What’s New

See What’s New in the Instructions for Form 1065 for changes and new Internal Revenue Code sections that may affect foreign partnerships with fiscal years, corporate partners, or certain impacted activities.

Note: If you are reporting capital gains and losses, use Schedule D (Form 1065). See the Instructions for Schedule D (Form 1065).

Purpose of Form Use Form 8865 to report the information required under section 6038 (reporting with respect to controlled foreign partnerships), section 6038B (reporting of transfers to foreign partnerships), or section 6046A (reporting of acquisitions, dispositions, and changes in foreign partnership interests).

Who Must File A U.S. person qualifying under one or more of the Categories of Filers (see below) must complete and file Form 8865. These instructions and the Filing Requirements for Categories of Filers chart, later, explain the information, statements, and schedules required for each category of filer. If you qualify under more than one category for a particular foreign partnership, you must submit all the items required for each category under which you qualify.

Example. If you qualify as a Category 2 and a Category 3 filer, you must submit all the schedules required of Category 2 filers (page 1 of Form 8865, and Schedules A, A-2, N, K-1, and K-3) plus any additional schedules that Category 3 filers are required to submit (Schedules A-1 and O).

Complete a separate Form 8865 and the applicable schedules for each foreign partnership.

File the 2025 Form 8865 with your income tax return for your tax year beginning in 2025.

If a Form 8832, Entity Classification Election, was filed for this entity for the current tax year, see When To File and Where To File in the instructions for Form 8832 to determine if you are required to attach a copy of the Form 8832 to the tax return to which the Form 8865 is being attached.

If a domestic section 721(c) partnership is formed on or after January 18, 2017, and the gain deferral method is applied, then a U.S. transferor must file Form 8865 for that partnership. See Regulations section 1.721(c)-6(b)(4). See Section 721(c) partnership, Gain deferral method , and U.S. transferor , later.

A U.S. transferor that is required to provide information for a partnership under Regulations sections 1.721(c)-6(b) (2)(iv) and 1.721(c)-6(b)(3)(xi) must file a separate Form 8865 (along with all necessary schedules and attachments) for each partnership treated as a U.S. transferor under Regulations sections 1.721(c)-3(d) and 1.721(c)-6(c)(2). See U.S. transferor , later.

Instructions for Form 8865 (2025) Catalog Number 26053N Dec 12, 2025 Department of the Treasury Internal Revenue Service www.irs.gov

Filing Requirements for Categories of Filers

Categories of Filers

Category 1 filer. A Category 1 filer is a U.S. person who controlled the foreign partnership at any time during the partnership’s tax year. Control of a partnership is ownership of more than a 50% interest in the partnership. See the definition of 50% interest, later. There may be more than one Category 1 filer for a partnership for a particular partnership tax year. See U.S. person and Foreign partnership , later.

A Category 1 filer also includes a U.S. transferor who must report certain information for a section 721(c) partnership for the tax year of contribution and subsequent years, pursuant to Regulations section 1.721(c)-6. A Category 1 filer fulfills this reporting requirement by filing Schedule G and, in certain circumstances, Schedule H. See Section 721(c) partnership and U.S. transferor, later.

Category 2 filer. A Category 2 filer is a U.S. person who at any time during the tax year of the foreign partnership owned a 10% or greater interest in the partnership while the partnership was controlled by U.S. persons each owning at least a 10% interest. However, if the foreign partnership had a Category 1 filer at any time during that

tax year, no person will be considered a Category 2 filer. See the definition of 10% interest, later.

If a domestic partnership contributes property to a foreign partnership, the domestic partnership’s partners are considered to have transferred a proportionate share of the contributed property to the foreign partnership. However, if the domestic partnership files Form 8865 and properly reports all the required information for the contribution, its partners will not be required to report the transfer.

A Category 3 filer includes a U.S. transferor who (a) contributes section 721(c) property to a section 721(c)

Category 3 filer. A Category 3 filer is a U.S. person who contributed property during that person’s tax year to a foreign partnership in exchange for an interest in the partnership (a section 721 transfer), if that person either:

1. Owned directly or constructively at least a 10% interest in the foreign partnership immediately after the contribution, or

2. The value of the property contributed (when added to the value of any other property contributed to the partnership by such person, or any related person, during the 12-month period ending on the date of transfer) exceeds $100,000.

2 Instructions for Form 8865 (2025)

partnership, and (b) has reporting requirements pursuant to Regulations section 1.721(c)-6(b)(2). The Category 3 filer fulfills this reporting requirement by filing Schedule G, in addition to Schedule O, and, in certain circumstances, Schedule H. See Section 721(c) property, later.

