Corrections to Form 8865

If you file a Form 8865 containing incomplete or incorrect information, file a corrected Form 8865 with an amended tax return following the instructions for the return with which you originally filed Form 8865. Write corrected at the top of the form and attach a statement identifying and explaining the changes.

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Specific Instructions

Important: Fill in all applicable lines and sections. All information must be in English. All amounts must be stated in U.S. dollars.

If the information required in a given section exceeds the space provided within that section, do not write see attached in the section and attach all of the information on additional sheets. Instead, complete all entry spaces in the section and attach separate sheets to provide the remaining information, using the same size and format as the printed forms.

General Information

All categories of filers must complete all questions on page 1 with three exceptions. Complete Item E only if, in addition to filing the form on your own behalf, you are reporting information about other Category 1 filers under the multiple Category 1 filing exception, or are reporting information about members of your affiliated group of corporations under the consolidated return exception. See Exceptions to Filing on page 3. Answer Items G8 and G9 only if you are a Category 1 filer.

Tax Year

Enter in the space below the title of Form 8865 the tax year of the foreign partnership that ended with or within the tax year of the person filing this form. Category 1 or 2 filers must report information for the tax year of the foreign partnership that ends with or within their tax years. A Category 3 or 4 filer must report on Schedules O or P, respectively, transactions that occurred during that filer's tax year (rather than during the partnership's tax year).

Identifying Numbers and Addresses

Enter the identifying number of the person filing this return. Use an employer identification number (EIN) to identify partnerships, corporations, and estates or trusts. For individuals, use a social security number (SSN) or individual taxpayer identification number (ITIN).

Include the suite, room, or other unit number after the street address. If the Post Office does not deliver mail to the street address and the U.S. person has a P.O. box, show the box number instead.

Foreign address. Enter the information in the following order: city, province or state, and country. Follow the country's practice for entering the postal code, if any. Do not abbreviate the country name.

Item A - Category of Filer

Check the box for each category that describes the person filing the form. If more than one category applies, check all boxes that apply. See Categories of Filers on page 1.

Item C

Enter the filer's share of nonrecourse liabilities, partnership-level qualified nonrecourse financing, and other liabilities. Nonrecourse liabilities are those liabilities of the partnership for which no partner bears the economic risk of loss. The extent to which a partner bears the economic risk is determined under the rules of Regulations section 1.752-2.

"Qualified nonrecourse financing" generally includes financing for which no one is personally liable for repayment that is borrowed for use in an activity of holding real property and that is:

• Lent or guaranteed by a Federal, state, or local government or
• Borrowed from a qualified person.

See section 465 for more information on qualified nonrecourse financing.

Item D - Identification of Common Parent

If the person filing the form is a member of a consolidated group, but not the parent, list the name, address, and EIN of the filer's common parent.

Item E

Information about certain partners. If you are reporting information about other persons under the multiple Category 1 filers exception, or are reporting information about members of your affiliated group of corporations under the consolidated return exception (see Exceptions to Filing on page 3), identify each such person in Item E. List their names, addresses, and identifying numbers. Also indicate for each person whether such person is a Category 1 filer or Category 2 filer, and whether such person constructively owned an interest in the foreign partnership during the tax year of the partnership listed at the top of page 1 of Form 8865. See Constructive ownership on page 4.

Item F6

Category 1, 2, 3, and 4 filers in a partnership that filed Form 1065 or 1065-B. Enter the business code shown in Item C of the Form 1065 or 1065-B filed by the partnership.

Category 1, 2, 3, and 4 filers in a partnership that did not file Form 1065 or 1065-B. Enter the applicable business code from the list beginning on page 25. If the information necessary to apply the total receipts test is not available, pick a principal business activity code using the information you have about the partnership.

Item F8

Enter the foreign partnership's functional currency and exchange rate (the rate used to convert the functional currency to U.S. dollars). See sections 985 through 989 and the regulations thereunder. If the partnership had more than one qualified business unit (QBU), attach a statement identifying each QBU, its country of operation, and its functional currency. See Regulations section 1.989(a)-1(b) for the definition of a QBU.

