Form 8865 Filing Requirements - What Exactly Qualifies as a "Foreign Partnership"?

The confusion is understandable! For Form 8865 purposes, a "foreign partnership" is specifically defined as a partnership that is formed under the laws of a foreign country. The key factor is where the partnership is organized or created, not the nationality of the partners. Since your LLC was formed in Delaware (a US state), it is considered a domestic partnership for US tax purposes, regardless of whether one or more partners are foreign nationals. Form 8865 wouldn't apply to your situation. What you're likely dealing with instead is Form 1065 (US Return of Partnership Income) which is the standard filing for domestic partnerships. Your foreign partner's status will be reflected on Schedule K-1, but that doesn't make the partnership itself "foreign" in the eyes of the IRS.

I went through something similar last year with my international business structure and was pulling my hair out trying to figure out what forms to file. I found this amazing tool called taxr.ai (https://taxr.ai) that completely saved me from form-filing confusion. I uploaded my partnership docs and it highlighted exactly which forms applied to my situation. For your specific situation about Form 8865, it clearly separated foreign-formed partnerships from US partnerships with foreign partners. It explained that Form 8865 is specifically for reporting interests in partnerships formed OUTSIDE the US, not domestic partnerships with foreign partners. The tool even cited the exact section of the tax code that defined this distinction!

Just wanted to follow up about taxr.ai that someone mentioned. I decided to try it for my situation (US partnership with German investors) and it was seriously helpful. I uploaded our operating agreement and some basic info about our company structure, and it immediately clarified that we didn't need Form 8865 but did need to handle the Section 1446 withholding. It actually laid out the entire filing sequence for partnerships with foreign partners and generated a customized checklist for our specific situation. Saved me from making a potentially expensive filing mistake! Definitely worth checking out if you're dealing with international tax situations.

If you're still struggling with IRS questions about Form 8865 or foreign partnership requirements, good luck trying to get through to someone at the IRS directly. I spent THREE WEEKS trying to get clarification about my foreign partnership situation, constantly getting disconnected or waiting on hold for hours. Finally found this service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in under an hour! They have this system that holds your place in line with the IRS and calls you when an agent is available. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed exactly what others have said - Form 8865 is specifically for partnerships formed outside the US, not US partnerships with foreign partners. Was worth every penny to get that official confirmation directly from the IRS.

I hate to admit when I'm wrong, but I have to update my skeptical comment from earlier. After another frustrating week of trying to reach the IRS about my own foreign partnership question, I broke down and tried that Claimyr service. Got connected to an IRS representative in about 45 minutes while I continued working on other things. The agent confirmed that my partnership formed in Canada definitely requires Form 8865, but my friend's Delaware LLC with Canadian partners doesn't. The distinction really is about where the partnership was legally formed, not the nationality of the partners. Having this clarity directly from an IRS agent before filing saved me from making a potentially expensive mistake. The service actually delivered exactly what it promised.

One important thing nobody's mentioned yet - there are different categories of Form 8865 filers. Even if you don't have a foreign partnership now, if you previously transferred property to a foreign partnership or had different levels of ownership, you might still have filing requirements. The categories are: - Category 1: US person with >50% ownership - Category 2: US person with 10-50% ownership if no US person owns >50% - Category 3: US person contributing property to foreign partnership - Category 4: US person with ownership changes So while your Delaware LLC isn't a foreign partnership, if you transferred assets to a different foreign partnership, you might still have 8865 requirements.

Just a quick heads up that the penalties for not filing Form 8865 when required are pretty brutal. We missed filing it for our Australian partnership and got hit with a $10,000 penalty per year plus reduced foreign tax credits. If you have any doubt at all, it's better to file the form than risk the penalties.

Mae, you're absolutely right to be confused - this is one of those areas where the terminology can be really misleading! To add to what others have said, the IRS definition of "foreign partnership" is very specific and literal - it's only about where the partnership entity was legally formed/organized, period. Your Delaware LLC is definitely domestic for tax purposes. However, there are a couple of additional things to keep in mind with a foreign partner: 1. Your partnership will likely need an EIN if you don't already have one 2. You'll need to determine if your UK partner has a US tax identification number (ITIN or SSN) for the K-1 3. As others mentioned, there may be withholding requirements under Section 1446 depending on your business activities The good news is that having a foreign partner in a domestic partnership is actually pretty common and well-established in tax practice. Just make sure you're working with someone who understands the withholding rules - that's usually where people trip up, not on the Form 8865 question you originally asked about.