Category 3 also includes a U.S. person that previously transferred appreciated property to the partnership and was required to report that transfer under section 6038B, if the foreign partnership disposed of such property while the U.S. person remained a direct or indirect partner in the partnership.

Category 4 filer. A Category 4 filer is a U.S. person that had a reportable event under section 6046A during that person’s tax year. There are three categories of reportable event’s under section 6046A: acquisitions, dispositions, and changes in proportional interests.

has increased or decreased by at least the equivalent of a 10% interest in the partnership. Special rule for a partnership interest owned on December 31, 1999. If the U.S. person owned at least a 10% direct interest in the foreign partnership on December 31,1999, then comparisons should be made to the person’s direct interest on December 31,1999. Once the person has a reportable event after December 31,1999, future comparisons should be made by reference to the last reportable event.

Exceptions to Filing

Multiple Category 1 filers. If during the tax year of the partnership more than one U.S. person qualifies as a Category 1 filer, only one of these Category 1 partners is required to file Form 8865. A U.S. person with a controlling interest in the losses or deductions of the partnership isn’t permitted to be the filer of Form 8865 if another U.S. person has a controlling interest in capital or profits; only the latter may file the return. The U.S. person that files the Form 8865 must complete item F on page 1.

The single Form 8865 to be filed must contain all of the information that would be required if each Category 1 filer filed a separate Form 8865. Specifically, separate Schedules N, K-1, and K-3 (if applicable) must be attached to the Form 8865 for each Category 1 filer. Also, items B, C, and D on page 1 and Schedule A on page 2 of Form 8865 must be completed for each Category 1 filer not filing the form. Attach a separate statement listing this information to the single Form 8865.

Acquisitions. A U.S. person that acquires a foreign partnership interest has a reportable event if:

• The person didn’t own a 10% or greater direct interest in the partnership and, as a result of the acquisition, the person owns a 10% or greater direct interest in the partnership (for example, from 9% to 10%)—for purposes of this rule, an acquisition includes an increase in a person’s direct proportional interest (see Changes in proportional interests, later); or

• Compared to the person’s direct interest when the person last had a reportable event, after the acquisition the person’s direct interest has increased by at least a 10% interest (for example, from 11% to 21%). An acquisition of a section 721(c) partnership interest may be an acceleration event exception under the gain deferral method. See Regulations section 1.721(c)-5. In this case, the acquirer may become a successor U.S. transferor and may have a reporting requirement under Regulations section 1.721(c)-6. See the specific instructions for Schedule H, later.

A Category 1 filer not filing Form 8865 must attach a statement entitled “Controlled Foreign Partnership Reporting” to that person’s income tax return.

Dispositions. A U.S. person that disposes of a foreign partnership interest has a reportable event if:

• The person owned a 10% or greater direct interest in the partnership before the disposition and, as a result of the disposition, the person owns less than a 10% direct interest (for example, from 10% to 8%)—for purposes of this rule, a disposition includes a decrease in a person’s direct proportional interest; or

• Compared to the person’s direct interest when the person last had a reportable event, after the disposition the person’s direct interest has decreased by at least a 10% interest (for example, from 21% to 11%). A disposition of a section 721(c) partnership interest may be an acceleration event for purposes of applying the gain deferral method. The U.S. transferor may be required to recognize gain in an amount equal to the remaining built-in gain on the section 721(c) property previously contributed to the section 721(c) partnership. See Regulations section 1.721(c)-4. For acceleration event exceptions, see Regulations section 1.721(c)-5. See the specific instructions for Schedule H, later.

The statement must include the following information.

• A statement that the person qualified as a Category 1 filer, but is not submitting Form 8865 under the multiple Category 1 filers exception.

• The name, address, and identifying number (if any) of the foreign partnership of which the person qualified as a Category 1 filer.

• A statement that the filing requirement has been or will be satisfied.

• The name and address of the person filing Form 8865 for this partnership.

• The Internal Revenue Service Center where the Form 8865 must be filed (or indicate “electronic filing” if the Form 8865 has been or will be filed electronically).

Caution: A U.S. person who qualifies for this exception to the Category 1 filing requirement would still have to file a separate Form 8865 if that person is also subject to the filing requirements of Category 3 or 4. This separate Form 8865 would include all the information required for a Category 3 filer, a Category 4 filer, or a U.S. transferor who must report certain information for a section 721(c) partnership for the year of contribution and subsequent years, pursuant to Regulations section 1.721(c)-6, in addition to the “Controlled Foreign Partnership Reporting” statement.

