Return of U.S. Persons With Respect to Certain Foreign Partnerships

Schedule M - Balance Sheets for Interest Allocation

All Category 1 filers must complete Schedule M. Schedule M should reflect the book values of the partnership's assets as described in Temporary Regulations sections 1.861-9T(g)(2) and 1.861-12T. Assets should be characterized as U.S. assets or foreign assets in one or more separate limitation categories as provided in Temporary Regulations sections 1.861-9T(g)(3) and 1.861-12T. The balance sheets should be prepared in U.S. dollars under Temporary Regulations section 1.861-9T(g)(2)(ii).

Exception. If the partnership or any qualified business unit of the partnership uses DASTM, Schedule M should reflect the tax balance sheet prepared in U.S. dollars under Regulations section 1.985-3(d). See Temporary Regulations section 1.861-9T(g)(2)(ii)(A)(2) for more information on DASTM.

Line 2. Enter the partnership's foreign assets according to the following income limitation categories:

• Passive income category.
• Listed categories (attach a statement classifying foreign assets by the categories listed in the instructions for line 17c).
• General limitation income category.

See the instructions for line 17 of Schedule K and section 904(d) for more information.

Schedule M-1 - Reconciliation of Income (Loss) per Books With Income (Loss) per Return

Important: If the foreign partnership filed Form 1065 or 1065-B, do not complete Schedule M-1 on Form 8865. Instead, attach to Form 8865 a copy of the Schedule M-1 from Form 1065 or 1065-B.

Only Category 1 filers are required to complete Schedule M-1. If you answered "Yes" to question G9 on page 1 of Form 8865, you do not have to complete Schedule M-1.

Line 3 - Guaranteed payments. Include on this line guaranteed payments shown on Schedule K, line 5 (other than amounts paid for insurance that constitutes medical care for a partner, a partner's spouse, and a partner's dependents).

Line 4b - Travel and Entertainment

Include on this line:

• The part of the cost of meals and entertainment not allowed under section 274(n).
• Expenses for the use of an entertainment facility.
• The part of business gifts over $25.
• Expenses of an individual allocable to conventions on cruise ships over $2,000.
• Employee achievement awards over $400.
• The part of the cost of entertainment tickets that exceeds face value (also subject to 50% disallowance).
• The part of the cost of skyboxes that exceeds the face value of nonluxury box seat tickets.
• The part of the cost of luxury water travel not allowed under section 274(m).
• Expenses for travel as a form of education.
• Nondeductible club dues.
• Other travel and entertainment expenses not allowed as a deduction.

Schedule M-2 - Analysis of Partners' Capital Accounts

Important: If the foreign partnership filed Form 1065 or 1065-B, do not complete Schedule M-2 on Form 8865. Instead, attach to Form 8865 a copy of the Schedule M-2 from Form 1065 or 1065-B.

Only Category 1 filers are required to complete Schedule M-2. If you answered "Yes" to question G9 on page 1 of Form 8865, you do not have to complete Schedule M-2. Show what caused the changes in the direct partners' capital accounts during the partnership's tax year as reflected on the partnership's books and records. All items must be reported in U.S. dollars.

Though not required to, you may use the rules in Regulations section 1.704-1(b)(2)(iv) to determine the partners' capital accounts in Schedule M-2. If the beginning and ending capital accounts reported under these rules differ from the amounts reported on Schedule L, attach a statement reconciling any differences.

Line 2 - Capital contributed during year. Include on line 2 the amount of money and property contributed by each partner to the partnership as reflected on the partnership's books and records.

Line 3 - Net income (loss) per books. Enter on line 3 the partnership's net income (loss) shown on the partnership's books, from Schedule M-1, line 1.

Line 6 - Distributions.

Line 6a - Cash. Enter the total amount of money distributed to each partner by the partnership.

Line 6b - Property. Enter the total amount of property distributed to each partner by the partnership as reflected on the partnership's books and records.

Schedule N - Transactions Between Controlled Foreign Partnership and Partners or Other Related Entities

All Category 1 filers must complete all of Schedule N and report all transactions of the foreign partnership during the tax year of the partnership listed on the top of page 1 of Form 8865. A Category 1 filer filing a Form 8865 for other Category 1 filers under the multiple Category 1 filers exception must complete a Schedule N for itself and a separate Schedule N for each Category 1 filer not filing Form 8865.

