Last Updated: January 16, 2026 | International tax CPA firm with Big Four experience
Key Takeaways
- Form 1065: Filed by partnership entities (domestic partnerships)
- Form 8865: Filed by U.S. persons with interests in foreign partnerships
- Foreign partnership location (where formed) determines which form applies
- A foreign partnership may file both Form 1065 (if U.S. income) AND require Form 8865 from U.S. partners
- When foreign partnership files Form 1065, some schedule substitutions are allowed
- Delaware LLC with foreign partners = Form 1065 (domestic entity)
- UK partnership with U.S. partners = Form 8865 (foreign entity)
Table of Contents
Understanding the Difference
Form 8865 and Form 1065 both report partnership information, but they serve different purposes and are filed by different parties. Understanding which form applies to your situation prevents compliance failures and avoids unnecessary filings.
Direct Answer: Form 1065 is filed by domestic partnership entities to report their income and provide K-1s to partners. Form 8865 is filed by individual U.S. persons with interests in foreign partnerships, attached to their personal tax returns. The determining factor is where the partnership was formed, not where it operates or who its partners are.
Form 1065 Overview
What Is Form 1065?
Full name: U.S. Return of Partnership Income
Purpose: Annual information return reporting a domestic partnership’s income, deductions, gains, losses, and credits.
Who files: The partnership entity itself
Filing method: Standalone filing with the IRS
When Form 1065 Is Required
Form 1065 is required for domestic partnerships, which are partnerships formed in:
- Any U.S. state
- The District of Columbia
- Under any federal law
The partnership reports its operations and provides Schedule K-1 to each partner showing their share of partnership items. Partners then report these items on their individual tax returns.
Form 8865 Overview
What Is Form 8865?
Full name: Return of U.S. Persons With Respect to Certain Foreign Partnerships
Purpose: Information return providing the IRS visibility into U.S. persons’ interests in foreign partnerships.
Who files: U.S. persons meeting filing thresholds (Categories 1-4)
Filing method: Attached to the filer’s income tax return
When Form 8865 Is Required
Form 8865 is required when U.S. persons have specified interests in foreign partnerships. A foreign partnership is any partnership not created or organized in the United States.
Four categories determine filing obligations:
- Category 1: Control (more than 50%)
- Category 2: 10%+ ownership when U.S. persons control
- Category 3: Property contributions exceeding thresholds
- Category 4: Reportable 10% ownership events
Related: Form 8865 Categories of Filers Guide
Side-by-Side Comparison
| Aspect | Form 1065 | Form 8865 |
|---|---|---|
| Filed by | Partnership entity | Individual U.S. person |
| Partnership type | Domestic | Foreign |
| How filed | Standalone | Attached to income tax return |
| Complete return | Always | Only Category 1 filers |
| Due date | 15th day of 3rd month after year end | With filer’s income tax return |
| Penalty structure | $260/month/partner (2026) | $10,000 initial + continuation |
| Provides K-1s | Yes (to all partners) | Yes (Category 1 only) |
| Entity reports | The partnership | The U.S. person |
Determining Which Form Applies
The “Where Formed” Test
The location where the partnership was created or organized determines its domestic or foreign status.
Domestic partnership: Formed in the United States, any state, or D.C.
Foreign partnership: Formed under the laws of a foreign jurisdiction
Examples
| Partnership | Where Formed | Result |
|---|---|---|
| Delaware LLC with German member | Delaware, USA | Form 1065 (domestic) |
| UK Limited Liability Partnership | United Kingdom | Form 8865 for U.S. partners |
| Cayman Islands LP | Cayman Islands | Form 8865 for U.S. partners |
| Nevada LP with Japanese partners | Nevada, USA | Form 1065 (domestic) |
| Singapore partnership | Singapore | Form 8865 for U.S. partners |
Common Misconceptions
“My partners are foreign, so it’s Form 8865” Wrong. Partner nationality doesn’t determine form. A Delaware LLC with all foreign partners is still domestic and files Form 1065.
“The partnership operates overseas, so it’s foreign” Wrong. Operating location doesn’t matter. A Texas LP operating exclusively in Mexico is domestic and files Form 1065.
“We have foreign income, so we need Form 8865” Wrong. Foreign income on Form 1065 is reported on Schedule K-2 and K-3, not on Form 8865.
The only relevant factor is jurisdiction of formation.
When a Foreign Partnership Also Files Form 1065
Sometimes a foreign partnership must file Form 1065 in addition to U.S. partners filing Form 8865.
Form 1065 Requirement for Foreign Partnerships
A foreign partnership must file Form 1065 if it has:
- Gross income derived from sources within the United States, OR
- Gross income effectively connected with a U.S. trade or business
Dual Filing Situations
Example: A UK partnership owns rental property in Florida. The partnership must file Form 1065 (U.S. rental income). U.S. partners must also file Form 8865 (foreign partnership interest).
This creates overlap but also creates simplification opportunities.
Schedule Substitution Options
When a foreign partnership files Form 1065, certain Form 8865 schedules can be replaced with their Form 1065 equivalents.
Category 1 Filer Substitutions
If the foreign partnership files Form 1065, Category 1 filers may attach Form 1065 versions of these schedules in lieu of Form 8865 versions:
- Schedule K
- Schedule K-2
- Schedule L
- Schedule M-1
- Schedule M-2
- Schedule K-1
- Schedule K-3
This reduces duplicate preparation but still requires filing Form 8865 with the substituted schedules attached.
