What Form 8858 Is For

Form 8858 is an information return that U.S. taxpayers must file when they own or operate certain foreign business entities. Think of it as the IRS's way of keeping track of American business activities overseas that might otherwise be invisible on standard tax returns.

Specifically, you'll need this form if you're involved with:

• Foreign Disregarded Entities (FDEs): These are foreign businesses that the IRS treats as "transparent" for tax purposes—meaning the IRS looks right through the entity and taxes you directly on its income, as if the entity doesn't exist separately. A common example is a single-member foreign LLC.
• Foreign Branches (FBs): These are divisions of your U.S. business operating abroad, like an overseas office or facility that conducts business in another country.

Form 8858 collects detailed financial information about these entities, including income statements, balance sheets, and transactions between the entity and related parties. The form helps the IRS ensure that income from foreign operations is properly reported and taxed. It satisfies reporting requirements under Internal Revenue Code sections 6011, 6012, 6031, and 6038.

The form includes several schedules: Schedule M reports transactions between the foreign entity and related parties, while Schedules C through J capture various financial and operational details. You'll need to provide an organizational chart showing the ownership structure and prepare financial statements in both the entity's functional currency and U.S. dollars IRS.gov.

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

Regular Filing Deadline

Form 8858 is due at the same time as your main tax return—including any extensions you've been granted. If you're the direct owner (tax owner) of the FDE or FB, attach Form 8858 to your personal or business income tax return. If you're filing because you own an interest in a controlled foreign corporation (CFC) or controlled foreign partnership (CFP) that owns an FDE/FB, attach Form 8858 to your Form 5471 or Form 8865, respectively.

When You Need to File

• You must file a separate Form 8858 for each FDE or FB you're reporting, even if you have multiple entities.
• The form covers the annual accounting period of the entity, which generally matches your own tax year.
• You file this form every year you have a reportable interest in an FDE or FB during any part of your tax year.

Initial and Final Filings

• Check the "Initial 8858" box when you first acquire or establish an FDE or FB.
• Check the "Final 8858" box when you terminate, sell, or otherwise dispose of the entity.
• If both events happen in the same year, you must file two separate Forms 8858—one marked Initial and one marked Final.

Late Returns

If you missed the filing deadline, file the form as soon as possible. Late filing triggers automatic penalties (see Section 6), but filing eventually is better than never filing. Attach the form to your return for the appropriate year, and include a brief explanation of why it's late if possible.

Amended Returns

You'll need to file an amended Form 8858 when:

• You discover errors or omissions in a previously filed Form 8858
• There are post-filing adjustments to foreign income taxes (such as refunds, additional payments, or disallowances)
• Material facts change that affect prior-year reporting

Important note on amendments: Generally, adjustments to foreign income taxes should be reflected in the year to which the taxes relate, not the year you discovered the error. This typically requires amending the original year's return. However, "de minimis" adjustments (small amounts) can be reported in the current year. Prepare an amended Form 8858 and attach it to Form 1040-X (for individuals) or the appropriate amended business return IRS.gov.

Key Rules or Details for 2020

Who Must File

Understanding who needs to file can be complex. You must file Form 8858 if you're a U.S. person and you:

• Directly own a foreign disregarded entity as its tax owner
• Operate a foreign branch directly or through disregarded entities/partnerships
• File Form 5471 for a controlled foreign corporation that owns an FDE or operates an FB (Category 5 filers)
• File Form 8865 for a controlled foreign partnership that owns an FDE or operates an FB (Category 1 and 2 filers)
• Are a U.S. partnership that is the tax owner of an FDE or operates an FB
• Are a U.S. corporation that is a partner in a U.S. partnership required to file Form 8858 (must report your share of certain items)

Multiple Filer Exception: If several people have filing obligations for the same entity, one person can file on behalf of the others, provided all parties agree to this arrangement.

2020-Specific COVID-19 Relief

Due to the COVID-19 emergency, Revenue Procedure 2020-30 provided relief from certain filing requirements. Some temporary activities that would normally create a foreign branch "separate unit" for dual consolidated loss purposes might not trigger Form 8858 filing requirements. Check the IRS website for details if this applies to you IRS.gov.