All Category 2 filers are required to complete columns (a), (b), and (c) of Schedule N. Category 2 filers do not have to complete column (d).

Column (a). Use column (a) to report transactions between the foreign partnership and the person filing the Form 8865.

Column (d). Use column (d) to report transactions between the foreign partnership and any U.S. person with a 10% or more direct interest in the foreign partnership. If such person also qualifies under column (b), do not report transactions between the foreign partnership and that person under column (d). Report the transactions only under column (b).

Lines 6 and 16. Enter distributions received from other partnerships and distributions from the foreign partnership for which this form is being completed.

Lines 20 and 21. Enter the largest outstanding balances during the year of gross amounts borrowed from, and gross amounts lent to, the related parties described in columns (a) through (d). Do not enter aggregate cash flows, year-end loan balances, average balances, or net balances. Do not include open account balances resulting from sales and purchases reported under other items listed on Schedule N that arise and are collected in full in the ordinary course of business.

Schedule O - Transfer of Property to a Foreign Partnership

Note: Every Category 3 filer must complete Schedule O.

Part I - Transfers Reportable Under Section 6038B

Part I is used to report the transfer of property to a foreign partnership. Provide the information required in columns (a) through (g) with respect to each contribution of property to the foreign partnership that must be reported. If you contributed property with a FMV greater than its tax basis (appreciated property), or intangible property, provide the information required in columns (a) through (g) separately with respect to each item of property transferred (except to the extent you are allowed to aggregate the property under Regulations section 1.704-3(e)(2), (3), and (4)). Provide a general description of each such item of property in the Supplemental information required to be reported section. For all other property contributed, aggregate by the categories listed in Part I.

Column (a). Enter the date of the transfer. If the transfer was composed of a series of transactions over multiple dates, enter the date the transfer was completed.

Column (b). Enter the number of items of property transferred.

Column (c). Enter the FMV of the property contributed (measured as of the date of the transfer).

Column (d). Enter your adjusted basis in the property contributed on the date of the transfer. See sections 1011 through 1016 for more information on the determination of adjusted basis.

Column (e). If you contributed appreciated property, enter the method (traditional, traditional with curative allocations, or remedial) used by the partnership to make section 704(c) allocations with respect to each item of such property. See Regulations section 1.704-3(b), (c), and (d) for more information on these allocation methods.

Column (f). Enter the amount of gain, if any, recognized on the transfer. See sections 721(b) and 904(f)(3).

Column (g). Enter your percentage interest in the partnership immediately after the transfer. To the extent your percentage interest in the partnership differs among capital, profits, losses, or deductions, enter See Below and state the different percentages.

Supplemental information required to be reported. Enter any information required to be reported in Part I in greater detail. Identify the applicable column number next to the information entered in this section. In addition, if you contributed property to a foreign partnership as part of a wider transaction, briefly describe the entire transaction.

Part II - Dispositions Reportable Under Section 6038B

Use Part II to report certain dispositions by a foreign partnership of property. If you were required to report a transfer of appreciated property to the partnership, and the partnership disposes of the property while you are still a direct or constructive partner, you must report that disposition in Part II. If the partnership disposes of the property in a nonrecognition transaction and receives in exchange substituted basis property, report the subsequent disposition of the substituted basis property in the same manner as provided for the contributed property. See section 7701(a)(42) for the definition of substituted basis property and Regulations section 1.704-3(a)(8) for more information.

Column (a). Provide a brief description of the property disposed of by the partnership. If you are reporting the disposition of substituted basis property received by the partnership in a nonrecognition transaction in exchange for appreciated property contributed by you, enter See Attached. Attach a schedule providing brief descriptions of both the property contributed by you to the partnership and the substituted basis property received by the partnership in exchange for that property.

Column (b). Enter the date that you transferred this property to the partnership. If you are reporting the disposition of substituted basis property received by the partnership in a nonrecognition transaction in exchange for property previously contributed by you, enter See Attached. Attach a schedule showing both the date you transferred the appreciated property to the partnership and the date the partnership exchanged the property for substituted basis property in a nonrecognition transaction. See Regulations section 1.6038B-2.

Column (c). Enter the date that the partnership disposed of the property.

Column (d). Briefly describe how the partnership disposed of the property (e.g., by sale or exchange).

