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New form 8858 filing requirements for foreign rentals and businesses

Effective beginning in 2018, the IRS expanded the scope of those U.S. persons required to file a Form 8858 with their tax return.  In addition to reporting foreign disregarded entities (FDEs), foreign branches (FBs) must now be reported on the 8858.

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What is considered a foreign branch for purposes of filing the Form 8858?

The Form 8858 instructions define a FB as a qualified business unit (QBU), or activity that rises to the level of a trade or business and has a separate set of books and records.  A trade or business is determined by looking at the facts and circumstances.

Foreign Rental Properties

The activity from a foreign rental property may be considered a QBU for 8858 purposes. This means even if you just rent a condo somewhere outside of the U.S., you may need to report that activity on the 8858.

Other Foreign Business Activities

If you are a self-employed U.S. citizen or greencard holder conducting business in a foreign country, that activity will likely give rise to a Form 8858 filing requirement. The regulations state that any activity creating a permanent establishment under tax treaty will be considered a trade or business or QBU.

These rules apply to any U.S. person with a foreign DRE or FB, including individuals who are citizens or residents of the U.S., domestic partnerships, domestic corporations, domestic estates, or domestic trusts.

Penalties

Heavy penalties may be assessed for failure to file or for late filing of Form 8858.  Please consult a qualified tax advisor for assistance with Form 8858.  This information is general and nature and should not be relied on.

Jill A. Helm, CPA

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