What the Form Is For

Form 8858 is an information return that U.S. taxpayers must file to report ownership or operation of certain foreign business entities. Specifically, this form reports Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs) to satisfy IRS reporting requirements under Internal Revenue Code sections 6011, 6012, 6031, and 6038.

Foreign Disregarded Entities (FDEs)

An FDE is a foreign business entity that, while legally separate in its home country, is “disregarded” for U.S. tax purposes—meaning the IRS treats it as part of its owner rather than as a separate taxable entity. Think of it like a branch of your business operating overseas.

Foreign Branches (FBs)

A Foreign Branch is a division or office of a U.S. business operating in another country, or a qualified business unit (QBU) with its own set of books and records.

Purpose and Information Reported

Form 8858 captures detailed financial information about these foreign operations, including:

• Income statements
• Balance sheets
• Transactions between the foreign entity and related parties

This allows the IRS to monitor international business activities and ensure accurate tax reporting.

When You’d Use It (Including Late and Amended Filings)

Regular Filing Timeline

Form 8858 for the 2017 tax year was due with your regular income tax or information return, including extensions:

• Individuals: April 15, 2018 (or October 15 with extension)
• Corporations: Due with corporate tax return (Form 1120)
• Partnerships: Due with Form 1065

You must attach Form 8858 to your main tax return.

Late Filing

If you missed the original deadline, file as soon as possible to reduce penalties. The obligation remains even years later—late filing does not erase the requirement.

Amended Returns

If you filed your 2017 return but omitted Form 8858 or made errors:

• Individuals: File Form 1040X with the corrected or missing Form 8858
• Corporations/Partnerships: Follow entity-specific amended return rules
  Keep detailed documentation of what changed and why.

Key Rules for 2017

Who Must File

The following U.S. taxpayers had filing obligations:

Category 1 Filers

U.S. persons who directly owned an FDE or operated an FB during 2017.
They must complete the full Form 8858 and Schedule M for related-party transactions.

Category 2 Filers

U.S. persons who indirectly owned an FDE or FB through other disregarded entities or partnerships.
They must also complete the full form and Schedule M.

Category 3 Filers

U.S. persons required to file Form 5471 (for controlled foreign corporations) where the CFC owned an FDE or FB.
Completion requirements vary by filer category (4 or 5).

Category 4 Filers

U.S. persons required to file Form 8865 (for foreign partnerships) where the partnership owned an FDE or FB.

Important Definitions

• U.S. person: Citizens, resident aliens, domestic partnerships, corporations, and trusts
• Tax owner: The person treated as owning the entity for U.S. tax purposes
• Direct owner: The legal owner of the entity

Separate Forms Required

A separate Form 8858 must be filed for each FDE or FB.

Functional Currency

You must report in both:

• The entity’s functional currency (local)
• U.S. dollars

Use exchange rates reported as units of foreign currency per U.S. dollar, rounded to four decimal places.

Step-by-Step Filing Process (High Level)

Step 1: Determine Your Filing Obligation

Confirm whether you owned or operated an FDE or FB in 2017. The entity must be organized outside the U.S. and disregarded for U.S. tax purposes.

Step 2: Gather Financial Information

Collect complete financial data for the foreign entity’s 2017 period:

• Income statements
• Balance sheets
• Transactions with related parties
• Business activity descriptions

Prepare data in both local currency and U.S. dollars.

Step 3: Obtain or Assign Identification Numbers

Use an EIN for the entity, or if unavailable, create a reference ID number (up to 50 alphanumeric characters) and use it consistently in all future filings.

Step 4: Complete Form 8858 and Schedules

Fill in identifying information for the filer, entity, and tax owner.
Complete:

• Schedule C: Income statement
• Schedule F: Balance sheet
  Include additional schedules for special circumstances (e.g., section 987 currency gains/losses, dual consolidated losses).

Step 5: Complete Schedule M

Report all related-party transactions, such as:

• Sales and purchases
• Interest paid/received
• Rents, royalties, and other financial transfers

Even if there are no transactions, you must complete Schedule M and indicate “zero transactions.”

