Td 8851

990, “Return of Organization Exempt
from Income Tax”), the person should attach the Form 8865 to its information return.
*****
(c) * * *
(4) The names and addresses of the
other partners in the foreign partnership,
unless the transfer is solely of cash and
the transferor holds less than a ten-percent
interest in the transferee foreign partnership immediately after the transfer. However, for tax years of U.S. persons beginning on or after January 1, 2000, the
person reporting pursuant to section
6038B (the transferor) must provide the
names and addresses of each United
States person that owned a ten-percent or
greater direct interest in the foreign partnership during the transferor’s tax year in
which the transfer occurred, and the
names and addresses of any other United
States or foreign persons that were direct
partners in the foreign partnership during
that tax year and that were related to the
transferor during that tax year. See para-

graph (i)(4) of this section for the definition of a related person;
*****
(j) * * * (1) In general. Except as otherwise provided in this section, this section applies to transfers made on or after
January 1, 1998. * * *
*****
(3) Special rule for transfers made before January 1, 2000. Even if not reported in accordance with the rules provided in paragraph (a)(5) of this section,
or paragraph (j)(1) or (2) of this section, a
transfer that occurred before January 1,
2000 will nevertheless be considered
timely reported if the transferor reports it
on a Form 8865 attached to an amended
tax return for the transferor’s tax year in
which the transfer occurred, provided
such amended return is filed no later than
September 15, 2000.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT

602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 8. In §1.602.101, paragraph (b) is
amended by revising the entries for
§1.6038-2, §1,6038(B)-1, and §1.6038B2 and adding an entry in numerical order
to the table to read as follows:
§602.101 OMB Control numbers.
*****
(b) * * *
Robert Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved December 9, 1999.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.

(Filed by the Office of the Federal Register on December 27, 1999, 8:45 a.m., and published in the
issue of the Federal Register for December 28,1999,
64 F.R. 72545)

Par. 7. The authority citation for part

CFR part or section where
identified and described

Current OMB
control No.

*****
1.6038-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545-1617
1.6038-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545-1617
*****
1.6038B-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545-1617
*****
1.6038B-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545-1617
*****

Section 6046A.—Returns As To
Interests In Foreign Partnerships
26 CFR 1.6046A–1:Return requirement for United
States persons who acquire or dispose of an interest
in a foreign partnership, or whose proportional
interest in a foreign partnership changes
substantially.

Return Requirement for United
States Persons Acquiring or
Disposing of an Interest in a
Foreign Partnership, or Whose
Proportional Interest in a
Foreign Partnership Changes

final regulations under section 6046A of
the Internal Revenue Code relating to the
requirement that United States persons, in
certain circumstances, file a return if they
acquire or dispose of an interest in a foreign partnership, or if their proportional
interest in a foreign partnership changes.

T.D. 8851

AGENCY: Internal Revenue Service
(IRS), Treasury.

DEPARTMENT OF THE TREASURY

ACTION: Final regulations.

Internal Revenue Service

SUMMARY: This document contains

DATES: Effective Date: December 29,
1999.
Applicability Dates: For dates of applicability of §1.6046A-1, see §1.6046A1(j).

26 CFR Parts 1 and 602

2000–2 I.R.B.

275

January 10, 2000

FOR FURTHER INFORMATION CONTACT: Eliana Dolgoff, (202) 622-3860
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545-1646. Responses to this
collection of information are mandatory.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it displays a valid control number assigned by
the Office of Management and Budget.
The burden of complying with the collection of information required to be reported on Form 8865 is reflected in the
burden for Form 8865, “Return of U.S.
Persons With Respect to Certain Foreign
Partnerships.”
Suggestions for reducing the burden associated with this rule should be sent to
the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, OP:FS:FP,
Washington, DC 20224, and to the Office
of Management and Budget, Attn: Desk
Officer of the Department of the Treasury,
Office of Information and Regulatory Affairs, Washington, DC 20503.
Books or records relating to this collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
On September 9, 1998, the IRS published in the Federal Register (63 FR
48154(REG–209060–86, 1998–39 I.R.B.
18)) proposed regulations under section
6046A. A public hearing on the proposed
regulations was held on November 10,
1998, even though no requests to speak at
the hearing were received. Though no
comments were made at the hearing, written comments were received. After consideration of all of the written comments, the
proposed regulations under section 6046A
are adopted as revised by this Treasury decision. The revisions are discussed below.

