Form 8858 is a United States tax form that qualifying U.S. persons submit to the Internal Revenue Service (IRS) each year. It is not dissimilar to other reporting requirements for US citizens, such as those related to overseas financial accounts held by Americans.
In this article, we will explain the purpose of Form 8858, discuss who qualifies, and answer common questions on the topic. This article is part of our free series on international banking for U.S. citizens, covering the available banks, ongoing reporting obligations, and which countries U.S. citizens can realistically consider.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Form 8858
- Who Must File a Form 8858?
- How to File Tax Form 8858 With the IRS
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
Form 8858
Form 8858 is an information tax return submitted each year to the Internal Revenue Service (IRS) by qualifying U.S. persons with respect to foreign disregarded entities. Qualifying persons include any U.S. person who owns a foreign disregarded entity (FDE), foreign branch (FB), or foreign corporation.
Form 8858 filing includes identifying information about the foreign entity, its activities, ownership structure, and transaction activity between the entity, the U.S. person, and other related parties.
This form is submitted each year by the reporting U.S. person, and attached to their personal tax return. Failure to file can result in severe penalties. Importantly, Form 8858 should not be mistaken for the reporting obligations of foreign financial institutions related to foreign bank accounts.
It’s also important to note that the type of foreign entity can influence the level of reporting required. For example, foreign disregarded entities and foreign branches are not considered separate from the owner for tax purposes. In other words, they are similar to US entities with the same tax attributes, because they effectively operate as pass-through entities.
On the other hand, foreign corporations are separate from their owners for tax purposes, and they will usually file separate returns.
Of course, if you are trying to clarify your filing obligations, you should speak with a qualified tax professional to ensure you meet the requirements related to your situation.
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Who Must File a Form 8858?
Each year, U.S. persons file Form 8858 if they have qualifying interests in FDEs, FBs, or foreign corporations.
As mentioned above, the treatment of these three entity types varies, depending on whether an entity is a (A) foreign disregarded entity or foreign branch or (B) a foreign corporation.
How to File Tax Form 8858 With the IRS
To file Form 8858 with the IRS, qualifying U.S. persons who own a foreign entity must complete and submit the form along with Schedule M, and an organizational chart, along with their personal income tax filing each year.
Form 8858
Form 8858 includes identifying information about the foreign entity, its activities, and transaction activity between the entity, the U.S. person, and other related parties.
Form 8858 Schedule M
Additionally, Schedule M detailing relevant transaction activities is also a requirement. In particular, Schedule M details transactions between the entity and the U.S. person filing and any other related entities.
Form 8858 Organizational Chart
Individuals will also provide an organizational chart showing the ownership of the entity and the U.S. tax person. Additionally, they require you to share any interests where the entity owns more than 10% (directly or indirectly). Name, percentage ownership, tax classification, and country or organization for each entity in the chain must be provided.
Filing Form 8858
After completing the three separate requirements, the U.S. person will submit them along with their federal tax return to the IRS.
Frequently Asked Questions
Below are a few of the most common questions we receive on this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
Who Must File a Form 8858?
U.S. persons with qualifying foreign interests file Form 8858. More specifically, these qualifying interests include interests in FDEs, FBs, or foreign corporations. Importantly, the filing is an annual obligation for anyone qualifying during the reporting year.
What Is the Purpose of Form 8858?
The purpose of Form 8858 is to collect information on U.S. taxpayers, their overseas ownership interests, and transaction activities. In doing so, the IRS is attempting to curb possible tax evasion. Of course, this may result in penalties for U.S. persons who are not meeting their tax obligations.
What Is the Penalty for Filing Form 8858?
There is no penalty for correctly filing Form 8858. However, not correctly filing the form and the accompanying Schedule M, and providing an organizational chart for the related entities, can result in severe penalties for the responsible U.S. person.
What Is a Foreign Disregarded Entity?
A foreign disregarded entity is any foreign entity a U.S. person owns that is disregarded for tax purposes by the IRS. Like disregarded entities in the United States, any income received by the foreign disregarded entity is attributed directly to the owner of the entity.
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