Penalties
Failure to timely submit all information required of Category 1 and 2 filers.
- A $10,000 penalty is imposed for each tax year of each foreign partnership for failure to furnish the required information within the time prescribed. If the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per foreign partnership) is charged for each 30-day period, or fraction thereof, during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000 for each failure.
- Any person who fails to furnish all of the information required within the time prescribed, will be subject to a reduction of 10% of the foreign taxes available for credit under sections 901, 902, and 960. If the failure continues 90 days or more after the date the IRS mails notice of the failure, an additional 5% reduction is made for each 3-month period, or fraction thereof, during which the failure continues after the 90-day period has expired. See section 6038(c)(2) for limits on the amount of this penalty.
- Criminal penalties under sections 7203, 7206, and 7207 may apply for failure to file or for filing false or fraudulent information.
Additionally, any person that does file under the constructive owners exception may be subject to these penalties if all the requirements of the exception are not met. Any person required to file Form 8865 who does not file under the multiple Category 1 filers exception, may be subject to the above penalties if the other person does not file a correct and complete form and schedules. See Exceptions to Filing on page 3.
Failure to file information required of Category 3 filers. Any person that fails to properly report a contribution to a foreign partnership that is required to be reported under section 6038B and the regulations under that section (Form 8865, page 1, and Schedules A, A-1, A-2, and O), is subject to a penalty equal to 10% of the fair market value (FMV) of the property contributed. This penalty is subject to a $100,000 limit, unless the failure is due to intentional disregard. In addition, the transferor must recognize gain on the contribution as if the contributed property had been sold for FMV.
Failure to file information required of Category 4 filers. Any person who fails to properly report all the information requested by section 6046A (Form 8865, page 1, and Schedules A, A-2, and P), is subject to a $10,000 penalty. If the failure continues for more than 90 days after the IRS mails notice of the failure, an additional $10,000 penalty will apply for each 30-day period (or fraction thereof) during which the failure continues after the 90-day period has expired. The additional penalty shall not exceed $50,000.
Treaty-based return positions. File Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), to report a return position that a treaty of the United States (such as an income tax treaty, an estate and gift tax treaty, or a friendship, commerce, and navigation treaty):
- Overrides or modifies any provision of the Internal Revenue Code and
- Causes (or potentially causes) a reduction of any tax incurred at any time.
Failure to make such a report may result in a $1,000 penalty ($10,000 in the case of a C corporation). See section 6712.
Corrections to Form 8865
If you file a Form 8865 containing incomplete or incorrect information, file a corrected Form 8865 with an amended tax return following the instructions for the return with which you originally filed Form 8865. Write corrected at the top of the form and attach a statement identifying and explaining the changes.
Specific Instructions
Important: Fill in all applicable lines and sections. All information must be in English. All amounts must be stated in U.S. dollars.
If the information required in a given section exceeds the space provided within that section, do not write see attached in the section and attach all of the information on additional sheets. Instead, complete all entry spaces in the section and attach separate sheets to provide the remaining information, using the same size and format as the printed forms.
General Information
All categories of filers must complete all questions on page 1 with three exceptions. Complete Item E only if, in addition to filing the form on your own behalf, you are reporting information about other Category 1 filers under the multiple Category 1 filing exception, or are reporting information about members of your affiliated group of corporations under the consolidated return exception. See Exceptions to Filing on page 3. Answer Items G8 and G9 only if you are a Category 1 filer.
Tax Year
Enter in the space below the title of Form 8865 the tax year of the foreign partnership that ended with or within the tax year of the person filing this form. Category 1 or 2 filers must report information for the tax year of the foreign partnership that ends with or within their tax years. A Category 3 or 4 filer must report on Schedules O or P, respectively, transactions that occurred during that filer's tax year (rather than during the partnership's tax year).
Identifying Numbers and Addresses
Enter the identifying number of the person filing this return. Use an employer identification number (EIN) to identify partnerships, corporations, and estates or trusts. For individuals, use a social security number (SSN) or individual taxpayer identification number (ITIN).