Hyperinflationary exception. A partnership that has a hyperinflationary currency as its functional currency is subject to special rules set forth in Regulations section 1.985-3. Under these rules, a partnership must use the U.S. dollar as its functional currency.

Item G2

If the foreign partnership was required to file Form 1065 or Form 1065-B for the partnership's tax year listed at the top of page 1 (Form 8865), check the applicable box and enter the IRS Service Center where the form was or will be filed. Also check the applicable box(es) if the foreign partnership was required to file Form 8804, Annual Return for Partnership Withholding Tax (Section 1446), or Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons (for the calendar year ending within or with the foreign partnership's tax year).

Item G6

Enter the number of foreign disregarded entities owned by the partnership during the partnership's tax year. A disregarded entity is an entity that is disregarded as separate from its owner under Regulations section 301.7701-3(a). See Form 8832, Entity Classification Election, for more information. On an attached schedule, list the name and EIN of each foreign disregarded entity, identify the country or countries in which each disregarded entity conducts operations, and identify how the disregarded entity is classified in the foreign country.

Question G8 - Separate Units

Only Category 1 filers are required to answer question G8.

Indicate whether the partnership owned any interest in a separate unit. In general, a separate unit is:

1. A foreign branch that is owned either directly by a domestic corporation or indirectly by a domestic corporation through ownership of a partnership or trust interest,
2. An interest in a partnership, or
3. An interest in a trust.

See Regulations section 1.1503-2(c)(3) and (4) for more information on separate units. Attach a schedule identifying each separate unit and its country of operation.

Question G9

Only answer question G9 if you are a Category 1 filer.

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Schedule A - Constructive Ownership of Partnership Interest

All Category 1, 2, 3, and 4 filers must complete Schedule A. Check box a if the person filing the return owns a direct interest in the foreign partnership. Check box b if the person filing the return constructively owns an interest in the foreign partnership. See Constructive ownership on page 4.

Category 1 and 2 filers must list the persons (U.S. and foreign) whose interests in the foreign partnership they constructively owned during the partnership tax year for which this form is being completed.

Category 3 and 4 filers must list the persons (U.S. and foreign) whose interests in the foreign partnership they constructively owned during the filer's tax year during which the reportable transfer or reportable event occurred.

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Schedule A-1 - Certain Partners of Foreign Partnership

All Category 1 and certain Category 3 filers must complete Schedule A-1. Any person already listed on Schedule A is not required to be listed again on Schedule A-1.

Category 1 filers. Category 1 filers must list all U.S. persons who owned at least a 10% direct interest in the foreign partnership during the partnership's tax year listed at the top of page 1 of Form 8865.

Category 3 filers. Category 3 filers must list (a) each U.S. person that owned a 10% or greater direct interest in the foreign partnership during the Category 3 filer's tax year and (b) any other person related to the Category 3 filer that was a direct partner in the foreign partnership during that tax year. See Regulations section 1.6038B-2(i)(4) for the definition of a related person.

Exception. Category 3 filers who transferred solely cash and did not own a 10% or greater interest in the transferee partnership after the transfer are not required to complete Schedule A-1.

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Schedule A-2 - Affiliation Schedule

All Category 1, 2, 3, and 4 filers must complete Schedule A-2. List on Schedule A-2 all partnerships (foreign or domestic) in which the foreign partnership owned a direct interest, or a 10% indirect interest (under the rules of section 267(c)(1) and (5)) during the partnership tax year listed at the top of page 1, Form 8865. Only Category 1 filers must complete the ordinary income or loss column. In that column, report the foreign partnership's share of ordinary income (even if not received) or loss from partnerships in which the foreign partnership owns a direct interest. The total amount of ordinary income or loss from each partnership must also be included on line 4 of Schedule B.

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Schedule B - Income Statement - Trade or Business Income

Important: If the foreign partnership filed Form 1065 or 1065-B, do not complete Schedule B on Form 8865. Instead, attach to Form 8865 a copy of page 1 from Form 1065, or Parts I and II of Form 1065-B.