Category 2 Filer Substitutions
Category 2 filers can file the Schedule K-1 and K-3 (Form 1065) received from the partnership instead of preparing Schedules K-1 and K-3 (Form 8865).
This is particularly helpful when the foreign partnership has already prepared these schedules for its Form 1065 filing.
Practical Examples
Example 1: Delaware LLC with German Partner
Setup:
- LLC formed in Delaware
- Two members: one U.S. person (60%), one German person (40%)
- Business operations in the U.S.
Result:
- Form 1065 required (domestic partnership)
- No Form 8865 required (not a foreign partnership)
- The German partner receives Schedule K-1 (Form 1065)
Example 2: UK Partnership with U.S. Partner
Setup:
- Partnership formed under UK law
- U.S. person owns 25%
- Business operations in Europe
Result:
- Form 8865 required for U.S. partner (foreign partnership, Category 2 likely)
- No Form 1065 required (no U.S. source income)
- U.S. partner reports their share of partnership income on their U.S. return
Example 3: Cayman Partnership with U.S. Real Estate
Setup:
- Partnership formed in Cayman Islands
- Multiple partners including U.S. persons
- Partnership owns U.S. rental property
Result:
- Form 1065 required (U.S. source income from rental property)
- Form 8865 required for U.S. partners (foreign partnership)
- Schedule substitutions may apply
- Both forms report the same underlying economics from different perspectives
Example 4: Texas LP Investing Overseas
Setup:
- Limited partnership formed in Texas
- All U.S. partners
- Investments in European securities
Result:
- Form 1065 required (domestic partnership)
- No Form 8865 required (not a foreign partnership)
- Foreign investment income reported on Schedule K-2 and K-3
Penalty Comparison
| Form | Penalty Type | Amount |
|---|---|---|
| Form 1065 | Late filing | $260/month per partner for 2026 (max 12 months) |
| Form 1065 | Failure to furnish K-1 | $320 per K-1 (2026, inflation-adjusted) |
| Form 8865 | Category 1/2/4 | $10,000 + up to $50,000 continuation |
| Form 8865 | Category 3 | 10% of FMV (cap $100,000) |
Form 8865 penalties are generally more severe than Form 1065 penalties, particularly for high-value situations.
Related: Form 8865 Penalties and Relief Guide
Frequently Asked Questions
What is the difference between Form 8865 and Form 1065?
Form 1065 is filed by domestic partnership entities to report partnership income. Form 8865 is filed by individual U.S. persons with interests in foreign partnerships. The key distinction is: Form 1065 reports from the entity’s perspective; Form 8865 reports from the U.S. person’s perspective about their foreign partnership interest.
Does a foreign partnership ever file Form 1065?
Yes. If a foreign partnership has U.S. source income or income effectively connected with a U.S. trade or business, it must file Form 1065. This creates dual reporting where both the foreign partnership files Form 1065 and U.S. partners file Form 8865.
Can I use Form 1065 schedules on my Form 8865?
Yes, in certain situations. When a foreign partnership files Form 1065, Category 1 filers may substitute Form 1065 Schedules K, K-2, L, M-1, M-2, K-1, and K-3 for their Form 8865 equivalents. Category 2 filers may use Form 1065 K-1 and K-3 received from the partnership.
Who files Form 8865, the partnership or me?
You file Form 8865. Unlike Form 1065 (filed by the partnership entity), Form 8865 is an information return filed by the individual U.S. person with the foreign partnership interest. You attach it to your personal tax return.
What if my foreign partnership has no U.S. income?
If the foreign partnership has no U.S. source income and no ECI, it doesn’t file Form 1065. However, U.S. partners must still file Form 8865 if they meet any of the four category thresholds. Form 8865 is about your interest in the foreign partnership, not about U.S. income.
Which form has higher penalties?
Form 8865 penalties are generally higher. Form 1065 late filing penalties are $260/month per partner for 2026 (capped at 12 months). Form 8865 penalties start at $10,000 and can reach $60,000 for Categories 1/2/4, or exceed $100,000 for Category 3.
Next Steps
Partnership classification depends on formation jurisdiction, not operations or partner residency. Understanding whether your partnership is domestic (Form 1065) or foreign (Form 8865) is the first step toward correct compliance.
Need Help Determining Your Filing Requirements?
Partnership classification and filing requirements depend on specific facts. Confirm your filing obligations with a CPA experienced in international partnerships.
Related Form 8865 Resources
- Complete Form 8865 Guide for Foreign Partnerships
- Form 8865 Categories of Filers Guide
- Form 8865 Penalties and Relief Options
- Schedule O: Property Transfer Reporting
- Constructive Ownership Rules Explained
- Section 721(c) Partnership Requirements
- Schedule K-2 and K-3 Requirements
- Form 5471 Guide for Foreign Corporations
Sources
- IRS Form 8865 Instructions (2025)
- IRS Form 1065 Instructions (2025)
- IRS About Form 1065
- IRS About Form 8865
Disclaimer: This article is for general informational purposes only and does not constitute tax, legal, or financial advice. Each taxpayer’s situation is unique and requires individual analysis. Consult with a qualified CPA for advice specific to your circumstances.