Form 8865 Instructions
Published on January 06, 2023
Updated on October 24, 2024
by Rose-ann De Villa
Rose-ann De Villa, an IRS Enrolled Agent and CPA with 13 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 in the UK.
Rose-ann has been mentioned in the Daily Express UK news wherein she talked about Stimulus payments and Child Tax Credit refunds for US expats in the UK.
Table of Contents
What is Form 8865?
Form 8865 is an IRS form used by US citizens who have ownership in a foreign partnership to report their involvement in the partnership. The form ensures compliance with US tax laws concerning international business activities and investments.
In this scenario, 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.
Who uses Form 8865?
People who have an interest in a foreign partnership use Form 8865. Here are the criteria for the category of filers for Form 8865:
- Category 1: US citizens who controlled more than a 50% interest in the partnership of a foreign partnership at any time during the tax year.
- Category 2: They must have at least a 10% interest in a foreign partnership that was controlled by US individuals, each owning at least a 10% interest.
- Category 3: US citizens who contributed property during the tax year to a foreign partnership in exchange for an interest in the partnership.
- Category 4: US citizens who had a reportable event in a foreign partnership during the tax year. The reportable events under section 6046A are acquisitions, dispositions, and changes in proportional interests.
What information do I need for Form 8865?
The form requires:
- The name, address, and taxpayer ID of the partners.
- A statement of the net taxable profits of the partnership.
- A balance sheet at the beginning and end of the year.
- A summary of the K-1 forms for the partners.
- A reconciliation of the partner’s capital accounts from the beginning to the end of the year.
- Details of any capital gains (long or short term).
- A page providing information about transactions between the controlled foreign partnerships, its partners, and any related entities.
- Information about any property transfers to the partnership and any changes in the ownership interest of any partner.
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It’s for American citizens that didn’t know they had to file US tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties.
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How do I file Form 8865?
Here is a step-by-step process for filing Form 8865:
- Prepare the requirements: This includes getting the form, paperwork, financial statements, and identification of the individuals in the foreign partnership.
- Fill out the form: The table below shows which section to fill out per category filer.
- Attach Form 8865: Include the form in your US income tax return.
- Sign and submit: You can file electronically to your e-filed tax return or submit it by mail.
Filing Requirements |
Category 1 |
Category 2 |
Category 3 |
Category 4 |
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-2 (Form 8865)—Partners’ Distributive Share Items—International |
Included |
Not Included |
Not Included |
Not Included |
Schedule K-3 (Form 8865)—Partner’s Share of Income, Deductions, Credits, etc.—International |
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 |
Where do I file Form 8865?
You should file Form 8865 with the IRS center where you file your tax return. If you don’t have a requirement to file a tax return, you should file it at the IRS address for international forms.
Can I file Form 8865 electronically?
Yes, you can file Form 8865 electronically with other forms like your income tax return.
When should I file Form 8865?
Form 8865 is due with your income tax return, so it must be filed by the tax return’s due date, including extensions.
Can I be exempted from filing Form 8865?
If more than one US individual qualifies as a Category 1 filer during the foreign partnership year, only one of these Category 1 partners is required to file Form 8865.
If you qualify for the Category 1 filing requirement exception, you will still need to file a separate Form 8865 if you’re also subject to Category 3 or 4 filing requirements.
Are there penalties for failing to file Form 8865?
Yes, you may be subject to a US$10,000 penalty for failing to file a complete and accurate Form 8865 for each foreign partnership you were required to report.
In addition, you can also be subject to US$10,000 on top of the first penalty for each 30 days the failure continues after the IRS sends a notice of non-compliance. This can go up to a maximum of US$50,000 for each form.
Here are other penalties you could incur when filing Form 8865:
- Fraud Penalty: If the IRS determines the failure of filing is due to fraud, the penalty is 75% of the unpaid tax and criminal penalties, if possible.
- Incomplete and incorrect information: You can be subject to 20% of the underpaid tax.
- Failure to report contributions or transactions: For category 3 filers who fail to report a property contribution to a foreign partnership can be subject to a penalty of 10% of the fair market value of the property contributed or up to US$100,000.
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