Constructive owners. See Constructive ownership, later. A Category 1 or 2 filer that doesn’t own a direct interest in the partnership and that is required to file this

Changes in proportional interests. A U.S. person has a reportable event if compared to the person’s direct proportional interest the last time the person had a reportable event, the person’s direct proportional interest

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form solely because of constructive ownership from a U.S. person(s) isn’t required to file Form 8865 if:

1. Form 8865 is filed by the U.S. person(s) through which the indirect partner constructively owns an interest in the foreign partnership,

2. The U.S. person through which the indirect partner constructively owns an interest in the foreign partnership is also a constructive owner and meets all the requirements of this constructive ownership filing exception, or

3. Form 8865 is filed for the foreign partnership by another Category 1 filer under the multiple Category 1 filers exception.

To qualify for the constructive ownership filing exception, the indirect partner must file with its income tax return a statement entitled “Controlled Foreign Partnership Reporting.”

This statement must contain the following information.

1. A statement that the indirect partner was required to file Form 8865, but isn’t doing so under the constructive owners exception.

2. The names and addresses of the U.S. persons whose interests the indirect partner constructively owns.

3. The name and address of the foreign partnership for which the indirect partner would have had to have filed Form 8865 but for this exception.

4. If the indirect partner is a domestic corporation, a statement setting forth all the information that the indirect partner would have had to provide in response to questions G8a and G8b on Form 8865. See Item H10, later, for more information.

Members of an affiliated group of corporations filing a consolidated return. If one or more members of an affiliated group of corporations filing a consolidated return qualify as Category 1 or 2 filers for a particular foreign partnership, the common parent corporation may file one Form 8865 on behalf of all of the members of the group required to report. Except for group members who also qualify under the constructive owners exception, the Form 8865 must contain all the information that would have been required to be submitted if each group member filed its own Form 8865.

Exception for certain trusts. Trusts relating to state and local government employee retirement plans that would otherwise have Forms 8865 reporting requirements with regard to foreign partnerships aren’t required to file Form 8865.

Exception for certain Category 4 filers. If you qualify as a Category 3 and 4 filer because you contributed property to a foreign partnership in exchange for a 10% or greater interest in that partnership, you aren’t required to report this transaction under both Category 3 and 4 filing requirements. If you properly report the contribution of property under the Category 3 rules, you aren’t required to report it as a Category 4 filer. However, the acquisition will count as a reportable event to determine if a later change in your partnership interest qualifies as a reportable event under Category 4.

Example. Partner A doesn’t own an interest in FPS, a foreign partnership. Partner A transfers property to FPS in exchange for a 15% direct interest. Partner A qualifies as a Category 3 filer because he transferred property to a foreign partnership and owned at least a 10% interest in FPS immediately after the contribution. Partner A is also a Category 4 filer because he didn’t own a 10% or greater direct interest in FPS and as a result of the acquisition now owns a 10% or greater direct interest in FPS. If Partner A properly reports the contribution on Form 8865 as a Category 3 filer, Partner A isn’t required to report his acquisition of the 15% interest in FPS as a Category 4 filer.

Relief for Category 1 and 2 Filers When the Foreign Partnership Files Form 1065 If a foreign partnership files Form 1065 for its tax year, Category 1 and 2 filers may use a copy of the completed Form 1065 schedules in place of the equivalent schedules of Form 8865.

If you file Form 8865 with an electronically filed income tax return, see the electronic filing publications identified in the instructions for your income tax return for more information.

See the first paragraph under General Instructions, earlier, for the Form 1065 schedules that are equivalent to the Form 8865 schedules.

Example. Partner A is a Category 1 filer with respect to FPS, a foreign partnership, during the 2025 tax year. FPS completes and files a Form 1065 for its 2025 tax year. Instead of completing Schedules B, K, K-2, L, M-1, M-2, K-1, and K-3 of Form 8865, Partner A may attach to its Form 8865 page 1 of Form 1065 and Form 1065 Schedules K, K-2, L, M-1, M-2, K-1, and K-3 (including the Schedules K-1 and K-3 for Partner A and all other U.S. persons owning 10% or greater direct interests in FPS). Partner A must complete the following items and schedules on Form 8865.

When and Where To File Attach Form 8865 to your income tax return (or, if applicable, partnership or exempt organization return) and

• The first and second pages.

• Schedule A.

• Schedule A-1.

• Schedule A-2.

• Schedule A-3.

