Do Taxpayers File Form 8865 (Foreign Partnership) and FBAR?

Do Taxpayers File Form 8865 (Foreign Partnership) and FBAR?

Do Taxpayers File Form 8865 (Foreign Partnership)

When it comes to reporting foreign assets, investments, and accounts, many taxpayers have become familiar with some of the more common international information reporting forms such as the FBAR (FinCEN Form 114) and Form 8938 (FATCA) – but this is just the tip of the iceberg. In addition to these two more common forms, there are several other international information reporting forms that a taxpayer may have to file in addition to FBAR and Form 8938. When U.S. persons have ownership or an interest in a foreign entity or partnership, their reporting becomes much more complex. One less common form that taxpayers may have to file is IRS Form 8865 which is used to report foreign partnerships. The form is like Form 5471 — which is a more common form and used to report foreign corporations – with its own set of complications and challenges. Let’s take a brief introductory look at 5 things you should know about Form 8865.

Who Has to File Form 8865?

Not all individuals who own foreign partnerships are required to file a Form 8865. Similar to IRS Form 5471, there are different categories of filers. Depending on which category of file our taxpayer qualifies eyes may determine whether or not they’re required to file in a particular year. It is also important to note that just because the taxpayer qualifies to have to file the form in one year does not mean they will have to file in a subsequent year even if they are still an owner of the foreign partnership. One common example of this is the Category 4 filer who has to report when they have certain reportable events in a particular year — but will not have to file if they do not have the reportable event in the subsequent year, and do not qualify for any of the other three categories.

When is the Form 8865 Due?

Form 8865 is due at the time that a taxpayer’s tax return is due. If the taxpayer files for an extension, then the Form 8865 goes on extension as well. In other words, the taxpayer is not required to file a Form 7004 such as they would have to do if they were following an extension for Form 1120-S or 3520-A.

*Even if the Taxpayer does not have to file a Form 1040, they may still have to file a Form 8865.

Are there Exceptions to Filing?

Yes, not all taxpayers who qualify as one of the four categories of Form 8865 filers will actually be required to file the form. There are various exceptions to having filed the form depending on whether there are other similarly situated categories that are filers along with other types of exceptions. Some of the more common types of exceptions include:

      • Members of an affiliated group of corporations filing a consolidated return.

      • Exception for certain trusts

      • Exception for certain Category 4 filers

Categories of Filers and 8865 Schedules

Depending on which category of filer the taxpayer qualifies as will determine how extensive their reporting will be. For example, when a taxpayer is considered a category one filer which refers to controlled partnerships, the taxpayer must file nearly all of the additional schedules aside from schedule O and schedule P. Conversely, when the taxpayer is a category two filer then they only have to file a few schedules and can typically circumvent most of the more complicated schedules.

Late Filing and Penalties

For taxpayers who do not file Form 8865 timely, the Internal Revenue Service may issue various fines and penalties for late or incomplete filings. Taxpayers would typically be penalized $10,000 for any year that they did not file the form. If there is a continuing failure to follow then the taxpayer may be hit with up to $50,000 per failure. But, Taxpayers who are out of compliance, will be happy to know that the Internal Revenue Service has developed various offshore amnesty types programs to assist them with getting into compliance. There are various programs depending on whether or not the taxpayer has unreported foreign income or not and whether the taxpayer qualifies as willful or non-willful.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

Contact our firm today for assistance.