January 10, 2000

Explanation of Provisions and
Summary of Comments
Commentators requested that section
6046A reporting not be required of United
States persons that are indirect partners in
a partnership. For example, a United
States person would not be required to report under section 6046A with respect to
an interest in a foreign partnership that the
person owned indirectly through another
partnership. Unlike section 6038, section
6046A reporting may apply with respect
to any foreign partnership, not just foreign partnerships controlled by U.S. persons. Accordingly, the IRS agrees that reporting should not be required for indirect
acquisitions, dispositions, and changes in
proportional foreign partnership interests,
because it would be burdensome and difficult for some partners to discover and
keep track of such events. Additionally, if
section 6046A reporting were required for
changes in indirectly owned foreign partnership interests, then a transfer of an interest in one entity in a chain of entities at
the bottom of which is a foreign partnership could result in multiple, duplicative,
section 6046A reporting obligations.
Thus, the final regulations substantially
reduce the burden section 6046A would
have imposed on taxpayers under the proposed regulations. The final regulations
provide that under §1.6046A-1(a)(1), a
United States person is only required to
report pursuant to section 6046A if that
person has a “reportable event.” A person
can only have a reportable event with respect to a particular foreign partnership if
that person owns a direct interest in the
partnership. More specifically, the United
States person must acquire or dispose of a
direct interest in the foreign partnership,
or have a change in its direct proportional
interest, in order to have a reportable
event under section 6046A. See
§1.6046A-1(b)(1).
Some commentators also requested that
the final regulations exempt state and local
government employee retirement plans
from the section 6046A reporting requirements. The final regulations provide that
trusts relating to state and local government employee retirement plans are not
required to report under section 6046A,
unless required to do so in the instructions
to Form 8865, “Return of U.S. Persons
With Respect To Certain Foreign Partnerships.” The IRS and Treasury invite com-

276

ments regarding whether the section
6046A reporting obligation should also be
reduced for other tax-exempt entities.
A United States person required to report information pursuant to section
6046A must do so by completing and filing Form 8865. A final version of Form
8865 will be released prior to January 1,
2000. Taxpayers will be able to download
a copy of the form and its instructions
from the IRS Internet website located at
www.irs.ustreas.gov.
The final regulations apply to reportable events that occur on or after January 1, 2000. Acquisitions and dispositions of foreign partnership interests, and
changes in proportional foreign partnership interests, occurring before January 1,
2000, are not required to be reported
under section 6046A.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required.
This Treasury decision finalizes a notice of proposed rulemaking published
September 9, 1998. It has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
does not apply to the final regulations issued pursuant to the notice of proposed
rulemaking published on September 9,
1998. It is hereby certified that this Treasury decision will not have a significant
economic impact on a substantial number
of small entities. This certification is
based on the fact that the amount of time
required to complete the form and file the
information required under these regulations is brief and will not have a significant impact on those small entities that
are required to provide notification. Furthermore, the number of small entities
that will be required to file the form is not
substantial. Accordingly, a Regulatory
Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not
required.
Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Small Business Administration for comment on its impact on
small business.

2000–2 I.R.B.

Drafting Information
The principal author of these final regulations is Eliana Dolgoff of the Office of
Associate Chief Counsel (International).
However, other personnel from the IRS
and the Treasury Department participated
in their development.
*****
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Par. 1. The authority citation for part 1
is amended by adding an entry in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6046A-1 also issued under
26 U.S.C. 6046A. * * *
Par. 2. Section 1.6046A-1 is added to
read as follows:
§1.6046A-1 Return requirement for
United States persons who acquire or dispose of an interest in a foreign partnership, or whose proportional interest in a
foreign
partnership
changes
substantially.
(a) Return requirement—(1) General
rule. If a United States person has a reportable event (as defined in paragraph
(b)(1) of this section) during the person’s
tax year, then, except as provided in paragraph (f) of this section, the United States
person is required to complete and file
Form 8865, “Return of U.S. Persons With
Respect To Certain Foreign Partnerships,”
containing the information described in
paragraph (c) of this section.
(2) Separate return for each partnership. If a United States person has a reportable event with respect to an interest
in more than one foreign partnership, the
United States person must file a separate
Form 8865 for each foreign partnership.
(b) Definitions—(1) Reportable event.
There are three categories of reportable
events under section 6046A: acquisitions, dispositions, and changes in proportional interests.
(i) Acquisitions. A United States person that acquires a foreign partnership interest has a reportable event if—
(A) The person did not own a ten-percent or greater direct interest in the partnership and as a result of the acquisition
the person owns a ten-percent or greater

