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Form 8865 Constructive Ownership Rules: Section 267(c) Attribution Explained

Published: January 16, 2026
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Last Updated: January 2026 | International tax CPA firm with Big Four experience

Key Takeaways

  • Constructive ownership determines if you meet 10% or 50% Form 8865 thresholds
  • Uses Section 267(c) rules (excluding 267(c)(3))
  • Entity-to-owner attribution: Your share of what entities you own hold
  • Family attribution: Spouse, siblings, ancestors, and lineal descendants
  • Key difference from Section 318: Section 267(c) includes siblings
  • Ownership through multiple entities creates look-through calculations
  • Attribution can create unexpected filing obligations even with no direct ownership

What Is Constructive Ownership?

Constructive ownership rules attribute ownership to you even though you don’t hold title directly. These rules prevent taxpayers from avoiding filing requirements through indirect ownership structures.

Direct Answer: For Form 8865 purposes, constructive ownership means partnership interests you’re deemed to own under Section 267(c), even if you don’t directly own them. This includes interests owned by your family members (spouse, siblings, ancestors, descendants) and your proportionate share of interests owned by entities you have interests in. Understanding these rules is critical because they determine whether you meet the 10% or 50% thresholds triggering filing requirements.

Section 267(c) Attribution Rules

Form 8865 uses Section 267(c) rules (excluding paragraph (c)(3)) to determine constructive ownership. This differs from Section 318 rules used in other contexts.

Rule 1: Entity-to-Owner Attribution (267(c)(1) and (5))

Interest owned by an entity is attributed proportionately to the entity’s owners.

How it works:

  • Corporation: Interest owned by a corporation is attributed to its shareholders based on their stock ownership percentage
  • Partnership: Interest owned by a partnership is attributed to its partners based on their partnership percentage
  • Estate or Trust: Interest owned by an estate or trust is attributed to its beneficiaries based on their beneficial interest

Example:

  • You own 50% of Foreign Corp
  • Foreign Corp owns 20% of Foreign Partnership
  • You constructively own 10% of Foreign Partnership (50% × 20%)

This look-through calculation can create filing obligations even when your direct ownership is zero.

Rule 2: Family Attribution (267(c)(2))

Interest owned by certain family members is attributed to you.

Family includes:

  • Spouse
  • Siblings (including half-siblings)
  • Ancestors (parents, grandparents, etc.)
  • Lineal descendants (children, grandchildren, etc.)

Family does NOT include:

  • In-laws
  • Cousins
  • Aunts and uncles
  • Step-relatives (unless legally adopted)

Example:

  • Your brother owns 15% of a foreign partnership
  • You own nothing directly
  • Your brother’s 15% is attributed to you
  • Result: You constructively own 15%

Rule 3: Family Attribution Limitation (Nonresident Aliens)

Interest attributed from a nonresident alien family member is only attributed to you if you already own some interest under the entity rules (267(c)(1) or (5)).

Example:

  • Your sister lives abroad and is a nonresident alien
  • She owns 20% of a foreign partnership
  • You own nothing directly or through entities
  • Result: Her 20% is NOT attributed to you

But if you owned even 1% through an entity:

  • You’d have some indirect ownership under (c)(1)
  • Then her 20% would be attributed to you

Section 267(c) vs. Section 318: Key Differences

Form 8865 uses Section 267(c), not Section 318. The differences matter.

AspectSection 267(c) (Form 8865)Section 318 (Form 5471, CFCs)
Siblings includedYesNo
Chain attributionLimitedMore extensive
Used forForeign partnershipsForeign corporations, CFCs
Stock vs. partnershipAdapted for partnership interestsDesigned for stock

Why Siblings Matter

The sibling inclusion is often the critical difference. Under Section 318 (used for controlled foreign corporations), siblings aren’t included in family attribution. Under Section 267(c) (used for Form 8865), they are.

Impact: Your brother’s foreign partnership interest counts toward your threshold calculation for Form 8865, but it wouldn’t count for Form 5471 purposes.

Practical Examples

Example 1: Entity Attribution Only

Setup:

  • US Person owns 50% of FC (foreign corporation)
  • FC owns 20% of FPS (foreign partnership)
  • US Person owns nothing directly in FPS

Calculation:

  • US Person’s indirect ownership: 50% × 20% = 10%
  • Result: US Person constructively owns 10% of FPS
  • Filing impact: May trigger Category 2 filing if FPS is U.S.-controlled

Example 2: Family Attribution Only

Setup:

  • US Person owns nothing in FPS
  • US Person’s brother owns 60% of FPS directly
  • No entity ownership involved

Calculation:

  • Brother’s 60% is attributed to US Person under family rules
  • Result: US Person constructively owns 60% of FPS
  • Filing impact: Category 1 status (control over 50%)

Example 3: Combined Attribution

Setup:

  • US Person (US) directly owns 40% of FPS
  • US’s brother (US2) owns 50% of FC
  • FC owns 20% of FPS
  • US2’s indirect ownership: 50% × 20% = 10%
  • US2’s 10% indirect is attributed to US under family rules

Calculation:

  • US direct ownership: 40%
  • US family attribution (from brother’s indirect): 10%
  • Total: 50%

But wait: US2 also gets attribution from US.