Include the suite, room, or other unit number after the street address. If the Post Office does not deliver mail to the street address and the U.S. person has a P.O. box, show the box number instead.
Foreign address. Enter the information in the following order: city, province or state, and country. Follow the country's practice for entering the postal code, if any. Do not abbreviate the country name.
Item A - Category of Filer
Check the box for each category that describes the person filing the form. If more than one category applies, check all boxes that apply. See Categories of Filers on page 1.
Item C
Enter the filer's share of nonrecourse liabilities, partnership-level qualified nonrecourse financing, and other liabilities. Nonrecourse liabilities are those liabilities of the partnership for which no partner bears the economic risk of loss. The extent to which a partner bears the economic risk is determined under the rules of Regulations section 1.752-2.
"Qualified nonrecourse financing" generally includes financing for which no one is personally liable for repayment that is borrowed for use in an activity of holding real property and that is:
- Lent or guaranteed by a Federal, state, or local government or
- Borrowed from a qualified person.
See section 465 for more information on qualified nonrecourse financing.
Item D - Identification of Common Parent
If the person filing the form is a member of a consolidated group, but not the parent, list the name, address, and EIN of the filer's common parent.
Item E
Information about certain partners. If you are reporting information about other persons under the multiple Category 1 filers exception, or are reporting information about members of your affiliated group of corporations under the consolidated return exception (see Exceptions to Filing on page 3), identify each such person in Item E. List their names, addresses, and identifying numbers. Also indicate for each person whether such person is a Category 1 filer or Category 2 filer, and whether such person constructively owned an interest in the foreign partnership during the tax year of the partnership listed at the top of page 1 of Form 8865. See Constructive ownership on page 4.
Item F6
Category 1, 2, 3, and 4 filers in a partnership that filed Form 1065 or 1065-B. Enter the business code shown in Item C of the Form 1065 or 1065-B filed by the partnership.
Category 1, 2, 3, and 4 filers in a partnership that did not file Form 1065 or 1065-B. Enter the applicable business code from the list beginning on page 25. If the information necessary to apply the total receipts test is not available, pick a principal business activity code using the information you have about the partnership.
Item F8a - Functional Currency
Enter the foreign partnership's functional currency. See sections 985 through 989 and the regulations thereunder. If the partnership had more than one qualified business unit (QBU), attach a statement identifying each QBU, its country of operation, and its functional currency. See Regulations section 1.989(a)-1(b) for the definition of a QBU.
Hyperinflationary exception. A partnership that has a hyperinflationary currency as its functional currency is subject to special rules set forth in Regulations section 1.985-3. Under these rules, a partnership must use the U.S. dollar as its functional currency.
Item F8b - Exchange Rate
When translating amounts for functional currency to U.S. dollars, you must use the method specified in sections 985 through 989 and the regulations thereunder. But, regardless of the specific method required, all exchange rates must be reported using a divide-by convention rounded to at least 4 places. That is, the exchange rate must be reported in terms of the amount by which the functional currency amount must be divided in order to reflect an equivalent amount of U.S. dollars. As such, the exchange rate must be reported as the units of foreign currency that equal one U.S. dollar, rounded to at least 4 places. Do not report the exchange rate as the number of U.S. dollars that equal one unit of foreign currency.
Note: You must round the result to more than 4 places if failure to do so would materially distort the exchange rate or the equivalent amount of U.S. dollars.
Item G2
If the foreign partnership was required to file Form 1065 or Form 1065-B for the partnership's tax year listed at the top of page 1 (Form 8865), check the applicable box and enter the IRS Service Center where the form was or will be filed. Also check the applicable box(es) if the foreign partnership was required to file Form 8804, Annual Return for Partnership Withholding Tax (Section 1446), or Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons (for the calendar year ending within or with the foreign partnership's tax year).
