Form 8865 Reporting Checklist: 2022 Tax Year Return of U.S. Persons With Respect to Certain Foreign Partnerships
Purpose
Form 8865 reports 2022 controlled foreign partnership (CFP) interests and related transactions.
Tax year 2022 continued the requirement for Schedule K-2 (Form 8865) and Schedule K-3 to report partners' distributive share items of international tax relevance. When the partnership has items of international tax relevance, filers must check box 16 and attach Schedule K-2 after consulting the separate K-2/K-3 instructions to determine specific filing requirements.
Line 12 questions apply to domestic corporate filers claiming foreign-derived intangible income (FDII) deductions under section 250 with respect to transactions involving the foreign partnership.
Filer Category Determination
1. Confirm Filer Category (1–4)
Confirm the filer category matches the partnership structure and your involvement level:
● Category 1: U.S. person who controlled the foreign partnership at any time during the partnership's tax year. Control means ownership of more than 50% of capital, profits, or deductions/losses. Also includes U.S. transferors reporting section 721(c) partnership information pursuant to Regulations section 1.721(c)-6.
● Category 2: U.S. person who owned a 10% or greater interest at any time during the partnership's tax year while the partnership was controlled by U.S. persons each owning at least 10%. No Category 2 filing is required if a Category 1 filer exists for that partnership during the tax year.
● Category 3: U.S. person who contributed property to a foreign partnership in exchange for an interest during the filer's tax year, meeting either:
○ (a) direct or constructive ownership of at least 10% immediately after contribution, or
○ (b) contributed property value exceeding $100,000 (including related-party contributions within the preceding 12 months).
Includes U.S. transferors contributing section 721(c) property and reporting transfers to foreign partnerships under section 6038B.
● Category 4: U.S. person with a reportable event under section 6046A (acquisitions, dispositions, or changes in proportional interests). Reportable events include acquiring or increasing direct interest by 10% or more, disposing or decreasing direct interest by 10% or more, or changes in proportional interest of at least 10%.
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.
2. Constructive Ownership Rules
Constructive ownership applies for determining interests using section 267(c) rules (excluding 267(c)(3)). Interests owned by corporations, partnerships, estates, or trusts are attributed proportionately to owners, partners, or beneficiaries. Family attribution includes spouse, siblings, ancestors, and lineal descendants.
Identifying Information and Initial Disclosures
3. Complete Part A
Complete Part A, identifying the filer, tax year, and partnership information. For item C, report the filer's share of nonrecourse liabilities, partnership-level qualified nonrecourse financing, and other liabilities as of year-end. This disclosure implements the 2022 partnership liability tracking requirements under section 752.
4. Complete Parts G–H
Complete Parts G–H, providing comprehensive partnership identification:
● Foreign partnership name
● EIN (or reference ID number if no EIN)
● Country of organization
● Principal place of business
● Principal business activity code
● Functional currency
● Exchange rate used in 2022 computations
Key Questions and Section-Specific Reporting
5. Section 267A: Disallowed Deductions (H5)
Answer H5 regarding section 267A's disallowed deductions. If the partnership paid or accrued any interest or royalty for which deduction is not allowed under section 267A, enter the total disallowed amount and attach a detailed explanation. This 2022 requirement implements the Tax Cuts and Jobs Act base-erosion provisions targeting hybrid arrangements.
6. Section 721(c) Partnership Status (H6)
Answer H6 confirming whether the partnership qualifies as a section 721(c) partnership per Regulations section 1.721(c)-1(b)(14). A partnership qualifies if section 721(c) property was contributed and, after the contribution, a related foreign person is a partner, and the U.S. transferor and related persons own 80% or more of capital, profits, deductions, or losses.
7. Special Allocations (H7)
Answer H7 on special allocations made by the partnership under the partnership agreement.
8. Form 8858 Disclosure (H8)
Answer H8 indicating the number of attached Forms 8858 for foreign disregarded entities or branches owned by the foreign partnership.
9. Dual Consolidated Loss Questions (H10a–H10b)
Answer H10a–H10b on separate units and dual consolidated losses under Regulations section 1.1503(d)-1. These questions apply only if the filer has an interest in the partnership constituting a separate unit or a combined separate unit for dual consolidated loss purposes.
Safe Harbor Threshold
10. Apply H11 Safe Harbor
Apply the H11 safe-harbor threshold. If the partnership's total receipts were less than $250,000 and total assets were less than $1 million at year-end, Category 1 filers may skip Schedules L, M-1, and M-2.
Total receipts include gross receipts or sales, other Schedule B income, and various Schedule K income items. This safe harbor simplifies balance sheets and income statement reconciliation requirements for smaller foreign partnerships.
FDII Deduction Reporting (Domestic Corporations Only)
11. Section 250 Eligibility
Complete lines 12a–12d only if the filer is a domestic corporation claiming a foreign-derived intangible income (FDII) deduction under section 250 with respect to transactions with the foreign partnership. The section 250 deduction is available exclusively to domestic corporations and cannot be claimed by individuals, partnerships, or other entities.
12. FDDEI Segregation
Report:
● Line 12b: Gross receipts from sales of general property to the foreign partnership are included in the FDDEI computation
● Line 12c: Gross receipts from sales of intangible property to the foreign partnership are included in FDDEI
● Line 12d: Gross receipts from services provided to the foreign partnership are included in FDDEI
This three-part segregation of FDDEI components was clarified in the 2022 instructions to ensure accurate section 250 deduction calculations.
Transfer and Transaction Disclosure
13. Disguised Sale Disclosure (H14)
Answer H14 on section 1.707-8 transfer disclosure requirements. Check “Yes” if any partner transfers or distributions occurred during 2022 requiring disclosure under disguised sale regulations involving transfers to foreign partnerships.
Schedules and Statements
14. Core Income Schedules
Prepare:
● Schedule B (trade/business income and deductions, lines 1–22)
● Schedule C (income/loss summary, lines 1–21)
● Schedule K (partnership distributive share items, lines 1–21)
Category 1 filers complete all schedules; Category 2, 3, and 4 filers complete only those schedules specified in the filing requirements chart.
15. Schedule K-2 and K-3
Attach Schedule K-2 (Form 8865) if the partnership has items of international tax relevance and you check box 16. Consult the separate Instructions for Schedules K-2 and K-3 (Form 8865) to determine specific filing requirements, as certain domestic filing exceptions may apply.
16. Schedule N: Related-Party Transactions
Prepare Schedule N showing all sales, purchases, compensation, commissions, rents, royalties, interest, distributions, loans, and other transactions between the controlled foreign partnership and the U.S. person filer, domestic corporations/partnerships, foreign entities, and partners owning 10% or more.
17. Schedule L: Balance Sheets
If applicable, complete Schedule L (balance sheets per books) showing beginning-of-year and end-of-year financial position unless the H11 safe harbor applies. Balance sheets must include assets, liabilities, and partners' capital accounts, reconciled to their respective book values.
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.
18. Section 721(c) Schedules
Complete:
● Schedule G (Form 8865) for section 721(c) gain deferral method reporting
● Schedule H (Form 8865) for acceleration events and exceptions under section 721(c)
These schedules implement regulations requiring disclosure of built-in gains and deferred contributions under amended Regulations section 1.721(c)-1.
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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.
