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adjustment amount and whether the

parent as the U.S. person filing Schedule

Schedule H

amount is a net addition or net

Use Schedule H to report the FDE’s

subtraction. The separate schedule

Column headings. There are 2 sets of

current earnings and profits (E&P) (if the

should also show two totals, the total net

column headings above lines 1 through

tax owner is a CFC) or taxable income (if

additions amount to be entered on line 2,

19. The first set of column headings is to

the tax owner is a U.S. person or a CFP).

and the total net subtractions amount to

be used in cases where the tax owner is a

Generally, enter the amounts on lines 1

be entered on line 3.

CFP. The second set of column headings

through 6 in functional currency.

Line 5. DASTM gain or (loss), reflecting

is to be used in cases where the tax

Special rules for DASTM. If the FDE

unrealized exchange gain or loss, should

owner is a CFC. If you are completing

uses DASTM, enter on line 1 the dollar

be entered on line 5 only for FDEs that

Schedule M for an FDE for which the tax

GAAP income or (loss) from line 8 of

use DASTM.

owner is a CFP, check the box for CFPs

Schedule C. Enter on lines 2 and 3 the

and complete lines 1 through 19 using the

Line 7. Enter the line 6 functional

adjustments made in figuring current E&P

headings in columns (a) through (e) of the

currency amount translated into U.S.

or taxable income for U.S. tax purposes.

CFP set of columns. If you are completing

dollars at the average exchange rate for

Report these amounts in U.S. dollars.

Schedule M for an FDE for which the tax

the FDE’s tax year. See section 989(b).

Enter on line 5 the DASTM gain or loss

owner is a CFC, check the box for CFCs

Report the exchange rate using the

figured under Regulations section

and complete lines 1 through 19 using the

“divide-by convention” specified under

1.985-3(d).

headings in columns (a) through (f) of the

Reporting Exchange Rates on Form 8858

Lines 2 and 3. Certain adjustments

CFC set of columns.

on page 2. If the FDE uses DASTM, enter

must be made to the FDE’s line 1 net

on line 7 the same amount entered on

Column (e). Use column (e) to report

book income or (loss) to determine its

line 6.

transactions between the FDE and any

current E&P or taxable income. The

U.S. person with a 10% or more direct

Blocked income. The E&P or taxable

adjustments may include those needed to

interest in the CFP or any 10% or more

income of the FDE, as reflected on

conform the foreign book income to U.S.

U.S. shareholder of any corporation

Schedule H, must not be reduced by all or

GAAP and to U.S. tax accounting

controlling the CFC. If you are a Category

any part of such E&P or taxable income

principles. If the FDE’s books are

1 filer of Form 8865, or a Category 4 filer

that could not have been distributed by

maintained in functional currency in

of Form 5471, do not report transactions

the FDE due to currency or other

accordance with U.S. GAAP, enter on line

between yourself and the FDE under

restrictions or limitations imposed under

1 the functional currency GAAP income or

column (e). Report the transactions only

the laws of any foreign country.

(loss) from line 8 of Schedule C, rather

under column (b).

than starting with foreign book income,

Schedule M

Line 6. Report on line 6 dividends

and show GAAP-to-tax adjustments on

received by the FDE that were not

Important: In translating the amounts

lines 2 and 3.

previously taxed under subpart F in the

from functional currency to U.S. dollars,

The adjustments may include the

current year or in any prior year.

use the average exchange rate for the

following:

FDE’s tax year. See section 989(b).

Lines 18 and 19. Report on lines 18 and

•

Capital gains and losses.

Report the exchange rate in the entry

19 the largest outstanding balances

•

Depreciation, amortization, and

space provided at the top of Schedule M

during the year of gross amounts

depletion.

using the “divide-by convention” specified

borrowed from, and gross amounts

•

Investment or incentive allowance.

under Reporting Exchange Rates on

loaned to, the related parties described in

•

Charges to statutory reserves.

Form 8858 on page 2.

columns (b) through (f). Do not enter

•

Inventory adjustments. Inventories

aggregate cash flows, year-end loan

Every U.S. person that is required to

must be taken into account according to

balances, average balances, or net

file Schedule M (see Who Must File on

the rules of sections 471 (incorporating

balances. Do not include open account

page 1) must file the schedule to report

the provisions of section 263A) and 472

balances resulting from sales and

the transactions that occurred during the

and the related regulations.

purchases reported under other items

FDE’s annual accounting period ending

•

Taxes. See the instructions for

listed on Schedule M that arise and are

with or within the U.S. person’s tax year.

Schedule C, line 7.

collected in full in the ordinary course of

If a U.S. corporation is the U.S. person

business.

Attach a separate schedule that lists

filing Schedule M and is a member of a

each applicable adjustment item. For

consolidated group, list the common

each adjustment item, indicate the

Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United

States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to

figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the

form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their

contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are

confidential, as required by section 6103.

The time needed to complete and file this form and related schedules will vary depending on individual circumstances. The

estimated average times are:

Learning about the

Preparing and sending

Form

Recordkeeping

law or the form

the form to the IRS

8858

17 hr., 56 min.

4 hr., 10 min.

4 hr., 38 min.

Sch. M (8858)

24 hr., 9 min.

6 min.

30 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related

schedules simpler, we would be happy to hear from you. See the instructions for the tax return with which this form is filed.

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Instructions For Form 8858 - Information Return Of U.s. Persons With Respect To Foreign Disregarded Entities - 2004 Page 4

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