Reporting Requirements for Ownership in a Foreign Partnership

The US economy is increasingly global, which has resulted in Americans seeking to diversify their investments through foreign businesses. An often used entity is a foreign partnership. Under US tax laws, partnerships are conduit entities and it is partners that are liable for income taxes based on their distributive share of partnership items under section 704 of the Code.

US citizens and residents, for purposes of the Code, are subject to US taxation on their worldwide income. As a result, the income "earned" through foreign partnerships is taxable to their US partners, regardless of where the partnership is located. If the foreign partnership has a trade or business connected with the US, it will also file a Form 1065.

Aside from the general partnership reporting requirements, US persons who own interests in foreign partnerships may be required to file additional information with the IRS. Treasury Regulations pursuant to section 6046A and 6038 detail the information required. US persons who fall under the requirements of section 6046A and 6038 must file a Form 8865. This form is an informational return and should accompany the individuals Form 1040 for the appropriate year.

Section 6046A requires that a US person with an interest in a foreign partnership report to the IRS when they have a reportable event. These reportable events include acquisitions, dispositions, and changes in the proportional interests of a foreign partnership that exceeds 10%.

Form 8865 can be found here.