Understanding and Complying with Form 8865 Requirements Form 8865 refers to the IRS’ Return of US Persons With Respect to Certain Foreign Partnerships. When a US taxpayer has ownership in a foreign partnership, they may have an IRS reporting requirement to be made, using Form 8865. Similar to the more common Form 5471, it is an IRS international reporting form required by US persons who qualify as one of the categories of filers with ownership in a foreign partnership. It is not limited to controlled foreign entities, which is a common misconception. When a US taxpayer has a foreign partnership they have an IRS reporting requirement. The reporting is not determined by whether any income was generated or if the business turned a profit. Unlike other international reporting forms such as FBAR and Form 8938, Form 8865 is a comprehensive international tax form. This guide will tell you everything you need to know about filing IRS Form 8865. I will review Form 8865, Form 8865 instructions and Form 8865 filing requirements. What are the basics of IRS Form 8865? As a tax advisor that owns real estate property investments in the US and abroad, I know that the subject of Form 8865 instructions can seem daunting. Form 8865 is a complex and difficult tax document to navigate, and I have been fortunate enough to have a team of experienced US tax experts to hand who assist me. If you own at least 10% of a controlled foreign partnership you may be required to file Form 8865. Form 8865 is used to report the activities of a controlled foreign partnership and must be filed with your individual income tax return (Form 1040). Failing to file Form 8865 on time can trigger heavy fines by the IRS. Understanding Form 8865 filing instructions is vital in avoiding tax fines. The instructions for Form 8865 can be difficult to complete. See what the IRS has to say about Form 8865 requirements here. Are you paying too much tax? To ensure that you do not pay too much tax, I recommend that once you have prepared your Form 8865, attach it to your individual income tax return and any necessary schedules. If you are not required to file an individual tax return, you will still have to file Form 8865 by the due date for that return. If you are a member of a foreign partnership, you might file Form 8865. Form 8865 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, such as: Category 1: for US persons with more than 50% control over a foreign partnership Category 2: for a contributing party to a foreign partnership. This is usually applicable if you contribute at least $100,000 to the partnership Category 3: for US persons with at least 10% interest in a foreign partnership when the partnership is majority-owned by US persons Category 4: this is relevant if you have at least a 10% interest in the foreign partnership whether by purchasing shares or inheriting them Once you know which category you fall into, you will be able to determine your schedules and Form 8865 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. I advise you to get the best possible tax advice for Form 8865 filing instructions, to avoid fines. How do I pay less tax when filing Form 8865? One way to pay less tax when filing Form 8865 is to ensure that you are in the correct category of filers. Category 1 filer: A US person who controlled the foreign partnership at any time during the partnership’s tax year is a Category 1 filer. Category 2 filer: A Category 2 filer is a US person who at any time during the tax year of the foreign partnership owned a 10% or greater interest in the partnership while the partnership was controlled by US persons each owning at least 10% interest. Category 3 filer: a US person who contributed property during that person’s tax year to a foreign partnership in exchange for an interest in the partnership is a Category 3 filer. If a domestic partnership contributes property to a foreign partnership, the domestic partnership’s partners are considered to have transferred a proportionate share of the contributed property to the foreign partnership. If the domestic partnership files Form 8865 and properly reports all the required information with regard to the contribution, its partners will not be required to report the transfer. Category 4 filer: A US person that had a reportable event during the calendar year under Section 6046A is considered a Category 4 filer. It is a complicated process to file Form 8865, and Form 8865 filing requirements can cause many people to make mistakes. I advise you to get professional advice from my team of tax experts when it comes to Form 8865 filing requirements to avoid heartache and costly errors occurring. What you should do next Should you allow the IRS to take more money from you than they need to? The danger is that you might read this guide and take no action, which could lead to you paying more tax than you have to. I recommend that you get help with Form 8865 filing requirements from my expert tax team, to save money and worry. You can book time with them here.