All Category 1 filers must complete Schedule B and also report the amounts on Schedules K and K-1.

Income

Report only trade or business activity income on lines 1a through 8. Do not report rental activity income or portfolio income on these lines. Rental activity income and portfolio income are reported on Schedules K and K-1. Rental real estate activities are also reported on Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation.

Do not include any tax-exempt income on lines 1a through 7. A partner in a partnership that receives any tax-exempt income other than interest, or holds any property or engages in any activity that produces tax-exempt income reports the amount of this income on line 20 of Schedules K and K-1.

Report tax-exempt interest income, including exempt-interest dividends received by the partnership as a shareholder in a mutual fund or other regulated investment company, on line 19 of Schedules K and K-1.

See Deductions on page 7 for information on how to report expenses related to tax-exempt income.

If the partnership has had debt discharged resulting from a title 11 bankruptcy proceeding or while insolvent, see Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and Pub. 908, Bankruptcy Tax Guide.

Line 1a - Gross Receipts or Sales

Enter the gross receipts or sales from all trade or business operations except those that must be reported on lines 4 through 7. For example, do not include gross receipts from farming on this line. Instead, show the net profit (loss) from farming on line 5. Also, do not include on line 1a rental activity income or portfolio income.

In general, advance payments are reported in the year of receipt. To report income from long-term contracts, see section 460. For special rules for reporting certain advance payments for goods and long-term contracts, see Regulations section 1.451-5. For permissible methods for reporting advance payments for services by an accrual method partnership, see Rev. Proc. 71-21, 1971-2 C.B. 549.

Installment sales. Generally, the installment method cannot be used for dealer dispositions of property. A dealer disposition is any disposition of personal property by a person who regularly sells or otherwise disposes of personal property of the same type on the installment plan or any disposition of real property held for sale to customers in the ordinary course of the taxpayer's trade or business. The disposition of property used or produced in a farming business is not included as a dealer disposition. See section 453(l) for details and exceptions.

Enter on line 1a the gross profit on collections from installment sales for any of the following:

• Dealer dispositions of property before March 1, 1986.
• Dispositions of property used or produced in the trade or business of farming.
• Dispositions of timeshares and residential lots reported under the installment method.

Attach a schedule showing the following information for the current year and the 3 preceding years:

• Gross sales.
• Cost of goods sold.
• Gross profits.
• Percentage of gross profits to gross sales.
• Amount collected.
• Gross profit on amount collected.

Line 2 - Cost of Goods Sold

Generally, inventories are required at the beginning and end of each tax year if the production, purchase, or sale of merchandise is an income-producing factor. See Regulations section 1.471-1.

However, a foreign partnership may account for inventory items in the same manner as materials and supplies that are not incidental if (a) its average annual gross receipts for the 3 prior tax years are $1 million or less and (b) its business is not a tax shelter (as defined in section 448(d)(3)). In addition, for tax years ending on or after December 31, 2001, this rule applies to an eligible business of a qualifying small business taxpayer. A qualifying small business taxpayer includes a partnership with average annual gross receipts of more than $1 million but less than or equal to $10 million and that is not prohibited from using the cash method under section 448. For more details, including the definition of an eligible business, see Notice 2001-76, 2001-52 I.R.B. 614.

Under this accounting method, inventory costs for raw materials purchased for use in producing finished goods or merchandise purchased for resale are deductible in the year the finished goods or merchandise are sold (but not before the year the partnership paid for the raw materials or merchandise, if it is also using the cash method). See Rev. Proc. 2001-10, 2001-2 I.R.B. 272 and Pub. 538, Accounting Periods and Methods, for details.

Cost of Goods Sold Worksheet Instructions. All filers not using the cash method of accounting should see Section 263A uniform capitalization rules on page 8 before completing the worksheet.

Line 2 - Purchases. Reduce purchases by items withdrawn for personal use. The cost of these items should be shown on line 23 of Schedules K and K-1 as distributions to partners.

