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Expat Taxes: Who Files Form 8858?

Article Summary:

One of the more important requirements of tax compliance is reporting worldwide income from businesses created outside of the U.S., which is reported on Form 8858. Do you need to file one?

Photo Credit: Green Back Tax Service

Original Article Text From Greenback Tax Service:

US Expat Tax Compliance: Foreign Disregarded Entities

US tax officials are becoming more vigilant about ensuring all taxpayers are meeting their US expat tax filing requirements. This is especially true for US expats living overseas, who are still required to file US tax returns no matter where they currently reside. One of the more important requirements of tax compliance is reporting worldwide income from businesses created outside of the US, which is reported on Form 8858.

To ensure tax compliance, US tax officials are using a disclosure or “information” return. Many disclosure returns give the IRS information about transactions that occur in countries outside the US. These returns allow the IRS to compare the information on the disclosure return with an expat’s individual tax return to make sure all required transactions are being reported.

Who Must File Form 8858

Form 8858, Information Return of US Persons With Respect to Foreign Disregarded Entities, is a disclosure return that gives the IRS information about foreign disregarded entities (FDEs). These are business entities created outside of the US and not taxed as separate entities by the US.

In other words, they are disregarded as an entity separate from their owners for US tax purposes. A foreign business entity that is comparable to a US LLC can be treated as a disregarded entity under US tax rules. Keep in mind that Form 8858 is required by entities treated as FDEs under US tax rules; whether the entity is treated as a disregarded entity under the rules of the country where it was formed does not have any effect on Form 8858 filing requirements.

If a foreign entity (such as an entity comparable to an LLC) is not a partnership and does not elect to be treated as a corporation for US tax purposes, then it is treated by the US as a foreign disregarded entity, and its owner has to file Form 8858 with his or her personal income tax return every year.

You may also have to file Form 8858 if you own all or part of a controlled foreign corporation or a controlled foreign partnership that owns an FDE.

The information needed to complete Form 8858 includes identifying information for yourself and the FDE. Most 8858 filers also have to report balance sheet and income statement information in the functional currency of the foreign disregarded entity. If you own an FDE that is no longer active, Form 8858 still has to be attached to your tax return each year. However, a summary Form 8858 prepared under specific rules for a dormant FDE may suffice. The summary Form 8858 includes only the identifying information of the entity.

Form 8858 is a reminder to expats that very specific US tax reporting forms exist and are required of some expats. If you own a business entity that is not taxed separately by the US, then you may own a foreign disregarded entity. You should make sure that your US tax return includes Form 8858 for any foreign disregarded entity that you own.

Link to Original Article:

From Greenback Tax Service

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