Item G6
Enter the number of foreign disregarded entities owned by the partnership during the partnership's tax year. A disregarded entity is an entity that is disregarded as separate from its owner under Regulations section 301.7701-3(a). See Form 8832, Entity Classification Election, for more information. On an attached schedule, list the name and EIN of each foreign disregarded entity, identify the country or countries in which each disregarded entity conducts operations, and identify how the disregarded entity is classified in the foreign country.
Question G8 - Separate Units
Only Category 1 filers are required to answer question G8.
Indicate whether the partnership owned any interest in a separate unit. In general, a separate unit is:
- A foreign branch that is owned either directly by a domestic corporation or indirectly by a domestic corporation through ownership of a partnership or trust interest,
- An interest in a partnership, or
- An interest in a trust.
See Regulations section 1.1503-2(c)(3) and (4) for more information on separate units. Attach a schedule identifying each separate unit and its country of operation.
Question G9
Only answer question G9 if you are a Category 1 filer. Answer Yes to Question G9 if the partnership meets both of the requirements shown on the form. Total receipts is defined as the sum of gross receipts or sales (Schedule B, line 1a); all other income reported on Schedule B (lines 4 through 7); income reported on Schedule K, lines 3a, 4a, 4b, and 4c; income or net gain reported on Schedule K, lines 4d, 4e(1), 4f, 5, and 6; and income or net gain reported on Form 8825, lines 2, 19, and 20a.
Signature
Filer. Do not sign Form 8865 if you are filing it as an attachment to your income tax return. Sign the return only if you are filing Form 8865 separately because you are not required to file a U.S. income tax return. See When and Where To File on page 4 for more information.
Paid preparer. Do not sign Form 8865 or complete the paid preparer section at the bottom of the form if Form 8865 is filed as an attachment to an income tax return. Sign Form 8865 and complete the paid preparer section only if Form 8865 is filed separately.
Schedule A - Constructive Ownership of Partnership Interest
All Category 1, 2, 3, and 4 filers must complete Schedule A. Check box a if the person filing the return owns a direct interest in the foreign partnership. Check box b if the person filing the return constructively owns an interest in the foreign partnership. See Constructive ownership on page 4.
Category 1 and 2 filers must list the persons (U.S. and foreign) whose interests in the foreign partnership they constructively owned during the partnership tax year for which this form is being completed.
Category 3 and 4 filers must list the persons (U.S. and foreign) whose interests in the foreign partnership they constructively owned during the filer's tax year during which the reportable transfer or reportable event occurred.
Schedule A-1 - Certain Partners of Foreign Partnership
All Category 1 and certain Category 3 filers must complete Schedule A-1. Any person already listed on Schedule A is not required to be listed again on Schedule A-1.
Category 1 filers. Category 1 filers must list all U.S. persons who owned at least a 10% direct interest in the foreign partnership during the partnership's tax year listed at the top of page 1 of Form 8865.
Category 3 filers. Category 3 filers must list (a) each U.S. person that owned a 10% or greater direct interest in the foreign partnership during the Category 3 filer's tax year and (b) any other person related to the Category 3 filer that was a direct partner in the foreign partnership during that tax year. See Regulations section 1.6038B-2(i)(4) for the definition of a related person.
Exception. Category 3 filers who transferred solely cash and did not own a 10% or greater interest in the transferee partnership after the transfer are not required to complete Schedule A-1.
Schedule A-2 - Affiliation Schedule
All Category 1, 2, 3, and 4 filers must complete Schedule A-2. List on Schedule A-2 all partnerships (foreign or domestic) in which the foreign partnership owned a direct interest, or a 10% indirect interest (under the rules of section 267(c)(1) and (5)) during the partnership tax year listed at the top of page 1, Form 8865. Only Category 1 filers must complete the ordinary income or loss column. In that column, report the foreign partnership's share of ordinary income (even if not received) or loss from partnerships in which the foreign partnership owns a direct interest. The total amount of ordinary income or loss from each partnership must also be included on line 4 of Schedule B.
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