  • US2’s indirect: 10%
  • US2’s family attribution (US’s 40%): 40%
  • US2’s total: 50%

Result: Both US and US2 are considered to own 50% of FPS.

Example 4: Spouse Attribution

Setup:

  • You own 35% of FPS directly
  • Your spouse owns 20% of FPS directly
  • No entity ownership

Calculation:

  • Your direct: 35%
  • Spouse attribution: 20%
  • Your total: 55%

Result: You’re a Category 1 filer (control >50%) even though you only directly own 35%.

Schedule A-3 Requirements

Schedule A-3 reports certain partnership interests owned by the foreign partnership itself.

What Schedule A-3 Reports

Schedule A-3 lists all partnerships (foreign or domestic) in which the foreign partnership owned:

  • Direct interest, OR
  • 10% or greater indirect interest under Section 267(c)(1) and (5)

Why A-3 Matters

Schedule A-3 helps the IRS:

  • Track tiered partnership structures
  • Identify downstream foreign partnership interests
  • Understand the full ownership chain

Who Files Schedule A-3

All filer categories must complete Schedule A-3 if the foreign partnership owns interests in other partnerships meeting the thresholds.

Common Attribution Traps

Trap 1: Sibling Ownership

Many taxpayers familiar with Section 318 (foreign corporations) assume siblings don’t count. For Form 8865, they do.

Watch for: Brothers and sisters with foreign partnership interests. Their ownership is attributed to you.

Trap 2: Multiple Entity Tiers

Ownership through multiple entities requires multiplying percentages at each tier.

Example:

  • You own 80% of Corp A
  • Corp A owns 50% of Corp B
  • Corp B owns 25% of FPS
  • Your indirect ownership: 80% × 50% × 25% = 10%

Each tier reduces your ultimate percentage, but complex structures can still create filing obligations.

Trap 3: Trust Beneficiaries

If you’re a beneficiary of a trust that owns foreign partnership interests, those interests may be attributed to you based on your beneficial interest.

Watch for: Family trusts, generation-skipping trusts, and foreign trusts with U.S. beneficiaries.

Trap 4: Spouse’s Business Interests

Spouses’ ownership is automatically attributed. If your spouse invests in a foreign partnership through their business, you may have filing obligations.

Watch for: Spouse’s business investments, retirement accounts with foreign partnership holdings, and joint ventures.

Calculating Your Ownership

Step-by-Step Process

  1. List all direct ownership
    • Partnership interests you hold in your name
    • Include all classes of interests
  2. Identify entities you own interests in
    • Corporations (domestic and foreign)
    • Partnerships
    • Trusts and estates where you’re a beneficiary
  3. Calculate indirect ownership through each entity
    • Your percentage × entity’s partnership percentage
    • Trace through multiple tiers if necessary
  4. Identify family members with interests
    • Spouse, siblings, ancestors, descendants
    • Check both direct and indirect ownership
  5. Apply family attribution
    • Add family members’ direct and indirect ownership to yours
    • Remember the nonresident alien limitation
  6. Sum all amounts
    • Direct + indirect + attributed = total constructive ownership

Documentation Tips

Keep records of:

  • All direct ownership certificates or agreements
  • Ownership percentages in entities
  • Family members’ ownership interests
  • Calculations showing how you determined thresholds

Frequently Asked Questions

What is constructive ownership for Form 8865?

Constructive ownership is partnership interest you’re deemed to own under Section 267(c), even without direct title. It includes your proportionate share of interests owned by entities you hold stakes in, plus interests owned by family members (spouse, siblings, ancestors, descendants).

Does my spouse’s ownership count as mine?

Yes. Under Section 267(c)(2), your spouse’s foreign partnership ownership is attributed to you. This is automatic and doesn’t depend on how you file taxes (jointly or separately).

Are siblings included in attribution?

Yes. This is a key difference from Section 318 rules. Under Section 267(c), siblings (including half-siblings) are included in family attribution. Your brother’s or sister’s foreign partnership interest is attributed to you.

How do I calculate indirect ownership through a corporation?

Multiply your stock ownership percentage by the corporation’s partnership ownership percentage. If you own 60% of a corporation that owns 25% of a foreign partnership, you indirectly own 15% (60% × 25%).

What if I’m a trust beneficiary?

If you’re a beneficiary of a trust that owns foreign partnership interests, those interests may be attributed to you based on your beneficial interest percentage. The rules vary based on trust type.

Can attribution create a filing requirement from zero direct ownership?

Yes. You can have a Form 8865 filing obligation solely through constructive ownership, even if you never directly owned any foreign partnership interest. Family attribution and entity attribution can both create this situation.

Next Steps

Constructive ownership calculations can be complex with multiple entities or family members involved. The sibling inclusion under Section 267(c) catches many taxpayers off guard who expect Section 318 rules to apply.

Need Help With Constructive Ownership?

Constructive ownership calculations can be complex with multiple entities or family members involved. Verify your filing obligations with a CPA experienced in international information reporting.

Schedule a Consultation

Sources

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.

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