What is Form 8865?
Updated on November 07, 2025
by Grace Lorraine Angeles
Grace Lorraine, an IRS Enrolled Agent and CPA with 14 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working abroad.
Table of Contents
IRS Form 8865 explained for US expats
Form 8865 is the IRS form used by US taxpayers who own or transfer interests in a foreign partnership. If you’ve started a business abroad or invested with others outside the US, this might apply to you.
For many Americans abroad, “foreign partnership” sounds like something only large firms deal with. In reality, it can be as simple as running a small café or online business with a friend overseas. The IRS just wants a clear record of those joint ventures, especially when profits move across borders. That’s why Form 8865 exists.
Here’s what it means for expats starting a business abroad.
What is IRS Form 8865 and why do US expats need it?
Form 8865 reports ownership, contributions, and changes in foreign partnerships by US taxpayers. Think of it as the partnership version of Form 5471 (which handles foreign corporations).
Many expats discover they need it only after the fact, when an accountant mentions penalties or missing filings. The goal isn’t to punish, but to ensure that income earned through overseas partnerships is properly tracked.
Here’s a quick example:
You and two friends in the UK start a consulting business. You each own a third. Even though it’s registered abroad, your share makes you a US partner in a foreign entity. The IRS expects you to report that relationship through Form 8865.
Who must file Form 8865? (Category-by-Category)
Owning a foreign partnership doesn’t automatically mean you have to file. The requirement depends on three things:
- How much you own.
- How much control you have.
- What kind of transactions you make.
The IRS groups filers into four main categories. Here’s how each category works for expats:
|
Category |
Ownership or trigger |
Example for expats |
Key forms or schedules |
|
1 |
You own more than 50% of a foreign partnership. |
You manage a foreign LLC with expat partners |
Schedules A to K (ownership and income), K-2 and K-3 for international items, M, M-1, M-2 |
|
2 |
You own 10% or more, and the partnership is controlled by US persons who together own more than 50%, each holding at least 10%. |
Several Americans jointly own a cafe abroad |
Schedules A to K (simplified) |
|
3 |
You transfer property worth over US$100,000 during a 12-month period or own 10% or more afterward. |
You contribute cash or assets to a foreign startup. |
Schedule O (property transfer details) |
|
4 |
You buy, sell, or otherwise change your share by 10% or more. |
You sell part of your ownership in a local business. |
Schedule P (ownership change report) |
Each category has different documentation. Missing the right one can create headaches later, especially when cross-referencing with your foreign tax filings. Double-check your category before filing.
Need help with Form 8865? We’re here for you.
What counts as ownership or control under IRS rules?
Ownership isn’t always as straightforward as “my name’s on the paperwork.” The IRS also applies constructive ownership rules.
In simple terms, the IRS sometimes counts what your family or related companies own as if you own it too. So even if your name isn’t on the documents, you may still have to report the partnership.
Example: your spouse holds 60% of a foreign company, and you hold none. For IRS purposes, that 60% might still be attributed to you. This prevents people from sidestepping reporting through family arrangements.
Practical tip: When figuring out whether you need to file Form 8865, look beyond what’s legally yours. Ask:
- “Do I control or benefit from this partnership through someone else?”
- “Would my share count if the IRS traced ownership through my family or my company?”
If the honest answer is yes, you may need to file Form 8865
How to fill out Form 8865
Filing Form 8865 takes time, but it’s easier if you tackle it step by step:
- Figure out which category applies: That tells you which parts of the form to complete.
- Collect the partnership’s financial data: Like balance sheet, income, and capital accounts.
- Complete the required schedules: A to K, M, M-1, M-2, or K-2/K-3 for international income items.
- Attach Form 8865 to your US tax return: Either Form 1040 or business return.
Not filing a US return? Mail Form 8865 to the IRS Service Center where you’d normally send your return. Check the IRS “Where to file” page for the latest address.
Each step can be tedious, but it’s better than facing penalties later. Many expats also coordinate with their business partners abroad to align records, as everyone’s numbers must align across jurisdictions.
When is Form 8865 due for US expats?
The deadline for Form 8865 matches your regular tax return. Most expats get an automatic extension to June 15, and you can push it further to October 15 with Form 4868.
If your partnership follows a different local fiscal year, report the year that ends within your own US tax year (Categories 1 and 2) or the transactions that happened during your tax year (Categories 3 and 4).
That small detail often trips up expats with businesses following local fiscal calendars.
What are the penalties for not filing Form 8865?
The IRS takes Form 8865 seriously. The penalties depend on how involved you are in the partnership, so more control usually means higher fines if you miss a filing. Here’s a breakdown of the penalties per category:
|
Situation |
What happens |
Penalty |
|
You control or own a big share of a foreign partnership (Category 1 or 2) |
You didn’t file or filed late. |
US$10,000 to start, then another US$10,000 every 30 days after the IRS sends a notice (up to US$50,000). |
|
You transferred property into a foreign partnership (Category 3) |
You didn’t report the transfer. |
The IRS can charge 10% of the property’s value, up to US$100,000, and may treat it as if you sold it. |
|
You bought or sold 10% or more of your partnership (Category 4) |
You didn’t tell the IRS about the change. |
Starts at US$10,000, with the same rolling increase, up to US$50,000 if ignored. |
The IRS can sometimes reduce or cancel penalties if you show “reasonable cause” for example, you genuinely didn’t know about the rule and fix it quickly.
But ignoring it completely makes things worse fast, especially if you plan to return to the US or apply for immigration or banking documents that trigger compliance checks.
Common Form 8865 mistakes made by US expats
Even careful filers make slip-ups. Here are the ones tax pros see most often:
- Ignoring constructive ownership and assuming “my spouse’s business” doesn’t count.
- Skipping Schedules K-2 and K-3 for foreign income details.
- Reporting only direct income instead of your full share of partnership profits.
- Using the wrong tax year (especially if your business follows local accounting rules).
- Forgetting to file because you didn’t owe US tax. Form 8865 is about disclosure, not payment.
If you’ve already missed a filing, don’t panic. You can usually fix it by submitting an amended return or using the Streamlined Filing Compliance Procedures if you’re behind on several years. Acting early makes it far easier to avoid or reduce penalties.
Check if you need to file Form 8865
If you’ve invested in or helped start a business overseas, you might not be sure whether Form 8865 applies to you, and that’s completely normal
Form 8865 may sound intimidating, but it’s really about transparency. Once you understand which category you fall under, filing it becomes straightforward—or at least manageable with professional help.
FAQs
-
Where do I send Form 8865 if I’m living abroad?
If you’re attaching it to your regular US tax return, file it as part of that return.
But if you don’t have to file a return otherwise, send it directly to:Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409 USA -
What if my foreign partnership is registered under local laws—do I still need to file Form 8865?
-
Does owning the business jointly with my spouse change how we file?
-
What if I already reported the income on my tax return, do I still need the form?
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How far back can I fix a missed Form 8865 filing?
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Can the IRS share Form 8865 data with foreign tax authorities?
Prefer to talk it through? Schedule your free callback today.
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