Line 4 - Other Costs. Enter on line 4 any costs paid or incurred during the tax year not entered on lines 2 and 3.

Line 4 - Ordinary Income (Loss) From Other Partnerships, Estates, and Trusts

Enter the ordinary income (loss) shown on Schedule K-1 (Form 1065) or Schedule K-1 (Form 1041), or other ordinary income (loss) from a foreign partnership, estate, or trust. Show the partnership's, estate's, or trust's name, address, and EIN on a separate statement attached to this return. If the amount entered is from more than one source, identify the amount from each source.

Do not include portfolio income or rental activity income (loss) from other partnerships, estates, or trusts on this line. Instead, report these amounts on the applicable lines of Schedules K and K-1, or on line 20a of Form 8825 if the amount is from a rental real estate activity.

Ordinary income or loss from another partnership that is a publicly traded partnership is not reported on this line. Instead, report the amount separately on line 7 of Schedules K and K-1. Cost of Goods Sold Worksheet

Treat shares of other items separately reported on Schedule K-1 issued by the other entity as if the items were realized or incurred by this partnership.

If there is a loss from another partnership, the amount of the loss that may be claimed is subject to the at-risk and basis limitations as appropriate.

If the tax year of your partnership does not coincide with the tax year of the other partnership, estate, or trust, include the ordinary income (loss) from the other entity in the tax year in which the other entity's tax year ends.

Line 5 - Net Farm Profit (Loss)

Enter the partnership's net farm profit (loss) from Schedule F (Form 1040), Profit or Loss From Farming. Attach Schedule F (Form 1040) to Form 8865. Do not include on this line any farm profit (loss) from other partnerships. Report those amounts on line 4.

Also report the partnership's fishing income on this line.

For a special rule concerning the method of accounting for a farming partnership with a corporate partner and for other tax information on farms, see Pub. 225, Farmer's Tax Guide.

Note: Farm partnerships that are not required to use an accrual method should not capitalize the expenses of raising any plant with a preproductive period of more than 2 years. Instead, state them separately on an attachment to Schedule K, line 24, and on Schedule K-1, line 25, Supplemental Information. See Regulations section 1.263A-4 for more information.

Line 6 - Net Gain (Loss) From Form 4797

Include only ordinary gains or losses from the sale, exchange, or involuntary conversion of assets used in a trade or business activity. Ordinary gains or losses from the sale, exchange, or involuntary conversion of rental activity assets are reported separately on line 19 of Form 8825 or line 3 of Schedules K and K-1, generally as a part of the net income (loss) from the rental activity.

For a partnership that is a partner in another partnership, include on Form 4797, Sales of Business Property, this partnership's share of ordinary gains (losses) from sales, exchanges, or involuntary conversions (other than casualties or thefts) of the other partnership's trade or business assets.

Do not include any recapture of section 179 expense deduction. See the instructions for Schedule K-1, line 25, Supplemental Information, item 4, and the Instructions for Form 4797 for more information.

Line 7 - Other Income (Loss)

Enter on line 7 trade or business income (loss) that is not included on lines 1a through 6. Examples of such income include:

1. Interest income derived in the ordinary course of the partnership's trade or business, such as interest charged on receivable balances.
2. Recoveries of bad debts deducted in earlier years under the specific charge-off method.
3. Taxable income from insurance proceeds.
4. The amount of credit figured on Form 6478, Credit for Alcohol Used as Fuel.
5. All section 481 income adjustments resulting from changes in accounting methods. Show the computation of the section 481 adjustments on an attached schedule.
6. The amount of any deduction previously taken under section 179A that is subject to recapture. See Pub. 535, Business Expenses, for details, including how to figure the recapture.
7. The recapture amount for section 280F if the business use of listed property drops to 50% or less. To figure the recapture amount, complete Part IV of Form 4797.

Do not include items requiring separate computations that must be reported on Schedules K and K-1. See the instructions for Schedules K and K-1 later in these instructions.

Do not report portfolio or rental activity income (loss) on this line.

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