Who this is for
- US hedge funds, private funds and trading partnerships with accounts at foreign brokers, banks or exchanges
- US funds that hold offshore funds or other foreign company shares, or a stake in a foreign partnership
- General partners and managers who can move money in the fund's foreign accounts
- Funds that missed these forms in earlier years
Not covered here
- A principal's personal FBAR and Form 8938 in detail
- An individual's own PFIC holdings
- Form 5471 schedules and the tax on a foreign company's income
- Offshore feeder funds and blocker corporations
- Foreign tax credits and the full Schedule K-3
- State returns
Which foreign forms does a US fund file?
The fund itself files the FBAR and Forms 8621, 5471 and 8865 when their tests are met, and Form 8938 if one person owns most of it. Its US partners, not the fund, file Form 926. A fund formed as a US partnership or LLC is a US person for the FBAR (31 CFR 1010.350(b)(3)) and for Forms 5471 and 8865, whose instructions name a domestic partnership.
| Form | When it is needed | Who files | Where it goes |
|---|---|---|---|
| FBAR (FinCEN Form 114) | Foreign accounts total more than $10,000 at any time in the calendar year | The fund; each principal with signature authority who is a US person; a US partner owning more than 50% of the fund | Filed online with FinCEN, not with the tax return |
| Form 8938 | One individual owns at least 80% of the fund and its income or assets are mostly passive | The fund | Attached to Form 1065 |
| Form 8621 | The fund holds shares of a passive foreign investment company (PFIC), such as an offshore fund | The fund, as the first US owner; some partners too | Attached to Form 1065 |
| Form 5471 | The fund acquires 10% or more of a foreign corporation, controls one, or owns 10% or more of a controlled foreign corporation | The fund | Attached to Form 1065 |
| Form 8865 | The fund controls a foreign partnership, holds a 10% interest in one controlled by US persons, contributes property to one, or its stake crosses 10% | The fund | Attached to Form 1065 |
| Form 926 | The fund transfers cash or other property to a foreign corporation in a tax-free exchange for its stock, such as a section 351 transfer | Each US partner, for its share | Attached to the partner's own return |
What makes a case less simple: missed years, a foreign company the fund controls, offshore funds held without an election, or partners who need the fund's numbers to file their own forms. Most of these failures carry set penalties and keep the tax year open. Filing the fund's forms, giving partners the numbers for theirs and catching up missed years are part of hedge fund tax services.
What to gather:
- Every foreign broker, exchange, bank and custody statement, with the highest balance in each account for the year
- A list of who can give instructions on each account
- Subscription papers for each offshore fund or foreign company, with the percentage owned and the dates bought and sold
- Any foreign partnership agreement and the fund's share of capital and profits
- Wire records for money sent to foreign companies and partnerships
- Each offshore fund's PFIC annual information statement, if it provides one
Does a fund partnership file its own FBAR?
Yes, when the fund's foreign financial accounts together exceed $10,000 at any point in the calendar year (FinCEN). The fund is the owner of record, so it has a financial interest in each account in its name.
- What counts. A bank account, a securities account at a foreign broker, and an account with a foreign broker for futures or options on a commodity exchange are all reportable (31 CFR 1010.350(c)). Where the account is kept decides, not what it holds: an account at a US office of a broker is not foreign even if it buys foreign shares, while an account at a foreign branch of a US bank is foreign (FBAR line item instructions).
- Offshore fund interests. The regulation counts a foreign mutual fund or similar pooled fund whose shares are available to the general public, with a regular net asset value and regular redemptions. FinCEN has not defined the category for other investment funds; the regulation marks it "reserved" (31 CFR 1010.350(c)(3)(iv)). So whether a stake in a private offshore fund is reportable is unsettled.
- Crypto. In Notice 2020-2, FinCEN said a foreign account holding only virtual currency is not reportable, unless it also holds other reportable assets. It said it intends to change the rule (Notice 2020-2).
- When. The FBAR is due April 15 after the calendar year, with an automatic extension to October 15. It is filed electronically with FinCEN, not with Form 1065 (IRS).