Functional Currency Reporting

For 2020, you must use the three-letter ISO 4217 currency codes (like "USD" for U.S. dollars, "EUR" for euros, "JPY" for Japanese yen) when indicating functional currencies on lines 1i, 2e, and 4d.

Exchange Rate Convention

All exchange rates must be reported using a "divide-by" convention rounded to at least four decimal places. This means reporting how many units of foreign currency equal one U.S. dollar (e.g., 118.5050 Japanese yen = 1 USD), not the reverse.

Electronic Filing

If you electronically file your Form 1120, 1065, 5471, or 8865, you must attach Form 8858 electronically. If filing Form 1040, 1040-SR, or 1041 electronically, attach Form 8858 using Form 8453.

Dormant Entity Simplification

A simplified summary filing procedure exists for "dormant" FDEs—entities that would qualify as dormant CFCs if they were corporations. You only need to complete limited identifying information IRS.gov.

Step-by-Step (High Level)

Step 1: Gather Your Information

Collect all necessary documentation:

• Entity formation documents and EIN (Employer Identification Number) if applicable
• Complete financial statements in the entity's functional currency
• Exchange rates for the tax year (average rate for income items, year-end rate for balance sheet)
• Records of all transactions between the entity and you or other related parties
• Organizational charts showing ownership structure

Step 2: Determine Your Filer Category

Identify which of the six filer categories applies to you (see Section 3). This determines which parts of the form you must complete:

• Categories 1 and 2 (direct tax owners): Complete entire form plus Schedule M
• Category 3 and 4 (CFC/CFP owners): Complete entire form plus Schedule M
• Category 5 and 6 (indirect owners via partnerships): Complete limited sections

Step 3: Complete Identifying Information

Fill out the top section of Form 8858:

• Your name and identifying number as the U.S. filer
• Entity's name, address, and identification number
• Check Initial or Final box if applicable
• Enter the annual accounting period being reported
• Provide the entity's principal business activity and location

Step 4: Complete the Applicable Schedules

Work through the schedules that apply to your situation:

• Schedule C: Summary income statement in functional currency and U.S. dollars
• Schedule C-1: Section 987 gain/loss information (if applicable for qualified business units)
• Schedule F: Balance sheet information
• Schedule G: Other information, including dual consolidated loss calculations (corporations only)
• Schedule H: Current earnings and profits calculation (for FDEs of CFCs)
• Schedule J: Accumulated earnings and profits
• Schedule M: Transactions with related parties (monetary flows between entities)

Step 5: Prepare the Organizational Chart

Create a clear diagram showing:

• All entities in the ownership chain between you and the FDE/FB
• Each entity's name, ownership percentage, tax classification, and country of organization
• All entities where the FDE/FB has a 10% or more interest

Step 6: Attach to Your Tax Return

• If you're the direct tax owner: Attach to your Form 1040, 1120, 1065, or 1041
• If filing through a CFC: Attach to your Form 5471
• If filing through a CFP: Attach to your Form 8865
  Keep copies of everything for your records.

Step 7: File by the Deadline

Submit the form by your tax return due date (including extensions). For most calendar-year taxpayers, this is April 15 (for individuals) or March 15/April 15 (for partnerships/corporations), plus any extension period IRS.gov.

Common Mistakes and How to Avoid Them

Mistake #1: Not Filing at All

Many taxpayers don't realize they need to file Form 8858. The penalties are severe—$10,000 per entity per year, even for an honest mistake.
How to avoid: Review your foreign business interests annually. If you have any ownership in a foreign entity or operate any foreign offices, consult a tax professional familiar with international reporting.

Mistake #2: Filing One Form for Multiple Entities

Each FDE and FB requires its own separate Form 8858.
How to avoid: Make a list of all foreign entities and branches, then prepare a separate form for each one. Don't try to combine information.

Mistake #3: Inconsistent Reference ID Numbers

The IRS requires you to use the same reference ID number for an entity year after year for tracking purposes. Changing numbers creates confusion.
How to avoid: Create a master tracking document with assigned reference IDs for all your foreign entities and use it consistently each year. If an entity gets an EIN, document both the EIN and the old reference ID.

