Interest in Foreign Entities

US Persons - Interests in Foreign Entities

1.2.1

Foreign Trust

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1.2.2

Foreign Disregarded Entity

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Foreign Partnership

12.3

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Foreign Corporation

1.2.4

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A practical tool designed to help identify U.S. international information reporting requirements based on specific facts and ownership thresholds.

This page focuses specifically on U.S. persons with ownership or involvement in foreign entities, including Foreign Trusts, Foreign Partnerships, and Foreign Corporations. It addresses reporting obligations that arise from holding an interest in, or engaging with, these types of structures.

Within each category, reporting requirements are presented as flashcards, each tied to a specific triggering condition.

Each flashcard follows a consistent structure. The front of the card describes the relevant fact pattern or ownership threshold, while the back identifies the required IRS form or forms.

This format allows tax professionals to quickly match a client’s ownership and involvement in foreign entities to the applicable reporting obligation and determine the correct forms to include with the tax return.

1.2.1 FOREIGN TRUST

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Owned, created, transferred assets to, or had a beneficial interest in a foreign trust during the year.

Form 3520 - Annual Return To Report Transactions With Foreign Trusts / Form 3520-A - Annual Information Return of Foreign Trust With a U.S. Owner

Form 3520: An information return filed by a U.S. person to report certain transactions with a foreign trust (such as transfers to the trust or distributions from it) and receipt of large foreign gifts or inheritances.
Form 3520-A: An annual information return for a foreign trust with a U.S. owner that reports the trust’s financial activity and provides statements to the U.S. owner and beneficiaries.
Form 3520 reports the U.S. person’s transactions or relationship with the foreign trust, while Form 3520-A reports the foreign trust’s annual financial information when it has a U.S. owner.

1.2.2 FOREIGN DISREGARDED ENTITY

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Operated or owned a foreign disregarded entity (FDE) or foreign branch.

Form 8858 - Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs)

Form 8858 is filed by a U.S. person that owns or operates a foreign disregarded entity or conducts activities through a foreign branch. This includes single-member foreign entities treated as disregarded for U.S. tax purposes. The filer must report income, expenses, assets, and foreign taxes associated with the activity.
Category 1 – Tax Owner:
A U.S. person who is the direct tax owner of a foreign disregarded entity or foreign branch.
Category 2 – Controlled Foreign Corporation (CFC) Owner
A U.S. person required to file Form 5471 for a CFC that owns the FDE or foreign branch.
Category 3 – Controlled Foreign Partnership Owner
U.S. person required to file Form 8865 for a foreign partnership that owns the FDE or foreign branch.
Category 4 – Indirect Owner through CFC:
A U.S. person who indirectly owns the FDE or foreign branch through a CFC.
Category 5 – Indirect Owner through PartnershipA
A U.S. person who indirectly owns the FDE or foreign branch through a foreign partnership.
Category 6 – Other Indirect / Constructive Owners
A U.S. person required to report due to constructive or attribution ownership rules.

1.2.3 FOREIGN PARTNERSHIP

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Controlled/owned more than a 50% interest in a foreign partnership?

Form 8865 - Return of U.S. Persons With Respect to Certain Foreign Partnerships, Category 1 Filer

A Category 1 Form 8865 filer is a U.S. person who controlled a foreign partnership at any time during the tax year. This filer must report comprehensive financial information.
See here for more info about specific Schedules by Category of Filer.

Owned more than 10% of a foreign partnership that was controlled by U.S. persons.

Form 8865 - Return of U.S. Persons With Respect to Certain Foreign Partnerships, Category 2 Filer

A Category 2 Form 8865 filer does not individually control the partnership but must still report certain ownership information. The reporting requirements are generally more limited.
See here for more info about specific Schedules by Category of Filer.

Contributed property to a foreign partnership in exchange for an interest if they own 10% or more immediately after, or if the property value exceeds $100,000 in a 12-month period.

Form 8865 - Return of U.S. Persons With Respect to Certain Foreign Partnerships, Category 3 Filer

Category 3, Form 8865 filing is triggered by a contribution of property to a foreign partnership where the post-contribution ownership is at least 10%.
See here for more info about specific Schedules by Category of Filer.

Acquired, disposed of, or had a significant change in their interest (at least 10% change) in a foreign partnership.

Form 8865 - Return of U.S. Persons With Respect to Certain Foreign Partnerships, Category 3 Filer

Category 4, Form 8865 filing is also triggered when the aggregate value of property contributed during a 12-month period exceeds $100,000.
See here for more info about specific Schedules by Category of Filer.

Transferred more than $100,000 in cash or property to a foreign corporation while owning less than 10% (by vote and value) immediately after the transfer.

Form 926-Return by a U.S. Transferor of Property to a Foreign Corporation

Form 926 may be required independently or in conjunction with Form 5471. In certain situations, Form 926 is required even when Form 5471 is not applicable.
The transaction may result in the recognition of capital gain under IRC §367.

Acquired or disposed of stock resulting in meeting or ceasing to meet the 10% ownership threshold.

Form 5471 - Information Return of U.S. Persons With Respect to Certain Foreign Corporations - Category 3 Filer

Category 3 filers include U.S. persons who experience significant ownership changes during the tax year.
Filing is triggered by cross-boundary acquisitions or disposals of stock segments.

1.2.4 FOREIGN CORPORATION

A foreign corporation in which more than 50% of the total voting power OR total value is owned (directly, indirectly, or constructively) by U.S. shareholders*.

“U.S. shareholders,” in the CFC context, are U.S. persons who own, directly, indirectly, or constructively, at least 10% of the foreign corporation’s total voting power or total value.

Owned at least 10% of a Section 965 specified foreign corporation (SFC) during the corporation’s tax year.

Form 5471 - Information Return of U.S. Persons With Respect to Certain Foreign Corporations - Category 1 Filer

Category 1 for Form 5471 applies to U.S. shareholders of SFCs.
Requires inclusion of accumulated post-1986 deferred foreign earnings under the TCJA transition tax.

Had control of a foreign corporation during the corporation’s annual accounting period (more than 50% ownership).

Form 5471 - Information Return of U.S. Persons With Respect to Certain Foreign Corporations - Category 4 Filer

Category 4 filers are those who control a foreign entity by holding more than 50% voting power or value.
Comprehensive reporting of income, assets, and liabilities is required.

*CFC

Served as officer or director while a U.S. person acquired a 10% or greater interest in a foreign corporation.

Form 5471 - Information Return of U.S. Persons With Respect to Certain Foreign Corporations - Category 2 Filer

Category 2 filers are U.S. officers or directors at the time of a significant acquisition.
Obligations apply regardless of whether the officer owns any stock personally.

Owned stock as a U.S. shareholder in a foreign corporation that was a Controlled Foreign Corporation (CFC).

Form 5471 - Category 5 Filer / CFC Reporting Requirements

Category 5 filers:
5a – Existing U.S. Shareholder (full year CFC)
5b – New U.S. Shareholder of an existing CFC
5c – Corporation becomes a CFC during the year
Go here for additional info about CFC income treatment

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