If I Don’t File US Taxes Do I File Form 8865, Foreign Partnership

When is Form 8865 Required (Foreign Partnership)?

One common misconception that many U.S. taxpayers have is that if they are not required to file a U.S. tax return in a year because they don’t have sufficient income to have to file their return, they are not required to file any of the international information reporting forms either — but unfortunately, this is incorrect. The majority of the IRS international tax forms are required to be filed even if the taxpayer is not required to file a tax return in that year. There are some exceptions, such as IRS Form 8938, but more often than not, the international reporting return is still required. This is the case with Form 8865 which is used to report foreign partnerships. The form is similar to Form 5471, but less common since most taxpayers operate as foreign entities and not as foreign partnerships. Nevertheless, Form 8865 is still required even if the taxpayer is not required to file a U.S. tax return.

Form 8865 Example

Brian is a U.S. person for tax purposes but before coming to the United States he had entered into a partnership with another U.S. person while they were both living overseas. Brian is currently in graduate studies while living in the United States and not generating any income. Therefore, Brian is not required to file an annual tax return in the current year because he does not have any income. But, even though Brian is not required to file Form 1040, he is still required to file an annual partnership return on Form 8865. Since the foreign partnership does not conduct any business in the United States — or has any US-based clients — it should not be too complicated for Brian– nevertheless, it is still reportable, unless an exception, exclusion or limitation applies.

Failure to File and Penalties

The failure to file Form 8865 may result in significant fines and penalties, including the continuing failure to file penalty. Still, taxpayers should take note of the fact that the IRS has developed various amnesty programs to assist taxpayers with safely getting into compliance with prior year non-reporting of Form 8865.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.