Mistake #4: Incorrect Exchange Rate Reporting

Using the wrong convention (multiply-by instead of divide-by) or insufficient decimal places causes calculation errors.
How to avoid: Always express exchange rates as "foreign currency units per 1 USD" (e.g., 118.5050 JPY = 1 USD) and round to at least four decimal places. Use the IRS-specified average rate for income items and year-end rate for balance sheet items.

Mistake #5: Missing the Organizational Chart

This required attachment is frequently forgotten, leading to incomplete filings.
How to avoid: Make the org chart one of the first documents you prepare. Use clear labels and include all required information: names, percentages, tax classifications, and countries of organization.

Mistake #6: Forgetting Schedule M

Schedule M reports related-party transactions and is required for most filers, but it's often omitted.
How to avoid: Review all financial flows between the foreign entity and you, your other businesses, and family members. Report these transactions on Schedule M even if you think they're immaterial.

Mistake #7: Wrong Filer Information

Entering information for the wrong entity or using personal information instead of entity information (or vice versa).
How to avoid: The filer information at the top is YOURS (the U.S. person filing). The entity information in section 1 is for the FDE or FB. Double-check that you haven't mixed these up.

Mistake #8: Not Checking Initial or Final Boxes

These boxes trigger important IRS tracking when entities are created or terminated.
How to avoid: Review whether this is the first or last year you'll file for this entity. If you bought, formed, sold, or closed an entity during the year, check the appropriate box.

Mistake #9: Using Abbreviated Country Names

Unless filing electronically with proper country codes, you must spell out full country names.
How to avoid: Write "United Kingdom" not "UK," "United Arab Emirates" not "UAE," etc. For electronic filing, use the IRS country codes from IRS.gov/CountryCodes.

Mistake #10: Reporting Adjustments in the Wrong Year

Foreign tax adjustments should generally be reported in the year to which they relate, not when you discover them.
How to avoid: When you receive a foreign tax refund or assessment for a prior year, amend that prior year's Form 8858 rather than including it in the current year (unless the adjustment is de minimis) IRS.gov.

What Happens After You File

Normal Processing

After you file Form 8858 with your tax return, the IRS processes it as part of your overall return. Unlike your main return, you typically won't receive a separate acknowledgment that the IRS received your Form 8858. The form becomes part of your tax filing record and is available for IRS review.

IRS May Request Additional Information

The IRS can request clarification or additional documentation about your Form 8858. Common requests include:

• Detailed transaction records for amounts reported on Schedule M
• Copies of foreign financial statements
• Documentation of ownership structures
• Proof of tax payments or exchange rates used

If you receive such a request, respond promptly and completely. Keep all supporting documentation for at least seven years after filing.

If You Made a Mistake

If you discover an error after filing:

• File an amended return as soon as you discover the mistake
• Attach a corrected Form 8858 to your Form 1040-X or amended business return
• Include an explanation of what was incorrect and why
  The sooner you correct errors voluntarily, the better your position if penalties are assessed.

Penalty Assessment

If you failed to file Form 8858 or filed it incorrectly:

• The IRS will mail you a notice of failure to file (typically CP notice or Letter 1112)
• You have 90 days from the notice date to comply before additional penalties begin
  Respond immediately to any IRS correspondence about Form 8858.

Foreign Tax Credit Impact

Your Form 8858 information affects your ability to claim foreign tax credits. Failure to file or incomplete filing results in a 10% reduction of available foreign tax credits, with additional 5% reductions for continued non-compliance.

Coordination with Other Returns

Information from Form 8858 feeds into other parts of your tax return:

• Income from the FDE or FB appears on your Schedule C, Form 1120, or other income forms
• Foreign tax credits claimed on Form 1116 must match Form 8858 information
• Form 5471 or 8865 schedules incorporate Form 8858 data

Long-Term Record Keeping

Maintain complete files for each Form 8858 you file, including:

• All worksheets and supporting calculations
• Foreign financial statements (originals and translations)
• Exchange rate documentation
• Organizational charts and ownership documents
• Transaction records for Schedule M
  These records may be needed for amended returns, IRS inquiries, or future filings IRS.gov.