A US partner who owns more than 50% of the fund's profits or capital also has a financial interest in the fund's foreign accounts and reports them on their own FBAR (31 CFR 1010.350(e)(2)(ii)). This can catch a sponsor in a small fund or a single large investor.
Form 8938. The fund also files Form 8938 with Form 1065 if one individual holds, directly or through family or entities, at least 80% of its capital or profits on the last day of the year, and at least 50% of its gross income or assets is passive (26 CFR 1.6038D-6(b)). That can catch a family trading partnership. The threshold is foreign financial assets of more than $50,000 on the last day of the year or more than $75,000 at any time (Form 8938 instructions).
Do principals with signature authority file their own FBARs?
Usually yes, if they are US persons. A person whose instructions the institution will act on to move money has signature authority (31 CFR 1010.350(f)(1)). A general partner's officer or a portfolio manager who can trade or wire at the fund's foreign broker generally has it. If that person is a US citizen, green card holder or other US resident, they may need their own FBAR for those accounts, even with no money in the fund (31 CFR 1010.350(a)-(b)).
The regulation's exceptions are narrow (31 CFR 1010.350(f)(2)). They cover staff with no financial interest in the account at a regulated bank, an SEC- or CFTC-registered and examined financial institution, a service provider to a registered investment company, or a listed company, each for that employer's or client's own accounts. A private fund is none of these. Read literally, the second exception covers only the institution's own accounts, and a private fund's accounts belong to the fund, not to the adviser. FinCEN has proposed to expand and clarify these exceptions but has not finalized that rule, so it extends the due date for some filers year by year instead (FinCEN).
Notice FIN-2025-NTC3 (December 8, 2025) extended to April 15, 2027 the filing for signature authority held during 2025 by the groups covered by earlier notices, including certain employees and officers of SEC-registered investment advisers with no financial interest in the accounts (FinCEN). It only moves the due date; it names staff of SEC-registered advisers, not of exempt reporting or state-registered advisers; and it covers only authority held during 2025, so later years need a new notice.
A principal's own FBAR and Form 8938 are covered in foreign account reporting.
Does the fund or the partner file Form 8621 for offshore funds?
The fund does. A foreign fund company is usually a PFIC, and Form 8621 is filed by the first US person in the chain of ownership (26 CFR 1.1298-1(b)). For a US fund, that is the fund. One form is filed for each PFIC, attached to Form 1065 (Form 8621 instructions). Any foreign corporation is a PFIC if at least 75% of its gross income is passive or at least 50% of its assets produce passive income (26 U.S.C. 1297(a)), so foreign mutual funds, exchange-traded funds and some listed companies can be PFICs too.
The fund also makes the qualified electing fund (QEF) election. A domestic partnership holding PFIC stock makes the election itself, and it applies only to the stock the partnership holds (26 CFR 1.1295-1(d)(2)). The election is due with the fund's return, including extensions, for the first year it is to apply (26 CFR 1.1295-1(e)). The partners then pick up the QEF income through their K-1s. The election works only if the offshore fund provides a PFIC annual information statement each year, so whether it will provide one matters before the election is made. A late election is allowed only under 26 CFR 1.1295-3: generally a protective statement, based on a reasonable belief the company was not a PFIC, attached to that year's return by its extended due date, or IRS consent.
A partner usually does not file Form 8621 for PFIC stock held through the fund. A partner must file when it (26 CFR 1.1298-1(b)(2)):
- Is treated as receiving an excess distribution, or gain taxed as one, because no election was made
- Has a QEF or mark-to-market inclusion and the fund did not file a timely Form 8621 for that PFIC
- Reports the status of an election to defer the tax on undistributed QEF earnings, which each partner makes on its own
PFIC stock a partner holds through the fund does not count toward the $25,000 limit that excuses small holdings of PFICs the partner owns directly (26 CFR 1.1298-1(c)(2)(ii)). That limit does not excuse a PFIC with an excess distribution or a QEF election.
