International Tax

Foreign Partnerships

The IRS defines a foreign partnership as a partnership that is not created or organized in the United States but is controlled by U.S. Partners. If the foreign partnership is controlled by U.S. partners, the partnership is required to file Form 8865. Control is considered to be that five or fewer U.S. persons who each own a 10% or more interest in the partnership also own greater than 50% of the partnership’s interests.

Below are some events that will trigger the need for filing of Form 8865:

• Greater than 50% ownership by U.S. person, Note: Under the Attribution Rules, reporting requirements dictate that the total family interest must be considered for each person when filing.
• 10% or greater ownership interest by a U.S. person, while the partnership is controlled by U.S. persons owning at least 10% interests
• Contribution of property to a partnership, by a U.S. person in exchange for at least 10% of the ownership interests, or if such property exceeded $100,000
• An increase in an existing U.S. persons’ partnership interest to equal 10%
• A disposition that results in the reduction of a U.S. person’s interest in a partnership by 10% or more

The form must be filed with and attached to each partner’s income tax return. Failure to file or an inaccurate filing of Form 8865 can result in substantial penalties and an indefinite statute of limitations for audit purposes.

Esquire Group can assist you in determining your filing requirements.