Column (e). Enter the amount of gain, if any, recognized by the partnership on the disposition of property.

Column (f). Enter the amount of depreciation recapture, if any, recognized by the partnership on the disposition of property. See Regulations section 1.1245-1(e) and 1.1250-1(f).

Column (g). Enter the amount of gain from column (e) allocated to you.

Column (h). Enter the amount of depreciation recapture from column (f) allocated to you. See Regulations sections 1.1245-1(e) and 1.1250-1(f). If you recognize any section 1254 recapture on the partnership's disposition of natural resource recapture property, enter See Attached and attach a schedule calculating the amount of recapture. See Regulations section 1.1254-5.

Part III - Gain Recognition Under Section 904(f)(3) or (f)(5)(F)

If gain recognition was required with respect to any transfer reported in Part I under section 904(f)(3) and (f)(5)(F), attach a schedule identifying the transfer and the amount of gain recognized.

Schedule P - Acquisitions, Dispositions, and Changes of Interests in a Foreign Partnership

Use Schedule P to report the acquisition, disposition, and change of interest in a foreign partnership. Every Category 4 filer must complete Schedule P.

Part I - Acquisitions

Part I is completed by Category 4 filers required to report an acquisition of an interest in a foreign partnership. See the Categories of Filers beginning on page 1 for more details about which types of acquisitions must be reported.

Column (a). If you acquired the interest in the foreign partnership by purchase, gift, inheritance, or in a distribution from a trust, estate, partnership, or corporation, enter the name, address, and identifying number (if any), of the person from whom you acquired the interest.

Column (b). Enter the date of the acquisition. If the acquisition was composed of a series of transactions over multiple dates, enter the date the acquisition was completed.

Column (c). Enter the FMV of the interest you acquired in the partnership (measured as of the date of acquisition).

Column (d). Enter your basis in the partnership interest that you acquired (measured as of the date of acquisition). See sections 722 and 742.

Columns (e) and (f). Enter your total direct percentage interest in the partnership both before and immediately after the acquisition. To the extent your direct percentage interest in the partnership differs among capital, profits, losses, or deductions, enter See Below and state the different percentages in Part IV.

Part II - Dispositions

This section is completed by U.S. persons who are Category 4 filers because they disposed of an interest in a foreign partnership. See Categories of Filers beginning on page 1 for more details about what types of dispositions must be reported. For each disposition reported in Part II, indicate in Part IV whether a statement is required by Regulations section 1.751-1(a)(3) to be filed with respect to the disposition.

Column (a). Unless you disposed of the interest by withdrawing, in whole or in part, from the partnership, enter the name, address, and identifying number (if any) of the person to whom you transferred the interest in the foreign partnership.

Column (b). Enter the date of the disposition. If the disposition was composed of a series of transactions over multiple dates, enter the date the disposition was completed.

Column (c). Enter the FMV of the interest you disposed of in the partnership (measured as of the date of disposition). If you recognized gain or loss on the disposition, state the amount of gain or loss in Part IV. See section 741.

Column (d). Enter your adjusted basis in the partnership interest disposed of immediately before the disposition. See section 705.

Columns (e) and (f). Enter your total direct percentage interest in the partnership both before and immediately after the disposition. To the extent your percentage interest in the partnership differs among capital, profits, losses, or deductions, enter See Below and state the different percentages in Part IV.

Part III - Change in Proportional Interest

This section is completed by U.S. persons who are Category 4 filers because their direct proportional interest in the foreign partnership changed. See Category of Filers beginning on page 1 for more details about which changes in proportional interest must be reported.

Column (a). Briefly describe the event that caused your interest in the partnership to change (e.g., the admission of a new partner).

Column (b). Enter the date of the change. If the change resulted from a series of transactions over multiple dates, enter the date the change was completed.

Column (c). Enter the FMV of your interest in the partnership immediately before the change.

Column (d). Enter your basis in your partnership interest immediately before the change.

Columns (e) and (f). Enter your direct percentage interest in the partnership both before and immediately after the change. To the extent your percentage interest in the partnership differs among capital, profits, losses, or deductions, enter See Below and state the different percentages in Part IV.

Part IV - Supplemental Information Required To Be Reported

Enter any information asked for in Part I, Part II, or Part III that must be reported in detail. Identify the applicable part number and column next to the information entered in Part IV. Paperwork Reduction Act Notice