For a trading fund with a section 475 mark-to-market election, no Form 8621 is generally required for a PFIC marked to market under that section, unless the excess distribution rules still apply to it (26 CFR 1.1298-1(c)(3)). An individual's own PFICs are covered in funds bought outside the US.
When does the fund file Form 5471?
When it buys into or controls a foreign corporation. The fund files Form 5471 with its Form 1065 by the return's due date, including extensions (Form 5471 instructions). The categories that usually reach a fund are:
| Category | Trigger for the fund |
|---|---|
| 3 | It acquires stock that brings it to 10% or more of the vote or value, acquires another 10% or more at once, or sells below that level |
| 4 | It controls the foreign corporation: more than 50% of the vote or value at any time in its tax year |
| 5 | It owns 10% or more of a controlled foreign corporation (one in which US persons each owning at least 10% together own more than 50%) |
An offshore fund company can be both a PFIC and a controlled foreign corporation, so a large stake can bring Forms 5471 and 8621 together.
The penalty is $10,000 for each foreign corporation for each year (for Category 3, for each missed acquisition or sale report), with more after an IRS notice. Category details and schedules are in US owners of foreign companies. Whether a manager's offshore management shares bring Form 5471 is covered in blocker corporations for fund investors.
When does the fund file Form 8865?
When it has a large stake in, or sends property to, a foreign partnership. The fund files Form 8865 with its Form 1065 (Form 8865 instructions) as:
| Category | Trigger |
|---|---|
| 1 | The fund controls the foreign partnership: more than 50% of capital, profits, or deductions or losses, at any time in the partnership's year |
| 2 | The fund holds a 10% or greater interest while US persons each holding at least that much together control the partnership, and no one is a Category 1 filer |
| 3 | The fund contributes property and holds at least a 10% interest right after, or its contributions in the 12 months ending on that date exceed $100,000 |
| 4 | The fund's direct interest crosses 10% up or down, or changes by that much since its last reportable event |
When a domestic partnership contributes to a foreign partnership, its partners are treated as contributing their shares. They are relieved if the fund files Form 8865 and reports the contribution fully. Ownership counts interests held through family and entities.
Penalties are in the table below. An unreported contribution also makes the transferor recognize gain as if the property had been sold, and a missed Category 4 report costs $10,000.
Does the partnership or its partners file Form 926?
The US partners file it, not the fund, and only for certain transfers. When a partnership transfers property to a foreign corporation, each domestic partner is treated as transferring its share (Form 926 instructions).
Form 926 covers transfers in the tax-free exchanges listed in 26 U.S.C. 6038B(a)(1)(A), most often a section 351 transfer. For cash, that usually means a subscription for new shares by investors who together control the corporation right after (26 U.S.C. 351(a)). Buying shares from another holder is not reported on Form 926. Whether a subscription into an existing offshore fund qualifies depends on the facts.
A partner files for its share of a cash transfer only if either test is met (26 CFR 1.6038B-1(b)(3)):
- Right after the transfer, the partner holds, directly, indirectly or through family members and related entities, at least 10% of the foreign corporation's vote or value
- The cash the partner and related persons sent to that corporation in the 12 months ending on the transfer date is more than $100,000
The penalty is 10% of the property's value at the time of transfer, capped at $100,000 unless the failure was intentional. It does not apply if the failure was due to reasonable cause and not willful neglect. The partner's return for that year also stays open to assessment until 3 years after the information is given (26 U.S.C. 6501(c)(8)).
A partner cannot apply either test without the fund's numbers. The fund reports Form 926 information on Schedule K-3, so each partner sees its share of the cash and the corporation's details.
What goes on the partners' K-1 and K-3?
Whatever each partner needs to file its own forms. The K-3 parts and boxes that carry this information are (K-2 and K-3 instructions):
| Item | Where on Schedule K-3 |
|---|---|
| PFIC details and QEF or mark-to-market amounts | Part VII |
| Form 5471 the fund filed | Part I, box 8, with the relevant parts of Form 5471 attached |
| Form 8621 the fund filed | Part I, box 9, noting the forms are attached to Schedule K-2 |
| Contribution to a foreign partnership not fully reported on the fund's Form 8865 | Part I, box 12 |
| Form 926 information | Part I, box 13 |
| Controlled foreign corporation income inclusions | Part VI |
These part and box numbers come from the latest published K-2 and K-3 instructions and can change from year to year. When and how partners request K-3s is covered in getting fund tax forms out on time.