2000–2 I.R.B.

direct interest in the partnership. For purposes of this paragraph (b)(1)(i)(A), an
acquisition includes an increase in a person’s direct proportional interest; or
(B) Subject to paragraph (b)(2) of this
section, compared to the person’s direct
interest when the person last had a reportable event, after the acquisition the
person’s direct interest has increased by at
least a ten-percent interest.
(ii) Dispositions. A United States person that disposes of a foreign partnership
interest has a reportable event if—
(A) The person owned a ten-percent or
greater direct interest in the partnership
before the disposition and as a result of
the disposition the person owns less than
a ten-percent direct interest. For purposes
of this paragraph (b)(1)(ii)(A), a disposition includes a decrease in a person’s direct proportional interest; or
(B) Subject to paragraph (b)(2) of this
section, compared to the person’s direct
interest when the person last had a reportable event, after the disposition the
person’s direct interest has decreased by
at least a ten-percent interest.
(iii) Changes in proportional interests
not otherwise reportable as acquisitions
or dispositions under paragraph
(b)(1)(i)(A) or (b)(1)(ii)(A) of this section.
A United States person has a reportable
event if, subject to paragraph (b)(2) of
this section, compared to the person’s direct proportional interest the last time the
person had a reportable event, the person’s direct proportional interest has increased or decreased by at least the equivalent of a ten-percent interest.
(2) Special rule for foreign partnership
interests owned on December 31, 1999.
If a United States person owned a ten-percent or greater direct interest in a foreign
partnership on December 31, 1999, then
to determine whether the person has a reportable event under paragraph
(b)(1)(i)(B), (b)(1)(ii)(B), or (b)(1)(iii) of
this section, the comparison should be
made to the person’s direct interest on December 31, 1999. Once the person has a
reportable event after December 31, 1999,
future comparisons should be made by
reference to the last reportable event.
(3) Change in a proportional interest.
A partner’s proportional interest in a foreign partnership may change for a number
of reasons, for example, the change may
be caused by changes in other partners’

277

interests resulting from a partner withdrawing from the partnership. A proportional change may also occur by operation
of the partnership agreement, for example, if the partnership agreement provides
that a partner’s interest in profits will
change on a set date or when the partnership has earned a specified amount of
profits and one of those events occurs.
(4) Ten-percent interest. Under section
6046A(d) and this section, a ten-percent
interest in a foreign partnership, as described in section 6038(e)(3)(C) and the
regulations thereunder, means an interest
equal to ten percent of the capital interest
in such partnership, an interest equal to
ten percent of the profits interest in such
partnership, or an interest to which ten
percent of the deductions or losses of such
partnership are allocated.
(5) United States person. United States
person means a person described in section 7701(a)(30).
(6) Foreign partnership. Foreign partnership means any partnership that is a
foreign partnership under sections
7701(a)(2) and (5).
(7) Examples. The rules of paragraph
(a) of this section and this paragraph (b)
are illustrated by the following examples:
Example 1. Acquisition of an indirect interest. FP,
a foreign partnership, has two partners, FC1 and FC2,
both foreign corporations. FC1 owns a 40% interest
in FP, and FC2 owns a 60% interest in FP. No United
States person owns an interest in FP, either directly, or
constructively under section 6038(e)(3)(C) and section
267(c). On January 1, 2001, US, a United States person and calendar year taxpayer, acquires by purchase
100% of FC2’s stock. US has acquired an indirect interest of 60% in FP. See sections 6038(e)(3)(C) and
267(c)(1). However, US is not required to report the
January 1, 2001 indirect acquisition under section
6046A. US did not own a 10% or greater direct interest in FP before the acquisition, and US does not own
a 10% or greater direct interest as a result of the acquisition. (US must, however, comply with the reporting
requirements under section 6038 (controlled foreign
corporation and controlled foreign partnership reporting) with respect to FC2 and FP.)
Example 2. Acquisition of direct interests. (i)
Assume the same facts as Example 1. In addition,
on June 1, 2001, US purchases a 5% direct interest
in FP from FC1. US did not own a 10% or greater
direct interest in FP before the acquisition. After the
acquisition, US does not own a direct interest of
10% or more. US owns a 10% or greater total interest (direct and indirect), but only a 5% direct interest. Therefore, US is not required to report the June

