule M to report transactions between the FDE and related parties, including any U.S. person with direct interests.
Year-Specific 2013 Updates
Currency Election and Average Exchange Rate Mechanics
The currency election mechanics under Section 989(b) were clarified in the December 2013 instructions, as outlined in IRM Section 4.61.5.3.1, for proper tax administration. Filers choosing average exchange rates rather than spot rates on transaction dates must check the box on Schedule C and maintain comprehensive audit-trail documentation.
This election provides administrative convenience for managing financial details across multiple foreign entities and requires consistent application throughout the entire Tax Year. Documentation must include the rate source and application method for all Schedule C conversions to satisfy Internal Revenue Service requirements during examinations and reviews.
Dual Consolidated Loss Cumulative Register Tracking
Dual consolidated loss tracking under tax regulations became mandatory for separate units with the 2013 form, which explicitly referenced cumulative register balance requirements on Schedule D. The 2013 update prevents the double use of losses across multiple U.S. consolidated groups by maintaining detailed tracking of historical contributions to consolidated taxable income.
This tracking mechanism ensures compliance with tax administration requirements and prevents duplicative tax benefits in current and future years for international business activities. The cumulative register balance reflects the separate unit’s net contribution position, limiting current-year loss utilization to the extent of prior positive contributions to the group.
Section 901(m) Foreign Tax Credit Limitations
Section 901(m) disqualified foreign tax credit provisions were embedded in the 2013 instructions following enactment through the American Taxpayer Relief Act of 2012, not the Education Jobs and Medicaid Assistance Act. Filers must separately identify foreign taxes that qualify versus those that are disqualified in 2013, based on covered asset acquisition rules and basis difference calculations.
The provision applies to covered asset acquisitions where basis differences exist between the U.S. tax basis and the foreign tax basis in relevant foreign financial assets. Foreign tax credits become limited over time as income is recognized with respect to those assets, preventing basis arbitrage in cross-border transactions involving foreign entities.
DASTM Rules for Hyperinflationary Currencies
The December 2013 revision finalized DASTM election rules for hyperinflationary functional currencies, establishing clear thresholds and mandatory application requirements for affected Qualified Business Units. A currency becomes hyperinflationary when it experiences a cumulative and compounded inflation rate of at least 100% over three consecutive calendar years, serving as the base period.
When the functional currency meets this threshold, U.S. taxpayers must use the U.S. dollar as functional currency and compute income using dollar approximate separate transactions. Standard GAAP translation does not apply when DASTM becomes required, and the taxpayer must follow special rules under Regs. Sec. 1.985-3 for all affected operations.
Section 987 Remittance Reporting Structure
Section 987 remittance gain or loss computation was reformatted in Schedule B to accommodate evolving regulatory guidance on foreign branch currency translation rules. The 2013 Schedule B structure required separate functional currency and recipient currency columns to facilitate proper tracking of exchange gains and losses throughout operations.
Final regulations were ultimately issued in December 2016 through T.D. 9794, meaning 2013 filers operated under prior guidance and transitional rules during this developmental period. The 2013 form structure anticipated these regulatory changes and established reporting frameworks compatible with the eventual final regulations issued for subsequent tax years.
Critical Filing Reminders
General Reporting Requirements and Documentation Standards
Report all amounts in English and U.S. dollars, stating functional currency separately only in Schedule C and related schedules requiring dual-column reporting formats. Schedule F requires U.S. dollar amounts only, while functional currency elections must remain consistent with prior years’ filings and IRS Form 8858 historical records.
Any change to functional currency designation requires advance consent or automatic filing relief under applicable revenue procedure guidance for the 2013 Tax Year. The organizational chart on line 5 must identify ownership percentages, tax classification, and country of organization for all intermediate entities in ownership structures.
Dormant Entity Filing Procedures and Penalties
When the foreign disregarded entity had no activity in 2013, the summary filing procedure for dormant FDEs under Announcement 2004-4 may apply appropriately.
Complete the return with zeros in Schedule C and disclose inactive status, labeling the top margin “Filed Pursuant to Announcement 2004-4 for Dormant FDE” accordingly. Each entity must have a proper Employer Identification Number or reference ID number for tracking purposes, ensuring consistency across tax years for identification and compliance. Failure to attach a clear organizational chart results in an incomplete return status under the 2013 Internal Revenue Service processing standards for information returns filed annually.
Filing Deadlines and Penalty Structure
IRS 8858 is due when income tax returns or information returns are due, including extensions, with attachment to Form 1040 for individuals or corporate returns. Penalties for non-compliance include a $10,000 penalty per annual accounting period, with additional penalties of $10,000 for every 30 days of continued failure.
Additional penalties apply after receiving an Internal Revenue Service notice, capped at $50,000 per failure, with potential reductions to foreign tax credits and Criminal Penalties under sections 7203 and 7206. For comprehensive tax compliance with foreign financial assets reporting, also consider Form 8938, Form 3520, and Form 926 requirements under applicable cross-border reporting rules.
Additional Reporting Considerations and Professional Resources
Review filing deadlines carefully for Form 5471 for Controlled Foreign Corporations, Form 8865 for foreign partnerships, and Form 8832 for Entity Classification Election documentation requirements. Changes under the Tax Cuts and Jobs Act affecting foreign rental property, subpart F income, and Trade or Business determinations require careful analysis for compliance.
Consult IRM guidance, PricewaterhouseCoopers LLP, BDO USA LLP, or Washington National Tax Services for complex international tax matters involving organizational structure and financial data reporting. Using IRS Forms correctly ensures proper tax compliance with U.S. government requirements for both resident aliens and non-resident aliens conducting international business activities across jurisdictions.
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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.
