Form 5471, 8858 or 8865: which form your foreign business files

Which form does my foreign business file: Form 5471, 8858, 8865 or none?

The form follows the business's US tax classification. Find the classification first, then test whether you meet that form's filing rules.

A one-owner private limited company abroad, such as a UK Ltd or a German GmbH, is usually a corporation for US tax by default, so Form 5471 is the form to check first.

Form 8858 can also come through a company or partnership. If you file Form 5471 as a Category 4 or 5 filer, or Form 8865 as a Category 1 or 2 filer, for a foreign company or partnership that owns a disregarded entity or runs a foreign branch, a Form 8858 for that entity or branch is attached to it; Category 5 and Category 2 filers complete only part of it (Form 8858 instructions).

Each form attaches to your income tax return and is due with it, including extensions. If you do not have to file an income tax return, Form 8865 is still filed on its own, by the date and at the place your return would have been due (Form 8865 instructions). A separate form is needed for each foreign entity or branch.

A case is not simple when the entity has two or more owners, family members hold shares, the company was formed years ago with no US filings, or an election would change its classification. An election is hard to undo, and a missed form keeps the tax year open (see penalties below).

Gather: formation documents and articles, the share or member register, local financial statements, any Form 8832 filed and the IRS reply, and a list of each owner, their share and their country of residence.

Form 5471 categories, family attribution and the controlled foreign corporation tests are covered in US owners of foreign companies.

How do I find my foreign company's US classification?

Check two things in order: whether the entity type is on the per se corporation list, and if not, what its default classification is.

Per se list. Regulation section 301.7701-2(b)(8) names entity types that are always corporations, country by country. Examples: United Kingdom public limited company, Germany Aktiengesellschaft, Japan kabushiki kaisha, Brazil sociedade anonima, Costa Rica sociedad anonima. A per se corporation cannot elect a different classification. The list names only the UK public limited company, so a UK private limited company is not on it.

Default rule. An entity not on the list is an "eligible entity". Under section 301.7701-3(b)(2), unless it elects otherwise, a foreign eligible entity is:

This is the opposite of the US rule for domestic LLCs: a one-owner foreign company whose owner has limited liability is a corporation by default, not disregarded. Limited liability is judged from the law the entity is organized under, and from its documents where that law lets them decide.

Election. An eligible entity can choose another classification on Form 8832. The effective date cannot be more than 75 days before filing or more than 12 months after. Every current owner signs, or one officer, manager or member authorized to make the election; for a retroactive date, anyone who was an owner between the effective date and the filing date also signs (section 301.7701-3(c)(2)). After an election changes the classification, another change generally waits 60 months. Changing an existing corporation to a disregarded entity is treated as a liquidation of the corporation under section 301.7701-3(g), which can be taxable. Electing the other way, from a disregarded entity or partnership to a corporation, is a deemed contribution of the business to a new foreign corporation: that year is a Form 5471 acquisition event, and the contribution can need Form 926 (section 6038B); see US owners of foreign companies.

The default applies from the day the classification first matters for US tax, for example the day a US person acquires an interest that requires Form 5471 (section 301.7701-3(d)).

Do I need Form 8858 for a foreign sole proprietorship as well as Schedule C?

Possibly. Income from a business you run abroad in your own name goes on Schedule C. Form 8858 is added if the activity is a foreign branch, which for this form includes a foreign qualified business unit (Form 8858 instructions).

A US person who operates a foreign branch at any time in the year is a Category 1 filer and completes the whole form, including Schedule M. An individual's activities are a qualified business unit when they are a trade or business and a separate set of books and records, meaning books of original entry and ledger accounts, is kept for them (regulation section 1.989(a)-1). Whether a given business qualifies depends on its facts, so gather how its books are kept before deciding no Form 8858 is due.

Self-employment tax on this income is covered in self-employment tax abroad.

When does a foreign partnership stake need Form 8865, and does my nonresident spouse's share count?

Form 8865 applies when you meet one of four categories. An "interest" means a share of capital, profits, or deductions or losses; reaching a threshold in any one of the three counts (Form 8865 instructions).

Ownership counts family and entity holdings under section 267(c). Family means spouse, siblings, ancestors and lineal descendants. A nonresident spouse's interest is attributed to you only if you also own an interest in the partnership directly or indirectly. If you own none, your nonresident spouse's share is not counted as yours.

When more than one person is a Category 1 filer, one may file for all, and the others attach a statement to their returns.

Do I file Form 5471 if I am only a director or officer, or the company has no shares?

An officer or director who owns no shares, directly or through family or entities, files only as a Category 2 filer: a US citizen or resident who is an officer or director when a US person acquires 10% of the stock, by value or voting power, or another 10% block (Form 5471 instructions). In a year with no such acquisition, the office alone does not trigger the form. An exception applies when, right after the acquisition, three or fewer US persons own 95% or more of the stock by value and the acquirer files as a Category 3 filer.

An entity without share capital is classified by the rules above, not by whether it issues shares. If it is a corporation for US tax, Form 5471 can apply. The instructions write the tests in terms of stock, so how members' interests are measured depends on the entity's documents; review them with an adviser.

Is it too late for a check-the-box election on my foreign company?

