Return of U.S. Persons with Respect to Certain Foreign Partnerships or Form 8865 is used by U.S. persons to report information regarding controlled foreign partnerships, transfer to foreign partnerships, and acquisitions, dispositions, and changes in foreign partnership interests.

What are the 4 categories of the Form 8865?

Category 1: Controllers- U.S. persons who control a foreign partnership. Control is established by ownership of more than a 50% interest in the partnership. Multiple Category 1 filers in a partnership can file a single joint Form 8865.

Category 2: Shareholders of U.S.-controlled foreign partnerships- U.S. persons who hold at least a 10% interest in a foreign partnership while the partnership is under the control of U.S. persons also holding at least a 10% interest each in the partnership.

Category 3: Contributors- U.S. persons who contributed property to a foreign partnership in exchange for an interest in the partnership. They are only required to file if they own at least 10% interest in the partnership immediately after the contribution or the value of the property contributed exceeds $100,000. 

Category 4: Acquisitions, Dispositions, and Changes in Proportional Interest

• Acquisition occurs when a person who owns less than 10% in the partnership acquires a 10% greater interest as a result of the transaction. In addition, acquisition may also occur when a person’s ownership interest decreases by 10% or more.
• Dispositions occur when a person who owns at least 10% interest in the partnership relinquishes enough interest to fall below 10% ownership. Further, disposition occurs when a person’s ownership interest decreases by 10%, or more, as a result of a transaction. 
• A change in proportional interest happens when a person’s direct proportional interest has increased or decreased by at least the equivalent of a 10% interest in the partnership.