• Schedule G (Form 8865).

• Schedule H (Form 8865).

• Schedule M.

• Schedule N.

Example. Partner A is a Category 2 filer with respect to FPS, a foreign partnership. If FPS completes and files a Form 1065 for its 2025 tax year, Partner A may file with Form 8865 the Schedules K-1 and K-3 (Form 1065) that it receives from the partnership instead of Schedules K-1 and K-3 (Form 8865). Partner A must complete the following items and schedules on Form 8865.

• The first and second pages.

• Schedule A.

• Schedule A-2.

• Schedule N.

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file both by the due date (including extensions) for that return. If you don’t have to file an income tax return, you must file Form 8865 separately with the IRS at the time and place you would be required to file an income tax return (or, if applicable, a partnership or exempt organization return). See below for penalties that may apply if you don’t file Form 8865 on time.

Definitions

Partnership. A partnership is the relationship between two or more persons who join to carry on a trade or business, with each person contributing money, property, labor, or skill and each expecting to share in the profits and losses of the business whether or not a formal partnership agreement is made.

The term “partnership” includes a limited partnership, syndicate, group, pool, joint venture, or other unincorporated organization, through or by which any business, financial operation, or venture is carried on, that isn’t, within the meaning of the regulations under section 7701, a corporation, trust, estate, or sole proprietorship. A joint undertaking merely to share expenses isn’t a partnership. Mere co-ownership of property that is maintained and leased or rented isn’t a partnership. However, if the co-owners provide services to the tenants, a partnership exists.

Foreign partnership. A foreign partnership is a partnership that isn’t created or organized in the United States or under the law of the United States or of any state or the District of Columbia. If a domestic section 721(c) partnership is formed on or after January 18, 2017, and the gain deferral method is applied, then the section 721(c) partnership is treated as a foreign partnership for purposes of Form 8865 and these instructions. See Regulations section 1.721(c)-6(b)(4).

Section 721(c) partnership. A partnership (domestic or foreign) is a section 721(c) partnership if there is a contribution of section 721(c) property to the partnership and, after the contribution (and all transactions related to the contribution), (a) a related foreign person with respect to the U.S. transferor is a direct or indirect partner in the partnership; and (b) the U.S. transferor and related persons own 80% or more of the interests in partnership capital, profits, deductions, or losses. See Regulations section 1.721(c)-1(b)(14).

U.S. transferor. A U.S. transferor is a U.S. person other than a domestic partnership. See Regulations section 1.721(c)-1(b)(18).

Section 721(c) property. Section 721(c) property is property (other than excluded property) with built-in gain that is contributed to a partnership by a U.S. transferor, including pursuant to a contribution described in Regulations section 1.721(c)-2(d) (partnership look-through rule). See Regulations section 1.721(c)-1(b) (15).

Gain deferral contribution. A gain deferral contribution is a contribution of section 721(c) property to a section 721(c) partnership for which the recognition of gain is deferred under the gain deferral method. See Regulations section 1.721(c)-1(b)(7).

Gain deferral method. The gain deferral method is the method described in Regulations section 1.721(c)-3(b) applied to avoid the immediate recognition of gain upon a contribution of section 721(c) property to a section 721(c) partnership under Regulations section 1.721(c)-2(b).

50% interest. A 50% interest in a partnership is an interest equal to:

• 50% of the capital,

• 50% of the profits, or

• 50% of the deductions or losses. For purposes of determining a 50% interest, the constructive ownership rules described below apply.

10% interest. A 10% interest in a partnership is an interest equal to:

• 10% of the capital,

• 10% of the profits, or

• 10% of the deductions or losses. For purposes of determining a 10% interest, the constructive ownership rules described below apply.

Constructive ownership. For purposes of determining an interest in a partnership, the constructive ownership rules of section 267(c) (excluding section 267(c)(3)) apply, taking into account that such rules refer to corporations and not to partnerships. Generally, an interest owned directly or indirectly by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by its owners, partners, or beneficiaries.

Also, an individual is considered to own an interest owned directly or indirectly by or for their family. The family of an individual includes only that individual’s spouse, siblings, ancestors, and lineal descendants. An interest will be attributed from a nonresident alien individual under the family attribution rules only if the person to whom the interest is attributed owns a direct or indirect interest in the foreign partnership under section 267(c)(1) or (5).

U.S. person. A U.S. person is a citizen or resident of the United States, a domestic partnership, a domestic corporation, and any estate or trust that isn’t foreign. See section 7701(a)(30).