January 10, 2000

1, 2001, acquisition under section 6046A.
(ii) On September 1, 2001, US purchases a 7%
direct interest in FP from FC1. The September 1,
2001 acquisition constitutes a reportable event under
paragraph (b)(1)(i)(A) of this section. Before the
September 1 acquisition, US did not own a 10% or
greater direct interest in FP. After the September 1
acquisition, US owns a 12% direct interest, and
therefore, as a result of the September 1 acquisition,
US now owns a 10% or greater direct interest in FP.
Consequently, US must report its September 1 acquisition under section 6046A on Form 8865 filed
with US’s 2001 income tax return.
(iii) On December 1, 2001, US acquires an additional 4% direct interest in FP from FC1, so that
US’s total direct interest has increased from 12% to
16%. This acquisition does not constitute a reportable event. Compared to US’s direct interest
when US last had a reportable event (12% on September 1, 2001), after acquiring the 4% interest US’s
direct interest has not increased by at least a 10% direct interest (i.e., its direct interest increased by only
4%). Therefore, US does not have to report the December 1, 2001, acquisition under section 6046A.
On April 1, 2002, FC2 distributes a 6% direct interest in FP to US. US now owns a 22% direct interest
in FP. Compared to US’s direct interest when US
last had a reportable event (12% on September 1,
2001), after the April 1 acquisition US’s direct interest has increased by at least a 10% interest (12% to
22%). US must report the April 1, 2002 acquisition
on a Form 8865 attached to US’s 2002 income tax
return.
Example 3. Change in proportional interest resulting from withdrawal of a partner. Assume the
same facts as Example 3. In addition, on January 5,
2003, FC2 withdraws entirely from FP. As a result,
the direct interests of US and FC1 in FP each increase by at least the equivalent of 10% interests.
Compared to US’s direct interest the last time US
had a reportable event (22% on April 1, 2002), US’s
direct interest has increased by at least the equivalent of a ten percent interest. Therefore, US has had
a reportable event pursuant to paragraph (b)(1)(iii)
of this section, and US must report the change in its
interest resulting from FC2’s withdrawal from the
partnership on US’s Form 8865 filed with US’s 2003
tax year income tax return.
Example 4. Change in proportional interest constituting an acquisition. FP is a foreign partnership
that has no United States persons as direct or constructive partners. US is a United States person and
a calendar year taxpayer. On January 1, 2001, US
purchases an 8% direct interest in FP. US is not required to report this acquisition. US did not own a
10% or greater direct interest in FP, and US does not
own a 10% or greater direct interest as a result of the
acquisition. On March 1, 2001, FC, a foreign part-

January 10, 2000

ner of FP, withdraws from FP, and as result, US’s
direct interest in FP increases by a 7% interest. The
increase in US’s direct interest is considered an acquisition of an interest under paragraph (b)(1)(i)(A)
of this section. US did not own a 10% or greater direct interest in FP before FC withdrew, and as a result of the increase in US’s direct interest because of
FC’s withdrawal from FP, US now owns a 10% or
greater direct interest in FP. Therefore, US must report under section 6046A the increase in US’s direct
interest resulting from the withdrawal of FC from
FP on Form 8865 filed with US’s tax return for US’s
2001 tax year.

(c) Content of return. The Form 8865
that must be filed under paragraph (a)(1)
of this section must contain the following
information in such form and manner and
to the extent that Form 8865 and its instructions prescribe—
(1) The name, address, and taxpayer
identification number of the United States
person required to file the return;
(2) Information about other persons
(foreign or domestic) whose interests in
the foreign partnership the person reporting under section 6046A is considered to
own under section 6038(e)(3)(C) and section 267(c);
(3) Information about all foreign entities that were disregarded as entities separate from their owners under §§301.77012 and 301.7701-3 of this chapter that were
owned by the foreign partnership during
the partnership’s tax year ending with or
within the tax year of the person filing
Form 8865 pursuant to section 6046A;
(4) For each reportable event, the date
of the event, the type of event (acquisition, disposition, or change in proportional interest), and the United States person’s direct percentage interest in the
foreign partnership immediately before
and immediately after the event;
(5) The fair market value of the interest
acquired or disposed of;
(6) Information about partnerships (foreign and domestic) in which the foreign
partnership owned a direct interest, or a
constructive interest of ten percent or
more under sections section 267(c)(1) and
(5) and the regulations thereunder, during
the partnership’s tax year ending with or
within the tax year of the person filing
Form 8865 pursuant to section 6046A;
and
(7) Any other information required to
be submitted by Form 8865 and its instructions.

