CCH Axcess Tax

Form 8865 - Return of U.S. Persons with Respect to Certain Foreign Partnerships

Form 8865 consists of seven pages as well as Schedule O, Transfer of Property to a Foreign Partnership, Schedule P, Acquisitions, Dispositions, and Changes of Interests in a Foreign Partnership, and Schedule K-1, Partner's Share of Income, Credits, Deductions, etc.

If the filer is a U.S. partnership or corporation that controls a foreign partnership by having a more than 50% interest in the foreign partnership, it is considered to be a Category 1 filer and is required to file all seven pages of the Form 8865 as well as the applicable Schedules K-1, or the specified equivalent schedules.
- A Category 1 filer uses Foreign category > 8865 worksheet > all sections, except the two for Schedule O and the one for Schedule P, for the basic return and the applicable Schedules K-1.
If the filer has at least a 10% interest in the foreign partnership, it is considered to be a Category 2 filer and is required to file pages 1 and 2 of the Form 8865 as well as the applicable Schedules K-1, or the specified equivalent schedules.
- A Category 2 filer uses the first nine worksheet sections for the basic return, and the last twelve worksheet sections containing partner information for the applicable Schedules K-1.
If the filer contributed property during the year to the foreign partnership in exchange for an interest in the partnership, and after the contribution has at least a 10% interest in the foreign partnership or if total contributed during the year exceeds $100,000, it is considered to be a Category 3 filer and is required to file pages 1 and 2 of Form 8865 and Schedule O. A Category 1, 2, or 4 filer could also be a Category 3 filer.
- A Category 3 filer uses the first nine worksheet sections for the basic return, and the two sections for Schedule O.
Finally, if the U.S. partnership or corporation had a reportable event under Section 6046A with the foreign partnership during the tax year, which basically would be an acquisition, disposition, or change in proportional interest involving a 10% interest or more in the foreign partnership, it is considered to be a Category 4 filer and is required to file pages 1 and 2 of Form 8865 as well as Schedule P. A Category 1, 2, or 3 filer could also be a Category 4 filer. Enter the category or categories on U.S.Filer Information section. This determines which pages or schedules are produced.
- A Category 4 filer uses the first nine worksheet sections for the basic return, and the section for Schedule P.

If the foreign partnership filed Form 1065, the equivalent Form 1065 schedules are to be substituted for the Form 8865 Schedules B, D, K, L, M-1, M-2, and K-1. This applies only to Category 1 or 2 filers and is indicated by a checkbox on the first section.

A separate Form 8865 and associated schedules is required for each foreign partnership in which the Category 1, 2, 3, or 4 qualifications are met. If the partnership is a Category 1 or 2 filer, and need to file Schedules K-1 with the Form 8865, be sure to enter the Form 8865 reference number on U.S. Filer Information section and on the corresponding partner information sections for the respective Schedules K-1.

8858 to Be Filed with 8865

Processing Form 8858 Worksheet is used to create 8858 to be filed with 8865; you need to enter 8865 number for this purpose. 8858 is to be filed by a U.S person required to file Form 8865 with respect to a Controlled Foreign Partnership (CFP) that is a tax owner of an FDE (Foreign Disregarded Entities) at any time during the CFP's annual accounting period. You may enter additional entities for multiple Forms 8858 attached to multiple Forms 8865. Only category 1 filers and category 2 filers of Form 8858 that are tax owners of FDE's are required to file Form 8858. Category 1 filers should also use Form 8858 Schedule M to be filed with Form 8865 to enter information for Schedule M (Form 8858).

8865 Automation Using 1065 Calculation

Within a partnership return, you can create an 8865 automatically using the Form 1065 calculation. Information input or calculated for Form 1065, Pages 1 through 5, Schedules K-1, and certain other forms such as Forms 4797, 4562, 8825, and Schedule F, can optionally be used to produce Form 8865 and its related forms and schedules. This is referred to as an “automated 8865.”

To create an automated 8865 General > Section Return Options > line 20 titled Print options 1065, 1065-B, and 8865, select code 2, 3, or 4. Please note code 2, 8865 stand alone could be used when Federal 1065 is not intended to be filed out of this return but just 1065 level calculation is to be used to generate 8865.

There could be multiple 8865s in the 1065 return. One will be automated as noted above. You could still create additional 8865 in the usual manner through 8865 Worksheet under Foreign menu , the 8865 generated in this manner will be referred to as non-automated 8865.

Since automation uses 1065 calculation, any existing 1065 level functionality such as excel import, special allocation, or existing 1065 Federal level input scheme will also work for 8865 automation. For example if the user imports through Excel™ for special allocation, GL data for accounting information, gain and loss data import, depreciation data import, partnership data and then prepares automated 8865 General > Section Return Options, line 20 titled Print options 1065, 1065-B, and 8865, select code 2, 3, or 4 all of the imported information will be incorporated into 8865.

For the automated 8865, additional input may be added. The automated 8865 will have an entity no. 99. This is done for matching purposes. You could add some data (any schedules that do not exist such as Schedule A-1) or override automation by keying in entity no. 99 in Foreign > 8865 Worksheet > U.S Filer Information Section > U.S Filer Information, line 7 titled Form 8865 number. The same is true for 8865 level K-1. If overrides are needed, just key in the relevant partner number and 8865 number as "99." Other examples of additional input and schedules are, If you are a Category 3 filer, you need to indicate this as an additional information, include additional input for Schedule O. Likewise for a Category 4 filer, check that category and complete information for Schedule P. If Schedule N (Form 8865) is required, the transactions information needs to be added.