Control of a corporation. For purposes of Schedule N, control of a corporation is ownership of stock possessing more than 50% of the total combined voting power, or more than 50% of the total value of shares of all classes of stock, of the corporation. For rules concerning indirect ownership and attribution, see Regulations section 1.6038-2(c).

Change in a proportional interest. A partner’s proportional interest in a foreign partnership can change as a result of changes in other partners’ interests, for example, when another partner withdraws from the partnership. A partner’s proportional interest can also change, for example, by operation of the partnership agreement (for example, if the partnership agreement provides that a partner’s interest in profits will change on a set date or when the partnership has earned a specified amount of profits, then the partner’s proportional interest changes when the set date or specified amount of profits is reached).

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Penalties

Failure to timely submit all information required of Category 1 and 2 filers.

the United States (such as an income tax treaty; an estate and gift tax treaty; or a friendship, commerce, and navigation treaty):

• A $10,000 penalty is imposed for each tax year of each foreign partnership for failure to furnish the required information within the time prescribed. If the information isn’t filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per foreign partnership) is charged for each 30-day period, or fraction thereof, during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000 for each failure.

• Overrides or modifies any provision of the Internal Revenue Code, and

• Causes (or potentially causes) a reduction of any tax incurred at any time.

Failure to make such a report may result in a $1,000 penalty ($10,000 in the case of a C corporation). See section 6712.

• Any person who fails to furnish all of the information required within the time prescribed will be subject to a reduction of 10% of the foreign taxes available for credit under sections 901 and 960. If the failure continues 90 days or more after the date the IRS mails notice of the failure, an additional 5% reduction is made for each 3-month period, or fraction thereof, during which the failure continues after the 90-day period has expired. See section 6038 (and the underlying regulations) for the maximum reduction, the exception due to reasonable cause, and the limits on the amount of these penalties.

• Criminal penalties under sections 7203, 7206, and 7207 may apply for failure to file or for filing false or fraudulent information.

Additionally, any person that files under the constructive owners exception may be subject to these penalties if all the requirements of the exception aren’t met. Any person required to file Form 8865 who doesn’t file under the multiple Category 1 filers exception may be subject to the above penalties if the other person doesn’t file a correctly completed form and schedules. See Exceptions to Filing , earlier.

Failure to file information required of Category 3 fil- ers. Any person that fails to properly report a contribution to a foreign partnership that is required to be reported under section 6038B and the regulations under that section is subject to a penalty equal to 10% of the fair market value (FMV) of the property at the time of the contribution. This penalty is subject to a $100,000 limit, unless the failure is due to intentional disregard. In addition, the transferor must recognize gain on the contribution as if the contributed property had been sold for its FMV. See section 6038B for the exception due to reasonable cause.

Failure to file information required of Category 4 fil- ers. Any person who fails to properly report all the information requested by section 6046A is subject to a $10,000 penalty, in addition to the section 7203 criminal penalty, unless it is shown that such failure is due to reasonable cause. If the failure continues for more than 90 days after the IRS mails notice of the failure, an additional $10,000 penalty will apply for each 30-day period (or fraction thereof) during which the failure continues after the 90-day period has expired. The additional penalty shall not exceed $50,000.

Treaty-based return positions. File Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), to report a return position that a treaty of

Section 6662(j). Penalties may be imposed for underpayment attributable to undisclosed foreign financial asset understatements. The term “undisclosed foreign financial asset” for any tax year includes any asset for which required information was not provided. An “undisclosed foreign financial asset understatement” means for any tax year, the portion of the understatement for that tax year which is attributable to any transaction involving an undisclosed foreign financial asset. No penalty will be imposed for any portion of an underpayment if the taxpayer can demonstrate that the failure to comply was due to reasonable cause for such portion of the underpayment and the taxpayer acted in good faith for such portion of the underpayment. See sections 6662(j) and 6664(c) for additional information.

Failure to comply with a requirement of the gain de- ferral method. Failure to comply with a requirement of the gain deferral method, including a failure to comply with the procedural and reporting requirements imposed under Regulations sections 1.721(c)-3 and 1.721(c)-6 and section 6038B, may result in an acceleration event under Regulations section 1.721(c)-4(b)(2) and a penalty under section 6038B. See the specific instructions for Schedule G and Schedule H, later.

Corrections to Form 8865 If you file a Form 8865 that you later determine is incomplete or incorrect, file a corrected Form 8865 with an amended tax return following the instructions for the return with which you originally filed Form 8865. Enter “corrected” at the top of the form and attach a statement identifying and explaining the changes.