Missed US Tax Returns: Foreign Forms Behind a Fund K-1

Missed US Tax Returns are not always whole returns. An American in London holding one US private equity or venture fund interest can owe Forms 926, 8865, 5471 and 8621 personally because of what the fund did abroad, and the only notice is a Schedule K-1 footnote or a Schedule K-3 entry.

That is the uncomfortable feature of fund investing for a US citizen or green card holder living in the UK. You wrote one subscription cheque to one US partnership. You never bought a share in a foreign company, never joined a foreign partnership and never chose a foreign fund. The partnership did all three on your behalf, and US law treats a partner as having done a proportionate share of each. At Jungle Tax we prepare the US and UK returns for investors in exactly this position, and the pattern we see most often is a return that was filed on time, with the K-1 income correctly reported, and with three or four foreign information forms silently absent for every year of the fund's investment period.

This guide treats those indirect filings as a set: how the fund tells you, which forms are yours and which the fund's own filing satisfies, the thresholds that decide it, and how a UK-resident investor repairs several missed years. It is a compliance guide, not investment or structuring advice.

Why does a US fund create foreign filings in the investor's name?

A US partnership is not a taxpayer in its own right for income tax purposes. It is a conduit, and much of the US international reporting regime follows the same logic. When a domestic partnership transfers cash to a foreign corporation, contributes to a foreign partnership, or holds shares in a foreign company that is a controlled foreign corporation or a passive foreign investment company, the rules look through the partnership and ask what each partner is treated as having done or owned.

A buyout or venture fund does these things routinely. It capitalises a foreign holding company to make an acquisition. It invests through a foreign aggregator or alternative investment vehicle that is itself a partnership. It takes a minority stake in a non-US start-up that has no income yet and therefore meets the passive foreign investment company tests. None of that is unusual, and none of it is visible to the investor until the tax package arrives, usually many months after the year end.

The result is four separate questions for each fund, each year:

• Form 926: did the fund transfer cash or property to a foreign corporation, and is my share over the reporting threshold?
• Form 8865: did the fund contribute to, or hold a large interest in, a foreign partnership, and did the fund itself report it?
• Form 5471: do I, looking through the fund, own enough of a foreign corporation to be a US shareholder of it?
• Form 8621: does the fund hold a passive foreign investment company, did the fund file and elect, and do I have an inclusion of my own?

Where is the notice? Reading the K-1 footnotes and the Schedule K-3

There is no letter from the IRS and no box on the face of the Schedule K-1 that says "you must file Form 926". The information sits in two places, and a preparer who processes only the numbered boxes of the K-1 will miss both.

The K-1 footnotes and supplemental statements

Behind the one-page K-1 there is normally a statement pack that can run to dozens of pages. The passages that matter tend to be headed along the lines of "foreign reporting", "transfers to foreign corporations", "section 6038B information", "contributions to foreign partnerships" or "PFIC information". A typical disclosure lists each foreign entity by name, country and identifying number, the date and amount of each transfer, your allocable share of it, and a sentence saying that you may have a filing obligation and should consult your tax adviser. That last sentence is the notice. It is drafted to protect the fund, not to tell you the answer, because the fund cannot know your other holdings, your related parties or what else you transferred to the same entity in the preceding twelve months.

Schedule K-3

Schedule K-3 is the international supplement to the K-1. On the current partnership schedule, Part I is a set of checkboxes that work as an index of what is attached: one box signals that Form 5471 information is included, another that other international forms such as Form 8621 were filed by or for the partnership, another that Form 8865 information is attached, and a catch-all for other international items, which is where Form 926 information is listed. Later parts then carry the substance: Part V covers distributions from foreign corporations, Part VI the information needed for controlled foreign corporation inclusions, and Part VII the passive foreign investment company detail a partner needs to complete Form 8621.

Two practical points follow. First, the IRS partnership instructions say that where the partnership itself filed Form 8621 or Form 8865, it does not need to attach copies to each partner's K-3; a statement that the forms were filed is enough. So the confirmation you are relying on may be a single line. Second, a domestic fund with limited foreign activity can rely on the domestic filing exception and issue no K-3 at all unless a partner asks for it in time. We cover timing, late delivery and the request deadline in our guide to Schedule K-3 delays on US private funds, and do not repeat it here. The point for this guide is simpler: no K-3 does not mean no foreign forms, and the footnotes still have to be read.

Which forms are your own obligation, and which does the fund's filing satisfy?

This is the question the footnote never answers. The four forms behave differently, and treating them alike is how omissions happen.