If only part of the Form 1065 amounts are to be carried to the automated 8865, use the “8865 automation percentage – override” on Foreign > 8865 Worksheet under Foreign menu > U.S Filer Information Section > line 8 titled 8865 Automation Percentage. If for instance only .10 or 10% of the various amounts should carry to the Form 8865, you would enter “.10.”

In general, you could override most forms and lines. For white paper statement supporting information, it will add an occurrence when you key in entity 99 in the manner described above and proceed to key in such information. Other exception to dollar overrides are Sch D Foreign Tax worksheets, 4797, 4562, 8825, Sch F, and 3468. If every needs to be an override, the user could just create another standalone 8865, change the numbers at the 1065 level, and link it to the existing return through cross over input.

Most of the 1065 level supporting statements will have a corresponding 8865 level supporting statement. We have recognized that users may have government view hard overrides at the 1065 level. We may create a single occurrences of 8865 level supporting statement with a generic description so numbers still foot.

Unless overridden on the Foreign > 8865 Worksheet under Foreign menu > U.S Filer Information Section , the automated 8865 is assumed to be for a Category 1 filer. Both Category 1 and Category 2 filers by default receive all the Schedules K-1 produced for the Form 1065. In order to generate 8865 level K-1 only for certain partners, use Partners > Partner Information Worksheet > Other Payments / Printing Percentage Overrides Section > line 15 titled Produce 8865, however this input is done on partner by partner basis, such as for a specific partner.

In order to remove a 8865 K-1 created in this manner, remove the X in the box noted above. There is also a global option to suppress all 8865 level K-1s. This is under same location as the Fed K-1 suppress option Partners > General Options Worksheet > Schedule K-1 Print Options Section > line 1, select Suppress 8865 K-1 as a choice.

8865 Crossover Functionality

You can prepare 8865 in one return and then access and file those from another return. Also, from one return you could access Forms 8865 from many other returns using your current return as a master or combined return for e-file or paper filing purposes. A Form 8865 prepared this way is called a “crossover 8865.”

A return can access Forms 8865 in another return by using Foreign > 8865 Automated Feature Worksheet. You can use this feature across 5 systems such as Partnership, S Corporation, Corporation, Individual, and Exempt Organization. The capability to send a 8865 from one system to another and file it would include both automated and non-automated 8865. We will call the top unit (filing entity) as 8865 reporting entity.

Additional 8865 level forms we include are 4797, 8825, 4562, Sch F, and 3468. These are 8865 versions of corresponding return level forms.

Cross over 8865 will read TS code to flag an 8865 for spouse or for taxpayer. The TS code for this reason will not be limited to just 1040 return types. TS code is located under Foreign > 8865 Worksheet under Foreign menu > U.S Filer Information Section > line 9 .

In a married filing joint 1040 return, when both taxpayer and spouse are partners in same partnership, we default to position that only one 8865 may be necessary with K-1 for both taxpayer and spouse included considering attribution rules. However, if you take a different position and would like to attach two separate automated 8865s, you could do so by creating two versions of the partnership return and flag one of those with a TS code of S, and then link both versions to the 1040 return.

General Questions

How do I produce the required Form 8865 filing for a Category 1 filer (i.e., the partnership that itself has 50% or more controlling interest in the foreign partnership) or a Category 2 filer (i.e., the partnership that itself has a 10% or more interest in the foreign partnership)?

A. Select the "Category (1) filer option on the first section of the 8865 - Return of Certain Persons with Respect to Foreign Partnerships worksheet in the Foreign category. Entries on the Form 8865 worksheet completes Form 8865. Use the Partner Information section in the 8865 worksheet to enter all information for partners in the foreign partnership to complete the Schedule(s) K-1 for each U.S. person that directly owns a 10% or greater interest in the foreign partnership, as well as for its own direct interest, if any. To have Form 1065 substitute forms used in lieu of the Form 8865 forms, select the option "Category (1) or (2) to use 1065 substitute forms" option in the first section of the Form 8865 worksheet.

How do I produce the required Form 8865 filing for a Category 3 filer (i.e., the partnership that itself has transfers or contributions involving a 10% or more interest in the foreign partnership)?

A. Select the "Category (3) filer option on the first section of the 8865 - Return of Certain Persons with Respect to Foreign Partnerships worksheet in the Foreign category.

You only require Form 8865, pages 1 and 2, and separate Schedule O, Transfer of Property to a Foreign Partnership.

How do I produce the required Form 8865 filing for a Category 4 filer (i.e., the partnership that itself has reportable events involving a 10% or more interest in the foreign partnership)?

A. Select the "Category (4) filer option on the first section of the 8865 - Return of Certain Persons with Respect to Foreign Partnerships worksheet in the Foreign category.

You only require Form 8865, pages 1 and 2, and separate Schedule P, Acquisitions, dispositions, and Changes of Interests in a Foreign Partnership.

Electronic Filing Crossover 8865

8865 created through crossover feature will be available for e-filing.

Additional forms 4797, 8825, 4562, Sch F, and 3468 behind Form 8865 will be available for e-filing.

When you would export the 8865 reporting entity return, only the top return will export. The crossover feature already includes 8865 with that return and in the e-file.

A standalone 8865 will not export since it can not be transmitted to IRS. please see additional detail on 8865 automation under topic 8865 Automation using 1065 calculation, standalone 8865 is created when General > Return Options > line 20 titled Print options 1065, 1065-B, and 8865, select code 2. 8865 stand alone could be used when Fed 1065 is not intended to be filed out of this return but just 1065 level calculation is to be used to generate 8865.

Electronic Filing Only. In order to separately, report the city, state, and ZIP codes in the electronic file. Be sure to use the separate fields now provided for every address. There are now separate fields for state or province, ZIP or Postal Code, and country (to use only if the applicable country is not the United States of America), in addition to street address and city fields.