COVID-19 Disruptions Prompt IRS to Offer Relief Related to Dual Consolidated Losses and Form 8858

In response to international travel and business disruptions caused by COVID-19, the IRS recently issued Rev. Proc. 2020-30. It provides that certain ‘temporary activities’ will not be considered for the purposes of determining whether a domestic corporation has a foreign branch separate unit for Dual Consolidated Loss (DCL) purposes, or whether a U.S. person is required to file Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities and Foreign Branches.

The term ‘temporary activities’ means activities one or more individuals conducted in a foreign country during any single consecutive period of up to 60 calendar days selected by the taxpayer within calendar year 2020, to the extent that the individual(s) were temporarily in the foreign country during that period and the activities would not have been conducted in the foreign country but for COVID-19 emergency travel disruptions (transportation disruptions, shelter-in-place orders, quarantines, border closures, and recommendations to implement social distancing and limit exposure to public spaces).

The temporary activities will not give rise to a foreign branch separate unit under Section 1503(d).  For Form 8858, temporary activities will not give rise to a foreign branch (that is, either a foreign branch as defined in §1.367(a)-6T(g)(1) or a qualified business unit as defined in §1.989(a)-1(b)(2)(ii)).  Thus, temporary activities will not give rise to an obligation of a U.S. person to file a Form 8858, including an obligation to attach the 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.

Taxpayers claiming such relief should retain contemporaneous documentation to establish that the activities are temporary and should provide such documentation to the IRS upon request.

No inference should be drawn as to whether activities conducted by one or more individuals in a foreign country during calendar year 2020 that would be temporary activities without regard to the 60-day limit described above give rise to a foreign branch or a qualified business unit.

For information about Dual Consolidated Losses, Form 8858 and other international tax laws, contact us. We are here to help.

Authored by Meghana Bapat, CPA. 

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