Form 8858 – Foreign Entity | IRS Form 8858
Form 8858 is one of the lesser known international IRS reporting forms, but a very important form nonetheless. The IRS 8858 form is used to report Foreign Disregarded Entities (FDE) and Branches.
- 1 Form 8588
- 2 Foreign Disregard Entity (What is it?)
- 3 Single Member LLC
- 4 Foreign Disregarded Entities
- 5 Who has to File Form 8858?
- 6 When and Where To File Form 8858
- 7 Form 8858 Penalties (Civil)
- 8 Criminal Form 8858 Penalties
- 9 Out of IRS Form 8858 Offshore Compliance?
- 10 Golding & Golding: About Our International Tax Law Firm
In the United States, when a person has a single member LLC, they typically do not have to do anything to obtain “Disregarded Entity” status.
When there is a Foreign Disregarded Entity, the rules are different. This is especially true, because there are certain per se corporations in which a person is not authorized under U.S. tax law to disregard the entity.
Foreign Disregard Entity (What is it?)
What is a disregarded entity?
A disregarded entity is an entity such as an LLC, that is disregarded for U.S. Tax purposes but not for state Legal purposes.
Here’s a common example: David purchases a rental real estate property in California. He wants to protect himself in case there is any damage or injury on the property that could result in him being sued.
Therefore, David forms an LLC and places the rental property into the LLC.
If done properly, it will be much more difficult for a renter to sue David. Rather, the tenant would sue the LLC — which would be limited in scope, as opposed to suing David personally — which could lead to all of his personal assets being placed at risk.
Single Member LLC
In the U.S., if it is a single member LLC, or a “spouses LLC” in a Community property state – usually nothing more needs to be filed with the IRS to obtain disregarded entity status.
Conversely, if a single member LLC wants to be treated as a corporation or partnership, the owners would usually have to take proactive steps to get there.
Foreign Disregarded Entities
When a person has a foreign disregarded entity, they typically have to file a form 8858.
Who has to File Form 8858?
As provided by the IRS:
U.S. persons that are tax owners of FDEs or operate an FB at any time during the U.S. person’s tax year or annual accounting period. Complete the entire Form 8858, including the separate Schedule M (Form 8858), Transactions Between Foreign Disregarded Entity (FDE) or Foreign Branch (FB) and the Filer or Other Related Entities.
- U.S. persons that directly (or indirectly through a tier of FDEs or partnerships) are tax owners of FDEs or operates an FB. Complete the entire Form 8858, including the separate Schedule M (Form 8858).
- Certain U.S. persons that are required to file Form 5471 with respect to a CFC that is a tax owner of an FDE or operates an FB at any time during the CFC’s annual accounting period. Category 4 filers of Form 5471. Complete the entire Form 8858 and the separate Schedule M (Form 8858). Category 5 filers of Form 5471. Complete only the identifying information on page 1 of Form 8858 (for example, everything before Schedule C) and Schedules G, H, and J.
- Certain U.S. persons that are required to file Form 8865 with respect to a CFP that is a tax owner of an FDE or operates an FB at any time during the CFP’s annual accounting period. Category 1 filers of Form 8865. Complete the entire Form 8858 and the separate Schedule M (Form 8858). Category 2 filers of Form 8865. Complete only the identifying information on page 1 of Form 8858 (for example, everything above Schedule C) and Schedules G, H, J, and the separate Schedule M (Form 8858).
You are not required to complete Form 8858 if there is a Category 1 filer of Form 8865 that completes the entire Form 8858 and separate Schedule M (Form 8858) with respect to the FDE or FB. Note.
Complete a separate Form 8858 and all applicable schedules for each FDE or FB
When and Where To File Form 8858
As provided by the IRS:
Form 8858 is due when your income tax return or information return is due, including extensions.
If you are the tax owner of the FDE or operate an FB, attach Form 8858 and the separate Schedule M (Form 8858), if required, to your income tax return or information return.
If you are not the tax owner of the FDE or indirect FB, attach Form 8858 to any Form 5471 or Form 8865 you are filing with respect to the CFC or the CFP that is the tax owner of the FDE or operates the FB.
Form 8858 Penalties (Civil)
As provided by the IRS:
Failure to file information required by section 6038(a) (Form 8858 and Schedule M (Form 8858)).
A $10,000 penalty is imposed for each annual accounting period of each CFC or CFP for failure to furnish the required information within the time prescribed.
If the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per CFC or CFP) is charged for each 30-day period, or fraction thereof, during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000 for each failure.
Any person who fails to file or report all of the information required within the time prescribed will be subject to a reduction of 10% of the foreign taxes available for credit under sections 901 and 960. If the failure continues 90 days or more after the date the IRS mails notice of the failure to the U.S. person, an additional 5% reduction is made for each 3-month period, or fraction thereof, during which the failure continues after the 90-day period has expired. See section 6038(c)(2) for limits on the amount of this penalty.
Criminal Form 8858 Penalties
As provided by the IRS:
Criminal penalties under sections 7203, 7206, and 7207 may apply for failure to file the information required by section 6038. Note. Any person required to file Form 8858 and Schedule M (Form 8858) who agrees to have another person file the form and schedules for him or her may be subject to the above penalties if the other person does not file a correct and proper form and schedule.
Out of IRS Form 8858 Offshore Compliance?
If you are out of IRS Offshore Compliance, there are various IRS Amnesty Programs you can use to safely get into compliance.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
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