Page 3 of 12 Fileid: … ns/i8858/202312/a/xml/cycle04/source 7:11 - 15-Dec-2023
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
to both FDE 1 and FDE 2. Avery would be required to file the
Forms 8858 relating to FDE 1 and FDE 2 with the Form 8865
it files with respect to CFP.
Foreign Branch (FB)
An FB is defined in Regulations section 1.367(a)-6T(g). For
purposes of filing a Form 8858, an FB also includes a
qualified business unit (QBU) (as defined in Regulations
section 1.989(a)-1(b)(2)(ii)) that is foreign.
Example. Assume A, a domestic corporation, operates a
foreign branch, FB1, in country X and is the tax owner of a
foreign disregarded entity, FDE1, in country Y that also
operates a foreign branch, FB2, in country Z. In addition, A is
the sole owner of controlled foreign corporation that operates
a foreign branch, FB3, in country Z. FB1, FB2, and FB3
qualify as foreign branches under Regulations section
1.367(a)-6T(g).
A is the direct owner of the activities of FB1 and FDE1,
and an indirect owner of the activities of FB2, through its
ownership of FDE1.
A would be required to file separate Forms 8858 relating to
FB1, FDE1, and FB2, its indirect foreign branch through its
ownership of FDE1. Unless indicated otherwise on the Form
8858 or in the instructions, the Form 8858 filed relating to
FDE1 would include only items attributable to FDE1 and
therefore would not include any items attributable to FB2.
Similarly, unless indicated otherwise, the Form 8858 filed for
FB2 would include only items attributable to FB2 and not to
FDE1.
Controlled foreign corporation is the direct owner of the
activities of FB3. Also, controlled foreign corporation is the
tax owner with respect to the foreign branch activities of FB3.
A would be required to file the Form 8858 relating to FB3 with
the Form 5471 it files with respect to controlled foreign
corporation. The Form 5471 for controlled foreign corporation
would include any income or loss incurred by FB3.
Accounting books and records. The existence of a
separate set of books and records, or lack thereof, may affect
the determination of whether a trade or business activity
qualifies as an FB that is required to file Form 8858. For more
information, see Regulations sections 1.989(a)-1(d) and
1.367(a)-6T(g)(1).
Penalties
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 penalties.
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.
Other Reporting Requirements
Reporting Exchange Rates on Form 8858
When translating amounts from functional currency to U.S.
dollars, you must use the method specified in these
instructions. But, regardless of the specific method required,
all exchange rates must be reported using a “divide-by
convention” rounded to at least four places. That is, the
exchange rate must be reported in terms of the amount by
which the functional currency amount must be divided in
order to reflect an equivalent amount of U.S. dollars. As such,
the exchange rate must be reported as the units of foreign
currency that equal 1 U.S. dollar, rounded to at least four
places. Do not report the exchange rate as the number of
U.S. dollars that equal 1 unit of foreign currency.
Note. You must round the result to more than four places, if
failure to do so would materially distort the exchange rate or
the equivalent amount of U.S. dollars.
Example. During its annual accounting period, an FDE
owned by a U.S. person had current income of 30,255,400
Yen on Schedule H, line 6. The Schedule H, line 7,
instructions specify that the filer must translate these
amounts into U.S. dollars at the average exchange rate for
the tax year in accordance with the rules of section 989(b).
The average exchange rate is 105.7846 Japanese Yen to
1 U.S. dollar (0.00945317 U.S. dollars to 1 Japanese Yen).
Divide 30,255,400 Yen by 105.7846 to determine the U.S.
dollar amount to enter on line 7 of Schedule H. Enter
105.7846 on line 8.
Electronic Filing of Form 8858
If you file your income tax return electronically, see the
instructions for your income tax return for general information
about electronic filing.
Note. If you are filing Form 1120 or 1065 electronically, you
must attach Form 8858 electronically (as an attachment to
your electronically filed Form 1120, Form 1065, Form 5471,
or Form 8865). If you are filing Form 1040, Form 1040-SR, or
Form 1041 electronically (with or without a Form 5471 or
Form 8865), attach Form 8858 to the applicable Form 8453.
Computer-Generated Form 8858 and Schedules
A computer-generated Form 8858 and its schedules may be
filed if they conform to and do not deviate from the official
form and schedules. Generally, all computer-generated forms
must receive prior approval from the IRS and are subject to
an annual review.
Submit all requests for approval to the Substitute Forms
Program. Use the address in the current Pub. 1167, General
Rules and Specifications for Substitute Forms and Schedules
at
IRS.gov/Pub1167.
Instructions for Form 8858 (Rev. 12-2023)
3