Form	What the fund did	Does the fund's filing cover the investor?	What decides the investor's filing
Form 926	Transferred cash or property to a foreign corporation	No. A partnership cannot file it; the partners do	Share of cash over $100,000 in a 12-month period, or 10% holding after the transfer; non-cash property is tested separately
Form 8865 (contribution)	Contributed property to a foreign partnership	Yes, if the domestic fund filed Form 8865 and properly reported the contribution	If the fund did not, the investor's proportionate share against the 10% and $100,000 tests
Form 8865 (ownership)	Controls, or holds 10% or more of, a foreign partnership	Usually, through the constructive ownership exception	Whether the investor's own indirect interest reaches 10%
Form 5471	Holds shares in a foreign corporation	Only where the fund files on the investor's behalf and the investor attaches the required statement	Whether the investor, through the fund, is a 10% US shareholder
Form 8621	Holds a passive foreign investment company	Generally yes for a domestic fund that files, but not for the investor's own excess distributions or gains	Whether the fund filed and elected, and whether the investor recognises income under the default regime

Form 926: always the partner's form

The Form 926 instructions are explicit. If the transferor is a partnership, domestic or foreign, the domestic partners and not the partnership are required to comply with section 6038B and file Form 926, and each partner is treated as transferring its proportionate share of the property. There is no mechanism for the fund to file on your behalf. That makes Form 926 the single most commonly missed form in a fund investor's file, because it is the only one of the four where a diligent fund administrator cannot fix the problem at source.

Form 8865: usually satisfied by the fund, but check that it was

The Form 8865 instructions take the opposite approach. Where a domestic partnership contributes property to a foreign partnership, its partners are treated as having transferred a proportionate share, but if the domestic partnership files Form 8865 and properly reports all the required information about the contribution, the partners are not required to report the transfer. The relief is conditional. It depends on the fund being a domestic partnership, on it actually having filed, and on the filing being complete. The K-3 statement that Form 8865 was filed is your evidence, and it belongs in the file for every year.

Form 5471: a question of percentage, looked through the fund

Form 5471 attaches to US persons who own, directly, indirectly or constructively, 10% or more of the vote or value of a foreign corporation, with further categories for control (more than 50%) and for US shareholders of controlled foreign corporations. An investor with a fraction of one per cent of a large fund will rarely reach 10% of any portfolio company. An investor with a concentrated position, a co-investment alongside the fund, or an interest in a small vehicle with a handful of partners can. The Form 5471 instructions allow one person to file for others who have the same filing requirement, but the person relying on that must attach the statement the instructions prescribe to their own return. So even when the fund files, the investor's return is not silent.

Form 8621: who files depends on who is first in the chain

For passive foreign investment companies the Form 8621 instructions place the annual reporting on the US person at the lowest tier in the chain of ownership. Where a domestic fund holds the foreign company, that is the fund, and a qualified electing fund election made by a domestic partnership is made in the partnership's capacity as shareholder, with the partners taking the resulting income into account through the K-1. The instructions then say that interest holders must file Form 8621 themselves if the pass-through entity fails to file, or if the holder is required to recognise income under section 1291, which is the default excess distribution regime. In practice: if the fund elected and filed, you report the income it passes to you; if it did not elect, any distribution or disposal that falls under the default regime puts a Form 8621 on your return.

What are the thresholds for an indirect filing?

All figures below are taken from the current IRS form instructions and should be re-checked against the instructions for the year being filed.

Form 926

• A cash transfer is reportable if, immediately after it, the US person holds directly or indirectly at least 10% of the total voting power or total value of the foreign corporation, or if the cash transferred by that person to that corporation during the 12-month period ending on the date of the transfer is more than $100,000.
• The $100,000 test is run on your allocable share, per foreign corporation, and it aggregates. A fund that funds an acquisition vehicle in three tranches can take a partner over the line on the third.
• Your own direct transfers to the same corporation count as well. This catches investors who co-invest directly alongside the fund.
• Transfers of property other than cash are subject to their own rules and are generally reportable without a dollar floor, subject to the exceptions in the instructions.

Form 8865

• A contribution is reportable (Category 3) if, immediately after it, the person owns directly or constructively at least a 10% interest in the foreign partnership, or if the value contributed, added to other contributions by that person or a related person in the 12 months ending on the transfer date, exceeds $100,000.
• Ownership categories begin at a 10% interest in a foreign partnership controlled by US persons each holding at least 10%, and at more than 50% for control.
• These tests only fall to you where the domestic fund did not file and properly report, or where your interest is held directly in a foreign partnership.

Form 5471

• The working threshold is 10% of the total combined voting power or total value of the foreign corporation's shares, counting what you hold directly, indirectly and constructively.
• Control for the Category 4 filer means more than 50% of vote or value.