FAQs

Q1: What's the difference between a foreign disregarded entity and a foreign branch?

A foreign disregarded entity (FDE) is a separate legal entity under foreign law (like an LLC or limited company) but is treated as transparent (not separate from its owner) for U.S. tax purposes. A foreign branch (FB) is an extension of your U.S. business operating abroad without being a separate legal entity—like a division or office. Both require Form 8858 because both result in foreign business income that flows directly to you for U.S. tax purposes.

Q2: I'm a U.S. citizen who owns a single-member LLC in Canada. Do I need Form 8858?

Most likely, yes. A single-member foreign LLC is typically a disregarded entity for U.S. tax purposes, making it an FDE. As the tax owner, you must file Form 8858 annually. You'll also report the LLC's income on Schedule C of your Form 1040 and may need to file other international reporting forms depending on the account balances.

Q3: What are the penalties for not filing Form 8858, and can they be waived?

The base penalty is $10,000 per entity per year. If you don't respond within 90 days after the IRS sends a failure notice, an additional $10,000 per month (or part thereof) applies, up to $50,000 maximum. Additionally, you'll lose 10% of your foreign tax credits, with further 5% reductions every three months of continued non-compliance. Criminal penalties under sections 7203, 7206, and 7207 can apply in egregious cases.

Penalties can potentially be reduced or waived if you can demonstrate "reasonable cause" for the failure—such as relying on incorrect professional advice, serious illness, or other circumstances beyond your control. However, ignorance of the requirement is generally not considered reasonable cause IRS.gov.

Q4: Can I use software to prepare Form 8858, or do I need a professional?

Most consumer tax software doesn't support Form 8858 preparation. Professional-level software does include it, but these programs have steep learning curves.

Given the complexity and severe penalties, most taxpayers benefit from hiring a CPA or tax attorney with international tax experience, especially for the first few years. Once you understand your specific situation, you might handle routine years yourself, but professional review is wise when circumstances change.

Q5: I had a dormant foreign entity that did nothing all year. Do I still need to file?

Yes, but there's a simplified procedure for dormant entities. According to IRS Announcement 2004-4, you can file a summary Form 8858 with just the identifying information, skipping most schedules. Label the form "Filed Pursuant to Announcement 2004-4 for Dormant FDE" and include the entity name, address, and annual accounting period. This applies only to entities that would be dormant CFCs if they were corporations—meaning minimal activity, income, and assets IRS.gov.

Q6: What if I co-own an FDE with my spouse or business partner?

Each owner with filing requirements must file their own Form 8858, unless you qualify for the multiple filer exception. Under this exception, one person can file on behalf of others who have identical reporting obligations, but all parties must agree to this arrangement. Document this agreement in writing. Each partner or spouse must still maintain their own records and remains liable if the designated filer doesn't follow through IRS.gov.

Q7: How do I handle currency translation if the foreign entity's currency fluctuates significantly during the year?

For income statement items (Schedule C), use the average exchange rate for the year as determined under section 989(b). For balance sheet items (Schedule F), use the exchange rate as of the last day of the tax year. The IRS requires the "divide-by" convention: express rates as foreign currency units per 1 USD (e.g., 1.20 EUR = 1 USD), rounded to at least four decimal places.

If the foreign country has hyperinflation (generally 100% cumulative inflation over three years), special rules under section 985 may require you to use the U.S. dollar as the functional currency and apply DASTM (dollar approximate separate transactions method). This is complex and definitely requires professional help IRS.gov.

Additional Resources

For the most up-to-date information and forms, visit:

• IRS Form 8858 page: IRS.gov/Form8858
• 2020 Form 8858 Instructions: IRS.gov/pub/irs-prior/i8858--2020.pdf
• IRS Country Codes: IRS.gov/CountryCodes
• Revenue Procedure 2020-30 (COVID-19 relief): IRS.gov/pub/irs-drop/rp-20-30.pdf

Always consult with a qualified tax professional for your specific situation, as international tax law is complex and mistakes can be costly.

Notes

This guide is based on IRS publications and instructions for the 2020 tax year. Tax laws change regularly, so verify current requirements at IRS.gov or with a tax professional.