New U.S. International Tax Reporting Disclosures Required on 2016 U.S. Federal Form 1065 Partnership Tax Return

international
Share Button

Remember when international reporting disclosures required on U.S. Federal Form 1065 partnership tax returns were focused on foreign partner tax withholding? In 2017, partnerships that file U.S. federal partnership tax returns for the 2016 tax year using Form 1065, must make more extensive international tax reporting disclosures. Here are some items to pay close attention to on Form 1065.

  • Page 2, Line 10: the partnership must disclose whether it owned or had signature authority over any foreign accounts and whether it is required to file the FinCEN Form 114 Foreign Bank Account Report (FBAR). If the answer to this question is yes, then the partnership may have an FBAR filing requirement. There is a $10,000 USD civil penalty per year for the non-willful failure to file the FBAR on time. The penalties increase to the greater of $100,000 USD or 50% of the account balance per year for an intentional or willful failure to file the FBAR.
  • Page 3, Line 11: the partnership must disclose whether the partnership received a distribution from, or was the grantor of, or a transferor to a foreign trust. If the answer to this question is yes, then the partnership may have a Form 3520 and/or Form 3520-A filing requirement. There are substantial penalties that apply for the failure to file these forms on time.
  • Page 3, Line 15: the partnership must disclose whether it owned 100% of a foreign disregarded entity and whether it is filing Form 8858 with the partnership tax return. There is a $10,000 USD penalty per year for the failure to file Form 8858 on time.
  • Page 3, Line 16: the partnership must disclose whether it is filing Forms 8804 and 8805, to report foreign partner tax withholding on Effectively Connected Taxable Income (ECTI) under the provisions of I.R.C. Section 1446.
  • Page 3, line 17: the partnership must disclose whether it owned an interest in a foreign partnership and whether it is filing Form 8865 with the partnership tax return. There is a $10,000 USD penalty per year for the failure to file Form 8865 on time.
  • Page 3, Line 19: the partnership must disclose whether it owned an interest in a foreign corporation and whether it is filing Form 5471 with the partnership tax return. There is a $10,000 USD penalty per year for the failure to file Form 5471 on time.
  • Page 3, Line 20: the partnership must disclose whether any partners in the partnership are foreign governments.
  • Page 3, Line 21: the partnership must disclose whether it made any payments subject to U.S. federal nonresident withholding tax under the Chapter 3 provisions of I.R.C. Sections 1441 through 1464, or Chapter 4 FATCA provisions of I.R.C. Sections 1471 through 1474. This type of tax withholding is based on certain types of passive income such as interest, dividends, rents, and royalties, etc. The partnership is required to respond to this question on the tax return to indicate whether it is required to file U.S. federal Forms 1042 and 1042-S, to report the tax withholding.
  • Page 3, Line 22: the partnership must disclose whether it is required to file Form 8938, to report specified foreign financial assets. There is a $10,000 USD penalty per year for the failure to file Form 8938.

These new disclosure requirements on U.S. federal Form 1065 partnership tax returns likely resulted from the IRS’s continuing efforts to increase compliance with U.S. international tax reporting requirements. With global expansion and increasing cross-border international activities, these reporting requirements are particularly important to discuss with a qualified U.S. international tax reporting and compliance expert. If your U.S. or foreign partnership files a U.S. federal Form 1065, these reporting requirements should be a top priority to avoid substantial penalties. Under some circumstances, it is possible for U.S. filers, including partnerships, to qualify for certain amnesty relief from penalties for prior year failure to file delinquencies. With proper guidance, a partnership can potentially qualify for certain IRS amnesty procedures that will allow late filing of Forms 5471 and FBARs, etc. without late filing penalties.

Historically, partnerships were required to disclose ownership of foreign corporations and partnerships on U.S. federal Form 1065, and ownership by foreign parties. These disclosures are still required on the 2016 U.S. federal Form 1065.

For more information, please contact Aronson LLC’s international tax advisor Alison Dougherty at 301.231.6290 or ADougherty@aronsonllc.com.

About Alison N. Dougherty

Alison N. Dougherty has written 37 post in this blog.

Alison N. Dougherty provides tax services as a Director at Aronson LLC. She specializes in providing outbound international tax guidance to U.S. individuals and companies with activities in other countries. She assists U.S. taxpayers with U.S. tax reporting and compliance for offshore assets and foreign accounts. She also specializes in providing inbound international tax guidance to nonresident individuals and companies with activities in the United States. Her responsibilities include U.S. federal and state tax compliance for corporations, partnerships, and individuals. She also provides transactional tax planning and structuring services.

Share Button

View Archives

Blog Authors

Latest Webinar Videos