Tax Form 8865
Do you have ownership in a foreign partnership? Whether you purchased your way in or inherited shares from a foreign relative, if you’ve got a 10% interest in a non-U.S. partnership, you may have to report it to the IRS by filing Form 8865.
What is the purpose of Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships?
Tax form 8865 is used by U.S. persons who have an interest in a foreign partnership. Even though it’s purely informational in nature, it’s still a necessary part of your tax return if you meet the requirements.
The reason Form 8865 exists is to help the IRS track U.S. members of foreign partnerships, and it’s similar to Form 1065, which is the form you’d file for a U.S. partnership. A partnership is considered a foreign partnership when it wasn’t created or organized in the United States or under the law of the United States.
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Who files IRS Form 8865?
If you are a member of a foreign partnership, you might file Form 8865. You should know that this form has multiple filing categories, and depending on the type of category, you’ll have to attach different schedules. It is also possible to be in multiple categories simultaneously:
- Category 1: For U.S. persons with more than 50% control over a foreign partnership.
- Category 3: For U.S. persons with at least 10% interest in a foreign partnership when the partnership is majority-owned by U.S. persons.
- Category 2: For a contributing party to a foreign partnership. You’d fall in this category if you contribute at least $100,000 to the partnership or you own at least 10% of the partnership after your contribution.
- Category 4: You’d qualify for this category if you have at least a 10% interest in the foreign partnership whether by purchasing shares or inheriting them. Watch out—this category applies to people who only own 2% if their spouse owns an additional 9%.
Once you know what category you fall into, you’ll be able to determine your schedules and filing requirements. One thing to understand is that you might be considered a constructive owner of a foreign partnership, meaning you’re closely related enough to the owner to be treated as an owner. For example, if your spouse owns 100% of stock of a company, you’d constructively also have that ownership and be treated like an owner.
Form 8865 instructions and filing requirements
Before you file, you’ll need to know your filing requirements, which you can find in the table below:
|Filing Requirements||Category of Filers|
|Identifying information—(page 1 of Form 8865)||Included||Included||Included||Included|
|Schedule A—Constructive Ownership of Partnership Interest||Included||Included||Included||Included|
|Schedule A-1—Certain Partners of Foreign Partnership||Included||Not Included||Included||Not Included|
|Schedule A-3—Affiliation Schedule||Included||Included||Included||Included|
|Schedule B—Income Statement—Trade or Business Income||Included||Not Included||Not Included||Not Included|
|Schedule G—Statement of Application of the Gain Deferral Method Under Section 721||Included||Not Included||Included||Included|
|Schedule H—Acceleration Events and Exceptions Reporting Relating to Gain Deferral Method Under Section 721©||Included||Not Included||Included||Included|
|Schedule K—Partners' Distributive Share Items||Included||Not Included||Not Included||Not Included|
|Schedule L—Balance Sheets per Books||Included||Not Included||Not Included||Not Included|
|Schedule M—Balance Sheets for Interest Allocation||Included||Not Included||Not Included||Not Included|
|Schedule M-1—Reconciliation of Income (Loss) per Books With Income (Loss) per Return||Included||Not Included||Not Included||Not Included|
|Schedule M-2—Analysis of Partners' Capital Accounts||Included||Not Included||Not Included||Not Included|
|Schedule N—Transactions Between Controlled Foreign Partnership and Partners or Other Related Entities||Included||Included||Not Included||Not Included|
|Schedule D—Schedule D (Form 1065), Capital Gains and Losses||Included||Not Included||Not Included||Not Included|
|Schedule K-1—Partner's Share of Income, Deductions, Credits, etc. (direct partners only)||Included||Included||Not Included||Not Included|
|Schedule O—Transfer of Property to a Foreign Partnership||Not Included||Not Included||Included||Not Included|
|Schedule P—Acquisitions, Dispositions, and Changes of Interests in a Foreign Partnership||Not Included||Not Included||Not Included||Included|
You’ll attach your requisite schedules to your form when you submit it to the IRS. Sound like a lot of work? That’s what we’re here for. We’ll make sure you’re including the right schedules and complete them all for you.
Need help with IRS Form 8865 or your U.S. expat taxes? H&R Block is here to help.
U.S. taxes aren’t easy, and the more foreign factors you’ve got, the more complicated they get. Having ownership in a foreign partnership has a lot of implications for your U.S. taxes, which is why we’re here to help. Start your U.S. expat taxes today!