TEI comments on proposed Form 8858.

• Position: Tax Executives Institute, information returns for foreign disregarded entities

March 2, 2004

On March 2, 2004, Tax Executives Institute sent the following comments to the Internal Revenue Service on proposed Form 8858, relating to foreign disregarded entities. The submission was prepared under the aegis of TEI's International Tax Committee, whose chair is Bruce R. Maggin of IBM Corporation.

On December 30, 2003, the Internal Revenue Service issued Announcement 2004-4, requesting comments on proposed Form 8858, Information Return of U.S. Persons with respect to Foreign Disregarded Entities. The proposed form was published in the January 26, 2004, issue of the Internal Revenue Bulletin (2004-4 I.R.B.)

Background

Tax Executives Institute is the preeminent association of business tax executives in North America. Our more than 5,400 members represent 2,800 of the leading corporations in the United States, Canada, and Europe. TEI represents a cross-section of the business community, and is dedicated to developing and effectively implementing sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works--one that is administrable and with which taxpayers can comply in a cost-efficient manner.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by proposed Form 8858, Information Return of U.S. Persons with respect to Foreign Disregarded Entities.

Overview

Proposed Form 8858 was developed to enable the Internal Revenue Service to administer the tax laws more efficiently with respect to U.S. persons that own foreign disregarded entities (FDEs). A separate form will be required for each FDE directly owned by the U.S. taxpayer or a controlled foreign corporation (CFC) or controlled foreign partnership (CFP). Form 8858 must be filed in respect of annual accounting periods of tax owners of FDEs beginning on or after January 1, 2004

TEI believes that the new form significantly erodes the simplification of the U.S. tax system provided by the check-the-box (CTB) rules. See Treas. Reg. [subsection] 301.7701-2 & -3. The CTB regulations were a bold approach to resolving the manner in which business entities are classified for tax purposes. Prior to their issuance in December 1996, taxpayers and the government expended far too many resources addressing entity classification issues. The rules significantly simplified the tax law and reduced the administrative burden on taxpayers and the government alike. Regrettably, with the introduction of Form 8858, much of that simplification threatens to be lost because of the need to accumulate sufficient information to complete this form.

The CTB rules have...