A late Form 8832 can still be accepted under Rev. Proc. 2009-41 if all four conditions hold:

1. The entity missed the classification it wanted only because Form 8832 was not filed on time.
2. Either the first return under the election is not yet due, or every required US return of the entity, or of each affected owner, was filed on time and consistently with the requested classification, with nothing inconsistent filed. A return filed within 6 months after its due date (excluding extensions) counts as on time.
3. There is reasonable cause for the late election.
4. No more than 3 years and 75 days has passed since the requested effective date.

The request is made on Form 8832, Part II, with a reasonable-cause statement. If the revenue procedure does not apply, the remaining route is a private letter ruling with a user fee (Form 8832 instructions).

Inside a streamlined filing: the catch-up returns are usually years late, so condition 2 is often not met, and nothing in Rev. Proc. 2009-41 relaxes it for catch-up filings. The IRS streamlined procedures page does not say how a late election is handled, so confirm before filing. A late election may then need a ruling, or the returns may have to follow the default classification. Settle this before preparing the forms, because the classification decides every form in the package. The procedure choice is covered in streamlined vs delinquent foreign reporting.

Is there a shorter filing for a dormant foreign company or branch?

Yes for Forms 5471 and 8858; the Form 8865 instructions have no dormant procedure.

The summary form is still a filing, due with your return for each year the filing requirement applies. Check the dormant definition before relying on it.

What do I file in the year I close, sell or dissolve the foreign business?

The final year still needs the form, marked as final, and the ownership change is reported.

Closing the company under local law does not settle its US tax result. A liquidation or sale can create gain on your own return.

What are the penalties for a missing Form 8858 or Form 8865, and does the tax year stay open?

The penalties are set per form and per year, and the tax year stays open until the information is filed.

The Form 8858 instructions word that penalty this way, and section 6038 defines its entities as foreign corporations and partnerships. These sources do not say how the dollar penalty applies to an individual's own branch or disregarded entity, so treat the risk as open until a preparer confirms it.

The year stays open. Under section 6501(c)(8), when information required under sections 6038, 6038B, 6046 or 6046A is missing, the time to assess tax for that return, event or period does not end until three years after the information is furnished. If the failure was due to reasonable cause, only the related items stay open.

How do I correct a form with the wrong ownership, or add one I left out?

Correct a filed Form 5471 or 8865 by filing a corrected form with an amended return, writing "Corrected" at the top and attaching a statement of the changes (Form 5471, Form 8865). The Form 8858 instructions have no separate correction paragraph; their foreign tax example files an amended Form 8858 for the earlier year and notes this may require an amended return.

A form you never filed is a delinquent information return. If you are not under IRS examination or investigation and the IRS has not contacted you about it, the IRS procedure is to attach it to an amended return, with a reasonable-cause statement if you claim one. Penalties may still be assessed, at first without considering that statement. Choosing this route or a streamlined filing is covered in catching up on missed foreign reporting.

Example

These examples are illustrative.

UK private limited company, one owner (pounds)

A US citizen in the UK owns all the shares of a private limited company that earns GBP 80,000. The per se list names only the UK public limited company, so the company is an eligible entity. Its one owner has limited liability, so it is a corporation by default. She controls it, so Form 5471 is due each year; which category boxes she checks, including in the year she formed it, is covered in US owners of foreign companies. Had the company made a timely Form 8832 election to be disregarded, she would file Form 8858 and report its income on Schedule C instead.

Sole trader in Brazil (Brazilian reais)

A US citizen freelances in Brazil as a registered sole trader with no separate legal entity, billing BRL 200,000 a year. The income goes on Schedule C. If the business keeps its own books and records in Brazil, it can be a foreign branch, and Form 8858 is filed as well. If it is only her invoicing with no separate books, the branch question needs a closer look before deciding no Form 8858 is due.

Two-owner company in Costa Rica (US dollars)

A US citizen owns 40% of a Costa Rican limited liability company; her nonresident husband owns 60%. The entity type is not on the per se list (only the sociedad anonima is), so if both members have limited liability it is a corporation by default. For the Form 5471 control test (section 6038(e)(2)), family attribution can count her husband's 60%, giving her control and an annual Form 5471. The separate controlled foreign corporation test does not count a nonresident spouse's shares (section 958(b)(1)); the details are in US owners of foreign companies. If the entity had elected partnership status, her husband's 60% is attributed to her because she owns a direct interest, giving her control and Form 8865 Category 1.

Different for you?

• You own several companies, or family members hold shares: the Form 5471 categories and attribution rules are in US owners of foreign companies; a classification or election decision affects every form above; see cross-border tax help.
• You became a US resident while already owning the company: with 10% or more, that year is itself a Form 5471 filing event; see US owners of foreign companies.
• You missed these forms for past years while living in the US: see catching up on missed foreign reporting.
• You are deciding between streamlined filing and late forms alone: see streamlined vs delinquent foreign reporting.
• You have not set up the business yet: compare structures in LLC or S corporation while living abroad.
• You live in Canada and own a Canadian corporation: see American owners of Canadian corporations.
• The company mainly holds investments: it may be a passive foreign investment company; see PFIC form filing and missed years.
• The company has bank accounts abroad: your signature or ownership can bring them onto your FBAR; see foreign account reporting.
• Ownership is shared, an election is late, or years are missing: get cross-border tax help before filing.