278

(d) Time and manner for filing returns.
The Form 8865 must be filed with the
timely filed (including extensions) income tax return of the United States person for the tax year in which the reportable event occurs. If the United
States person is not required to file an income tax return for its tax year in which
the reportable event occurs, but is required to file an information return for
that year (for example, Form 1065, “U.S.
Partnership Return of Income,” or Form
990, “Return of Organization Exempt
from Income Tax”), the United States person should attach the Form 8865 to its information return filed for that tax year.
(e) Duplicate returns. If required by
the instructions to Form 8865, a duplicate
Form 8865 (including attachments and
schedules) must also be filed.
(f) Persons excepted from filing
return—(1) Section 6038B overlap. If a
United States person acquires an interest
in a foreign partnership as a result of a
section 721 contribution required to be reported under section 6038B, and the person properly reports the contribution
under section 6038B, then the United
States person is not required to report the
acquisition of the partnership interest
under section 6046A(a) should it constitute a reportable event under paragraph
(b)(1) of this section. The acquisition will
still constitute a reportable event for purposes of making future comparisons pursuant to paragraphs (b)(1)(i)(B),
(b)(1)(ii)(B) and (b)(1)(iii) of this section.
A person that fails to properly report the
section 721 contribution under section
6038B and the regulations thereunder and
that fails to properly report the acquisition
of the partnership interest under section
6046A may be subject to the penalties applicable to a failure to comply with the requirements of section 6038B, as well as
the penalties applicable for a failure to
comply with the requirements of section
6046A. See paragraph (h) of this section
for more information about the penalties
for failure to comply with the requirements of section 6046A.
(2) Trusts relating to state and local
government employee retirement plans.
The return requirement of section 6046A
does not apply to trusts relating to state
and local government employee retirement plans, unless the instructions to
Form 8865 provide otherwise.

2000–2 I.R.B.

(3) Reporting under this section not
required of partnerships excluded from
the application of subchapter K. The reporting requirements of this section will
not apply to any United States person in
respect of an eligible partnership as described in §1.761-2(a) in which that
United States person is a partner, if such
partnership has validly elected to be excluded from all of the provisions of subchapter K of chapter 1 of the Internal
Revenue Code in the manner specified
in §1.761-2(b)(2)(i), or is deemed to
have elected to be excluded from all of
the provisions of subchapter K of chapter 1 of the Internal Revenue Code in accordance with the provisions of §1.7612(b)(2)(ii).
(4) Exclusion for satellite organizations. The return requirement of section
6046A does not apply to the International
Telecommunications Satellite Organization (or a successor organization) or the
International Maritime Satellite Organization (or a successor organization).
(g) Method of reporting. Except as oth-

erwise provided on Form 8865, or the accompanying instructions, any amounts required to be reported under section 6046A
and this section must be expressed in
United States dollars, with a statement of
the exchange rates used. All statements
required on or with Form 8865 pursuant
to this section must be in English.
(h) Penalties for violating section
6046A. For penalties for violating section
6046A, see sections 6679 and 7203.
(i) Statute of limitations. For exceptions to the limitations on assessment in
the event of a failure to provide information under section 6046A, see section
6501(c)(8).
(j) Effective date. This section applies
to reportable events occurring after December 31, 1999. No reporting under section 6046A is required for reportable
events occurring on or before December
31, 1999.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT

CFR part or section where
identified and described

Par. 3 The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 4 In §602.101, paragraph (b) is
amended by adding an entry in numerical
order to the table to read as follows:
§602.101 OMB Control numbers.
*****
(b) * * *
Robert Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved December 9, 1999.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on
December 27, 1999, 8:45 a.m., and published in the
issue of the Federal Register for December 28, 1999,
64 F.R. 72555)

Current OMB
control No.

*****
1.6046A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1545-1646
*****

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of January 2000. See Rev. Rul. 2000–1, page 250.

2000–2 I.R.B.

Section 7872.—Treatment of
Loans with Below-Market
Interest Rates
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of January 2000. See Rev. Rul. 2000–1, page 250.

279

January 10, 2000