Reporting requirements of property transfers to foreign partnerships.

• Author: Fry, Angela
• Position: Taxation

Rules similar to the established reporting requirements for transfers involving U.S. persons to foreign corporations now apply to transactions between U.S. persons and foreign partnerships. Earlier this year, final Regs. Sec. 1.6038B-2 was issued.

A U.S. person who transfers property to a foreign partnership must report that transfer, if he meets one of the following:

1. Ownership of at least a 10% interest in the partnership or

2. The value of the property transferred within the preceding 12-month period exceeds $100,000.

If the foreign partnership subsequently disposes of the appreciated property while such U.S. person remains a partner, the disposition must also be reported.

If a domestic partnership transfers property to a foreign partnership, the former's partners will be treated as transferring their proportionate shares of the property to the latter. The domestic partnership will be considered the U.S. person for reporting purposes; if it is in compliance with such requirement, the domestic partnership's partners will not have a reporting requirement. Rules on indirect transfers to a foreign partnership through a foreign partnership have been reserved.

Form 8865, Information Return of U.S. Persons With Respect To Certain Foreign Partnerships, should be used to report transfers (either contributions or dispositions) between the U,S. person and the foreign partnership. Form 8865 must be attached to the U.S. person's timely filed (including extensions) income tax return for the tax year that includes the transfer date. If a U.S. person transfers property to more than one foreign partnership during the tax year, a separate Form 8865 must be filed for each partnership.

Information requested on the Form 8865 includes the proper identification of the transferor and transferee, identification of the other partners in the foreign partnership (unless the transfer is only for cash and results in the transferor owning less than 10% of the...