What are the penalties, and how does a fund catch up?
Most of these forms carry a set penalty per missed form, and most also keep the year open. The time to assess any tax on a return linked to a missing Form 5471, 8865, 926, 8621 or 8938 does not end until 3 years after the information is filed (26 U.S.C. 6501(c)(8)). With reasonable cause, that extension covers only the items tied to the failure.
| Form | Penalty for not filing |
|---|---|
| FBAR, non-willful | Up to $16,536 per missed FBAR, not per account (IRM 4.26.16), the inflation-adjusted maximum for penalties assessed on or after January 17, 2025 (31 CFR 1010.821) |
| FBAR, willful | Up to the greater of $165,353 or 50% of the balance, per account |
| Form 5471 | $10,000 per foreign corporation per year, plus $10,000 for each 30 days after 90 days from an IRS notice, up to $50,000 more |
| Form 8865 | $10,000 per foreign partnership per year (Categories 1 and 2); 10% of contributed property, up to $100,000 |
| Form 926 | 10% of the property's value, up to $100,000 unless intentional |
| Form 8938 | $10,000, with more after an IRS notice |
| Form 8621 | No fixed penalty, but the year stays open until it is filed |
How to catch up depends on whether the IRS has made contact. A fund not under examination or investigation, and not contacted about the missing forms, can use the IRS's delinquent international information return procedures. They attach late forms to an amended return, with a reasonable cause statement for each; penalties may be assessed before that statement is read. A fund under the centralized partnership audit regime does not file an amended Form 1065; it files an administrative adjustment request instead (Form 1065 instructions), and the procedures do not say how late forms go with it. That request is covered in correcting a filed business return. An FBAR penalty can be assessed against anyone who causes the violation, not only the fund (IRM 4.26.16). Late FBARs are filed electronically with a reason for the late filing (IRS). Partners' own late forms follow the routes in catching up on missed foreign reporting.
Example
Illustrative figures in US dollars. A US fund partnership with five US partners, each holding 20%, puts $5,000,000 in cash into 12% of a Cayman company and keeps $4,000,000 at a Hong Kong broker.
The fund's own forms
- FBAR. The broker account is far above the threshold, so the fund files an FBAR. Two managers who are US persons and can trade and wire from the account have signature authority and may each need their own FBAR, unless a FinCEN extension applies to them.
- Form 5471. The fund acquired 12% of a foreign corporation, so it is a Category 3 filer for that year and attaches Form 5471 to its Form 1065.
- Form 8621. If the Cayman company is a PFIC, the fund files Form 8621 and decides by the return's due date whether to make the QEF election.
The partners' Form 926
Each partner's share of the cash is $1,000,000, well over $100,000 in 12 months. If the subscription is a section 351 transfer, each partner files Form 926, even though each owns only 2.4% of the Cayman company through the fund. The fund's K-3 gives each partner its share of the transfer.
A missed year
The fund missed Form 5471 the year it bought in. The penalty can be $10,000, and the assessment period for that year's return stays open until 3 years after the form is filed.
Different for you?
- You want the fund's FBAR and foreign forms filed, or missed years caught up: hedge fund tax services.
- You are a principal with your own foreign accounts, or need Form 8938: foreign account reporting.
- You hold foreign funds personally: funds bought outside the US.
- You need your own signature-authority FBAR filed: FBAR filing.
- You personally missed foreign forms in past years: catching up on missed foreign reporting.
- The fund owns or controls a foreign company and needs the Form 5471 schedules: US owners of foreign companies.
- The fund has an offshore feeder, a blocker or management shares in an offshore vehicle: blocker corporations for fund investors.
- Partners are asking for K-3s, or K-1s are late: getting fund tax forms out on time.
