Form 8865 Checklist: 2019 Tax Year Return of U.S. Persons With Respect to Certain Foreign Partnerships
Purpose
U.S. persons use Form 8865 to report ownership interests, transactions, and income related to controlled foreign partnerships. For the 2019 tax year, Form 8865 incorporates multiple Tax Cuts and Jobs Act (TCJA)–driven disclosures, including Section 721(c) partnership status, Section 267A disallowed interest and royalty deductions, and Section 250 foreign-derived intangible income (FDII) reporting.
The form serves as the primary reporting mechanism for U.S. taxpayers with direct or indirect ownership in foreign partnerships, supporting compliance with international tax reporting and disclosure requirements.
Filer Categories (2019)
Before completing Form 8865, determine the filer category or categories that apply. A filer may fall into more than one category.
● Category 1: U.S. person who controls a foreign partnership
● Category 2: U.S. person who owns at least a 10% interest, while U.S. persons control the partnership
● Category 3: U.S. person who contributed property to a foreign partnership
● Category 4: U.S. person who had a reportable acquisition, disposition, or change in proportional interest
Category determinations for 2019 must reflect the updated constructive ownership rules and control thresholds outlined in IRS guidance.
Year-Specific Filing Steps for 2019
1. Identify Applicable Filer Categories (Part A)
Check all applicable filer categories (Categories 1–4) in Part A. Note that category assignments may differ from those in prior years due to updated guidance on constructive ownership and control thresholds. Ownership attribution rules must be applied carefully to determine reporting obligations.
2. Report Functional Currency and Exchange Rate
On line 8b, report the foreign partnership’s functional currency and the applicable year-end exchange rate. Use IRS-published exchange rates for the last business day of the partnership’s tax year ending in 2019.
3. Complete Section 267A Disallowed Deduction Disclosure (Question H5)
Answer Question H5 regarding interest or royalty deductions disallowed under Section 267A. If “Yes,” attach a statement and report the total disallowed amount. This disclosure applies only to tax years beginning after December 31, 2017, and remains mandatory for tax years 2019 and subsequent years.
4. Disclose Section 721(c) Partnership Status (Question H6)
Answer Question H6 regarding Section 721(c) partnership status under Temporary Regulations §1.721(c)-1T(b)(14). This disclosure is newly required for 2019 and must be completed even if the answer is “No.”
5. Reconcile Income Reporting Across Schedules
Ensure Schedule K income items align with Part B reporting and Schedule N transaction disclosures. For 2019, only trade or business income is reported on Schedule B (lines 1–22). Passive and investment income must be excluded in accordance with updated instructions.
6. Report Section 250 FDII Amounts (Lines 12a–12d)
If applicable, complete Section 250 FDII reporting on lines 12a–12d. Separately report income from:
● Sales or leases of property
● Licenses
● Services
Verify consistency with Schedule N and foreign tax credit category designations to ensure proper coordination of income and deductions.
7. Complete Schedules L, M-1, and M-2 (If Required)
Complete Schedule L (balance sheet) and Schedules M-1 and M-2 (capital account reconciliation) unless both of the following apply:
● Total receipts for 2019 were under $250,000, and
● Total assets at year-end 2019 were under $1 million
If both conditions are met and Question H11 is answered “Yes,” these schedules may be omitted. Thresholds are unchanged from 2018.
8. Identify Foreign Partners and Section 864(c)(8) Partners (Part D)
List all foreign partners and any persons with a 10% or greater direct or constructive interest. For 2019, complete a new line 13 identifying the number of foreign partners subject to Section 864(c)(8) due to transfers of partnership interests or distributions during the tax year.
9. Attach Form 8825 for Rental Real Estate Income
If the partnership has net rental real estate income or loss, attach Form 8825 and report the activity on Schedule N, line 2. Rental activity must be distinguished from trade or business income.
10. Disclose Reportable Transactions (Schedule N)
Report transactions between the partnership and its partners occurring within a two-year lookback period. Complete:
● Question 14 for transactions subject to Regulation §1.707-8
● Questions 15a and 15b for transactions under Regulations §1.707-3 and §1.707-6
Attach explanatory statements for liability assumptions, property exchanges, and disguised sales.
11. Signature Requirements
Sign Form 8865 only if filing it separately. If Form 8865 is attached to a Form 1040, 1120, or other income tax return, do not complete the signature section on page 2.
12. Attach Required Schedules and Documentation
Attach all applicable schedules and forms, including:
● Schedule K
● Schedule N
● Schedule P
● Forms 4562, 4797, 8825
● Schedule D (Form 1065), if applicable
Confirm that Attachment Sequence No. 118 appears at the top of page 1.
2019 IRS Updates and Key Changes
Section 721(c) Disclosure Requirement
Section 721(c) partnership status disclosure is mandatory for 2019 under Temporary Regulations §1.721(c)-1T(b)(14). Failure to disclose may result in documentation penalties even if the partnership otherwise complies.
Section 267A Disallowed Deductions
Interest and royalty deductions disallowed under Section 267A must be disclosed in Question H5. Amounts are reported only if such deductions were paid or accrued during 2019.
Section 250 FDII Reporting
FDII reporting requires separate categorization of income sources to avoid commingling. Proper reporting ensures coordination with foreign tax credits and Schedule K disclosures.
Section 864(c)(8) Partner Identification
Line 13 is new for 2019 and applies to foreign partners who transferred partnership interests or received distributions subject to Section 864(c)(8). Only partners meeting the statutory criteria are counted.
Schedule P Ownership Change Reporting
Schedule P must be completed for acquisitions, dispositions, and proportional interest changes of 10% or more. Category 4 filers must report all such events occurring during 2019.
Exemptions and Reporting Thresholds
Only Category 1 filers are required to complete Schedules L, M-1, and M-2 unless exempt under Question H11. Total receipts include all income reported on Schedule B, Schedule K, and Form 8825.
Filing and Documentation Notes
Form 8865 must be attached to the filer’s income tax return unless filed separately. Category 1 filers carry the most extensive reporting burden, while Categories 2–4 focus on ownership, contributions, and reportable events. Accurate coordination of foreign taxes paid or accrued is critical for Schedule K and overall international tax compliance.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