Step 6: Prepare Supporting Documentation

Attach an organizational chart showing:

• Ownership chain from U.S. owner to foreign entity
• Ownership percentages
• Tax classifications and countries of organization

Step 7: Attach to Your Tax Return

Attach Form 8858 and schedules to your Form 1040, 1120, 1065, or other applicable return.
If filing electronically, follow IRS e-file procedures for international forms.

Common Mistakes and How to Avoid Them

Mistake 1: Not Realizing You Need to File

Even single-member foreign LLCs may require Form 8858.
Solution: Consult an international tax CPA before forming or operating any foreign entity.

Mistake 2: Missing Schedule M

Some filers forget Schedule M.
Solution: Always include it—even if no transactions occurred.

Mistake 3: Incorrect Currency Translation

Using the wrong exchange rate convention is common.
Solution: Report foreign currency per U.S. dollar (e.g., 118.5050 JPY = 1 USD).

Mistake 4: Inconsistent Reference ID Numbers

Changing reference IDs year to year confuses IRS records.
Solution: Maintain a secure list of all assigned IDs and use them consistently.

Mistake 5: Filing Only One Form for Multiple Entities

Each FDE and FB requires its own Form 8858.
Solution: Maintain a checklist of entities and file one form per entity.

Mistake 6: Inadequate Organizational Chart

Incomplete diagrams are a frequent issue.
Solution: Clearly display every entity, ownership percentage, and country.

Mistake 7: Dormant Entity Neglect

Even inactive entities generally require filing.
Solution: File under the dormant entity procedure (Announcement 2004-4) if applicable.

What Happens After You File

Initial Processing

Form 8858 is processed as part of your tax return. The IRS cross-references it with other international filings like Forms 5471 and 8865.

No Separate Acknowledgment

You won’t receive a confirmation for Form 8858; its acceptance is tied to your main tax return’s acceptance.

Compliance Monitoring

The IRS compares Form 8858 data across years and taxpayers to detect inconsistencies or potential noncompliance.

Potential for Examination

While filing doesn’t automatically trigger an audit, international returns face higher scrutiny.
Keep records of:

• Financial statements
• Entity documents
• Related-party transactions
  for at least six years.

Impact on Future Filings

The 2017 filing establishes a reporting baseline. Maintain consistent data to avoid discrepancies in later years.

Statute of Limitations

Normally, the IRS has three years to assess additional tax.
However, if you fail to file Form 8858 or file it incompletely, the statute may remain open indefinitely until compliance is achieved.

Frequently Asked Questions

Q1: What penalties apply if I didn’t file Form 8858 for 2017?

• Base penalty: $10,000 per form per year
• Additional penalties: $10,000 per 30-day period after 90 days from IRS notice
• Foreign tax credit reduction: 10% reduction, with an extra 5% every 3 months thereafter
  Penalties apply per entity per year.

Q2: Can I still file my 2017 Form 8858 even though the deadline has passed?

Yes. File immediately—late is better than never.
Attach a reasonable cause statement explaining your delay to request penalty relief.

Q3: Do I need to file Form 8858 if my foreign entity had no income or activity?

Yes, unless you qualify for the dormant FDE procedure (Announcement 2004-4).
File identifying information only and label as filed under the dormant rule.

Q4: How do I know if my foreign entity is disregarded for U.S. tax purposes?

If it has a single owner and didn’t elect to be treated as a corporation, it’s typically disregarded.
Examples: single-member foreign LLCs, branches, or entities checked on Form 8832.

Q5: What’s the difference between Form 8858 and Form 5471?

• Form 5471: Reports foreign corporations
• Form 8858: Reports disregarded entities and branches
  You may need to file both if, for example, your foreign corporation owns an FDE.

Q6: Can multiple owners coordinate to have one person file Form 8858?

In limited cases, yes—if all owners have identical filing obligations.
However, each filer remains legally responsible for compliance.

Q7: What if I formed my foreign entity after 2017 but never filed required Forms 8858?

File delinquent Forms 8858 for all missing years.
You may qualify for Delinquent International Information Return Submission Procedures—consult an international tax professional for guidance.

Sources

All information in this summary is based on official IRS sources:

• Instructions for Form 8858 (December 2018 Revision)
• Applicable to the 2017 tax year
• IRS.gov publications and guidance