- The fund trades crypto at foreign exchanges: crypto fund tax returns.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| FBAR filing threshold Total maximum value of all foreign financial accounts at any time in the calendar year; an FBAR is required when the total is more than this | $10,000 | FinCEN: Report Foreign Bank and Financial Accounts Checked |
| FBAR ownership level for an entity's accounts You have a financial interest in the foreign accounts of a corporation, partnership or other entity you own more than this share of, directly or indirectly | 50% | eCFR: 31 CFR 1010.350, Reports of foreign financial accounts Checked |
| Form 8938 closely held test for a domestic partnership or corporation Share of a partnership's capital or profits (or a corporation's vote or value) held directly, indirectly or constructively by one specified individual on the last day of the tax year | 80% | eCFR: 26 CFR 1.6038D-6, specified domestic entities Checked |
| Foreign corporation ownership threshold for a US shareholder Voting power or stock value; also the basic stock threshold used in Form 5471 Categories 2 and 3 | 10% | IRS: Instructions for Form 5471 Checked |
| Form 8865 10% interest in a foreign partnership Share of capital, profits, or deductions or losses used for Categories 2, 3 and 4, counting constructive ownership | 10% | IRS: Instructions for Form 8865 Checked |
| FBAR filing deadline Following the calendar year reported; an automatic extension applies | April 15 | IRS: Report of Foreign Bank and Financial Accounts Checked |
| Automatic FBAR extension deadline Following the calendar year reported; no extension request is required | October 15 | IRS: Report of Foreign Bank and Financial Accounts Checked |
| Passive income or passive asset share that makes a closely held domestic entity a specified domestic entity At least this share of gross income is passive, or at least this share of assets (quarterly weighted average) produce or are held to produce passive income | 50% | eCFR: 26 CFR 1.6038D-6, Specified domestic entities Checked |
| Form 8938 threshold for a specified domestic entity, year end Total value of specified foreign financial assets on the last day of the tax year must be more than this | $50,000 | IRS: Instructions for Form 8938, Reporting Thresholds Applying to Specified Domestic Entities Checked |
| Form 8938 threshold for a specified domestic entity, any time Total value of specified foreign financial assets at any time during the tax year must be more than this | $75,000 | IRS: Instructions for Form 8938, Reporting Thresholds Applying to Specified Domestic Entities Checked |
| PFIC passive-income test At least this share of a foreign corporation's gross income is passive income | 75% | IRS: Instructions for Form 8621 Checked |
| PFIC passive-asset test At least this average percentage of a foreign corporation's assets produce or are held to produce passive income | 50% | IRS: Instructions for Form 8621 Checked |
| Form 8621 Part I small-holding exception Aggregate value of all PFIC stock on the last day of the tax year; section 1291 funds only, and only if no excess distribution or gain | $25,000 | IRS: Instructions for Form 8621 Checked |
| Foreign corporation control threshold Ownership must be more than this share of voting power or value for Category 4 control or the general CFC test | 50% | US Code: section 957 Checked |
| Initial penalty for failure to file required Form 5471 information Per annual accounting period of each foreign corporation for information required by section 6038(a) | $10,000 | IRS: Instructions for Form 5471 Checked |
| Foreign partnership control threshold for Form 8865 Category 1 Control is ownership of more than this share of capital, profits, or deductions or losses, counting constructive ownership | 50% | IRS: Instructions for Form 8865 Checked |
| Form 8865 Category 3 contribution value threshold Category 3 applies when property contributed by the person or a related person in the 12 months ending on the transfer date exceeds this amount, even below a 10% interest | $100,000 | IRS: Instructions for Form 8865 Checked |
| Form 8865 penalty for missing Category 1 or 2 information Per foreign partnership per tax year (section 6038); the same amount applies to a missed Category 4 report (section 6046A); more after 90 days from an IRS notice | $10,000 | IRS: Instructions for Form 8865 Checked |
