COVID-19 relief provided for DCLs and Form 8858

Tax Hot Topics newsletter The IRS issued Rev. Proc. 2020-30 to provide that certain activities are not taken into account for purposes of the dual consolidated loss (DCL) rules under Section 1503(d), and the requirement to file a Form 8858, “Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs).” The guidance is meant to provide relief when individuals conduct temporary activities in a country other than the U.S. or in a territory of the U.S., that, but for COVID-19, would not otherwise have been conducted there.

The DCL rules generally limit a domestic corporation’s ability to use DCL, including a net loss attributable to a “foreign branch separate unit.” A foreign branch separate unit is a business operation outside the U.S. that, if carried on by a U.S. person, would constitute a foreign branch. Form 8858 is used by U.S. persons that directly or indirectly operate a foreign branch to satisfy IRS reporting requirements.

Rev. Proc. 2020-30 provides that “temporary activities” will not be considered for purposes of determining whether a domestic corporation has a foreign branch separate unit for DCL purposes, or whether a U.S. person is required to file a Form 8858. The guidance also stipulates that for purposes of Form 8858, certain temporary activities will not give rise to a foreign branch, and as a result, may negate the obligation of a U.S. person to file a Form 8858 (including an obligation to attach Form 8858 to a Form 5471 with respect to a controlled foreign corporation or to a Form 8865 with respect to a controlled foreign partnership).
Rev. Proc. 2020-30 defines the term “temporary activities” to mean activities of a taxpayer conducted by one or more individuals in a foreign country during a single consecutive period of up to 60 days selected by the taxpayer within 2020, to the extent the individual or individuals were temporarily present in the foreign country during that period and the activities would not have been undertaken in such country but for “COVID-19 emergency travel disruptions.”

Taxpayers utilizing the relief provided in Rev. Proc. 2020-30 should be prepared to provide to the IRS (upon request) contemporaneous documentation establishing that the activities were temporary activities, and to establish the up-to-60-day period selected by the taxpayer.

This relief is the latest in a string of guidance providing relief to address potential tax challenges and uncertainty facing internationally mobile employees impacted by COVID-19 and their employers. See Grant Thornton’s coverage of similar guidance addressing cross-border individual tax issues here and U.S. trade or business/permanent establishment issues here.

David Sites
Washington National Tax Office
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David Zaiken
Managing Director
Washington National Tax Office
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Cory Perry
Senior Manager
Washington National Tax Office
T +1 202 521 1509

Yasmin Dirks
Washington National Tax Office
T +1 202 521 1506

Mike Del Medico
Washington National Tax Office
T +1 202 521 1522

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