As most international tax attorneys in Minneapolis would point out, Form 8865 (“Return of U.S. Persons With Respect to Certain Foreign Partnerships”) is used to report the information required under section 6038 (reporting with respect to controlled foreign partnerships), section 6038B (reporting of transfers to foreign partnerships), or section 6046A (reporting of acquisitions, dispositions, and changes in foreign partnership interests), and is required for certain defined categories of filers. However, there are certain exceptions to filing Form 8865.
This article will briefly explain the Form 8865 exceptions for multiple Category 1 filers and for indirect partners under the constructive ownership rules (there are more exceptions that will be explained in future articles). This article is not intended to constitute tax or legal advice.
Multiple Category 1 Filers Exception
In general, Category 1 filers must file Form 8865. As the instructions to Form 8865 note, “A Category 1 filer is a U.S. person who controlled the foreign partnership at any time during the partnership’s tax year. Control of a partnership is ownership of more than a 50% interest in the partnership.” However, if during a partnership’s tax year more than one U.S. person qualifies as a Category 1 filer, only one of these Category 1 partners will be required to file Form 8865. (A U.S. person with a controlling interest in the losses or deductions of the partnership will not be permitted to be the lone filer of Form 8865 if another U.S. person has a controlling interest in capital or profits; only the latter may file the form). Note that Form 8865 must still be filed by taxpayers under the multiple filers’ exception if they are separately subject to the Category 3 or 4 filing requirements.
When the form is filed by only one U.S. person Category 1 filer, it still must contain all of the information that would be required if each Category 1 filer filed a separate Form 8865, including various required schedules. The Category 1 taxpayer who does not submit Form 8865 because of multiple filers must attach a statement entitled, “Controlled Foreign Partnership Reporting” to that person’s income tax return with the following information: (1) A statement that the person qualifies as a Category 1 filer, but is not filing Form 8865 under the “multiple Category 1 filers” exception; (2) the name, address, and identifying number (if applicable) of the qualifying foreign partnership; (3) a statement noting that the filing requirement has been, or will be, satisfied; (4) the name and address of the person submitting Form 8865 for the foreign partnership; and (5) the IRS Service Center where the Form 8865 must be filed, if sent by mail.
Constructive Owners Exception
For Category 1 or 2 filers who do not own a direct interest in a foreign partnership, and who are only required to file because of the constructive ownership rules (please see form instructions and IRS regulations for the specific definition of this complex term), an exception from filing is possible, provided that: (1) Form 8865 is filed by the U.S. person(s) through which the indirect partner constructively owns an interest in the foreign partnership, (2) the U.S. person through which the indirect partner constructively owns an interest in the foreign partnership is also a constructive owner and meets all the requirements of this constructive ownership filing exception, or (3) Form 8865 is filed for the foreign partnership by another Category 1 filer under the “multiple Category 1 filers exception”. To qualify for this exception, the indirect partner must also file a statement entitled “Controlled Foreign Partnership Reporting” with its tax return containing certain specified information (see Form 8865 instructions for more details).
Contact The International Tax Firm of Sherayzen Law Office for Help With Form 8865 Filing
International taxation concerning foreign partnerships is very likely to involve many complex tax and legal issues, so you are advised to seek an experienced attorney in these matters. Sherayzen Law Office is highly experienced in Form 8865 matters, whether you need help with respect to annual compliance or offshore voluntary disclosure. Contact Us by telephone or email to schedule a confidential consultation!