| Offshore cash subscription ownership threshold for Form 926 Direct or indirect vote or value immediately after the cash transfer; US transferors include endowments. | 10% | IRS: Instructions for Form 926, Transfers of cash Checked |
| Offshore cash transfer threshold for Form 926 Reporting applies when cash transferred during the period ending on the transfer date is more than this amount, even below the ownership threshold. | $100,000 | IRS: Instructions for Form 926, Transfers of cash Checked |
| Form 926 failure-to-file penalty rate Of the property's fair market value at the time of transfer (section 6038B); not applied when the failure is due to reasonable cause and not willful neglect | 10% | IRS: Instructions for Form 926, Penalties for Failure To File Checked |
| Form 926 failure-to-file penalty cap Does not apply if the failure was due to intentional disregard | $100,000 | IRS: Instructions for Form 926, Penalties for Failure To File Checked |
| FBAR non-willful penalty maximum Per violation (per report under Bittner v. United States); for penalties assessed on or after January 17, 2025; adjusted for inflation each year | $16,536 Tax year 2025 | eCFR: 31 CFR 1010.821, Penalty adjustment and table Checked |
| FBAR willful penalty fixed maximum The willful maximum is the greater of this amount or a share of the account balance; for penalties assessed on or after January 17, 2025 | $165,353 Tax year 2025 | eCFR: 31 CFR 1010.821, Penalty adjustment and table Checked |
| FBAR willful penalty share of balance Share of the account balance at the time of the violation, if greater than the fixed willful maximum | 50% | US Code: 31 U.S.C. 5321, Civil penalties Checked |
| Form 5471 continued-failure penalty For each period or fraction after the notice waiting period, per subsidiary annual accounting period | $10,000 | US Code: Section 6038(b)(2) Checked |
| Form 5471 continued-failure penalty increase cap Maximum additional section 6038(b)(2) penalty for the annual accounting period; initial penalty is separate | $50,000 | US Code: Section 6038(b)(2) Checked |
| Penalty for an unreported contribution to a foreign partnership Of the property's fair market value at contribution (section 6038B); the transferor also recognizes gain as if the property were sold | 10% | IRS: Instructions for Form 8865 Checked |
| Cap on the unreported foreign partnership contribution penalty Does not apply if the failure is due to intentional disregard | $100,000 | IRS: Instructions for Form 8865 Checked |
| Form 8938 failure-to-file penalty For not filing a complete and correct Form 8938 on time; the same amount applies for each 30-day period of continued failure starting 90 days after an IRS notice | $10,000 | IRS: Instructions for Form 8938 Checked |
Primary sources
- eCFR: 31 CFR 1010.350, Reports of foreign financial accounts
- FinCEN: Report Foreign Bank and Financial Accounts
- FinCEN: Notice FIN-2025-NTC3, FBAR filing requirement for certain financial professionals
- FinCEN: Notice 2020-2, FBAR filing requirement for virtual currency
- FinCEN: FBAR line item filing instructions
- IRS: Report of Foreign Bank and Financial Accounts (FBAR)
- IRS: IRM 4.26.16, Report of Foreign Bank and Financial Accounts (FBAR)
- eCFR: 31 CFR 1010.821, Penalty adjustment and table
- IRS: Instructions for Form 8621
- eCFR: 26 CFR 1.1295-1, Qualified electing funds
- eCFR: 26 CFR 1.1295-3, Retroactive QEF elections
- eCFR: 26 CFR 1.1298-1, PFIC annual reporting
- IRS: Instructions for Form 5471
- IRS: Instructions for Form 8865
- IRS: Instructions for Form 926
- US Code: 26 U.S.C. 6038B, notice of certain transfers to foreign persons
- US Code: 26 U.S.C. 351, transfer to a corporation controlled by the transferor
- US Code: 26 U.S.C. 1297, passive foreign investment company
- eCFR: 26 CFR 1.6038D-6, specified domestic entities
- IRS: Instructions for Form 8938
- IRS: Instructions for Form 1065
- eCFR: 26 CFR 1.6038B-1, Reporting of transfers to foreign corporations
- IRS: Partnership Instructions for Schedules K-2 and K-3 (Form 1065)
- US Code: 26 U.S.C. 6501(c)(8), assessment period when foreign information is not reported
- IRS: Delinquent international information return submission procedures
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.