Form 8621

• There is no ownership percentage floor. A fraction of a per cent is enough.
• The annual reporting section (Part I) need not be completed for a fund under the default regime where the shareholder's total passive foreign investment company holdings are worth $25,000 or less at the year end ($50,000 on a joint return), provided there was no excess distribution and no gain on that fund in the year.
• A separate exception applies to indirect holdings: Part I is not required for a specific indirectly held fund where the shareholder's proportionate share is worth $5,000 or less, on the same conditions.
• Neither exception removes the form in a year in which an excess distribution is received or a gain recognised.

What if my interest is in the fund's offshore vehicle rather than the US partnership?

Many sponsors run a US partnership alongside a parallel or feeder partnership formed outside the United States. A UK-resident American is sometimes admitted to the offshore vehicle because of where they live, without anyone considering their citizenship. The analysis then shifts. Your own capital contributions are contributions to a foreign partnership, so the Form 8865 contribution test applies to you directly: more than $100,000 in a 12-month period is reportable regardless of how small your percentage is. The conditional relief described above for partners of a domestic partnership does not help with a contribution you made yourself. Passive foreign investment company reporting also changes, because a foreign partnership is not the first US person in the chain; you may be. And a direct interest in a foreign entity is the kind of asset that has to be considered for Form 8938, where an interest in a US partnership is not. The first thing we establish in any fund file is therefore which legal entity actually issued the K-1.

What does missing these forms cost, and for how long is the year open?

The penalties are set out in each form's instructions:

• Form 926: 10% of the fair market value of the property at the time of the transfer, limited to $100,000 unless the failure was due to intentional disregard. No penalty applies where the failure was due to reasonable cause and not wilful neglect.
• Form 8865, contributions: the same 10% measure and $100,000 limit.
• Form 8865, ownership categories, and Form 5471: $10,000 for each annual period of each foreign entity, with a further $10,000 for each 30-day period after 90 days from an IRS notice, up to an additional $50,000 per failure. Form 5471 failures can also reduce foreign tax credits by 10%.
• Form 8621: no fixed monetary penalty of its own, but the omission has limitation period consequences.

The limitation period is the more important point for a wealthy investor. For a transfer that should have been reported on Form 926, the instructions state that the period for assessing tax on the transfer is extended until three years after the required information is provided. More broadly, where a required international information return is not filed, the assessment period for the return to which it relates can remain open until three years after it is supplied. An investor who believes that the 2019 return is long closed may find that it is not, because a footnote from that year was never acted on.

A measured view is still appropriate. A fund investor's share of a cash transfer is usually modest, so the 10% measure produces a figure well below the cap, and many investors have a credible reasonable cause position because the income itself was fully reported. The exposure is real, but it is quantifiable, and it should be quantified before a route is chosen.

Several years were missed: delinquent information return route or streamlined?

The choice turns on one question: were the underlying income tax returns filed, and was the income on them complete?

Where returns were filed and the K-1 income was reported. This is the usual fund investor case. The tax is right and only the information forms are missing. The IRS delinquent international information return submission procedures direct that such forms are generally filed attached to an amended income tax return, with a reasonable cause statement attached to each form where reasonable cause is asserted. The IRS states plainly that penalties may be assessed during processing without the statement being considered, in which case the taxpayer responds to the notice and makes the case again. The route is available to taxpayers who are not under civil examination or criminal investigation and have not already been contacted about the delinquent forms.

Where returns were not filed, or income was left off. If the same years also have unreported income, for example UK investment income, gains or account interest that never reached a US return, or no US returns were filed at all, the position is no longer an information return problem. The Streamlined Foreign Offshore Procedures then come into view for a non-wilful taxpayer who meets the non-residency test: three years of returns, six years of FBARs and a signed non-wilful certification, with the missing fund forms included in the returns for the years within the submission.

Three fund-specific complications deserve attention before choosing:

• The look-back mismatch. A fund's investment period often runs five or six years. Form 926 obligations may sit in years older than the three covered by a streamlined submission. How those earlier years are addressed is a judgement that has to be made deliberately, not by default.
• Elections that cannot simply be back-dated. If the fund did not make a qualified electing fund election and the investor now wishes they had, a late election is subject to its own strict conditions. A catch-up filing reports what happened; it does not rewrite it.
• Consistency across years. The reasonable cause narrative has to explain why a footnote was missed in each year, including the years after someone first noticed. A statement that the taxpayer relied on a preparer is only as good as the evidence of what the preparer was given.

We set out the full decision framework, eligibility conditions and sequencing in our guide to the streamlined or delinquent route, and the mechanics of valuing a transfer and measuring the penalty in our guide to the missed Form 926. Where returns themselves are outstanding, our IRS streamlined filing team prepares the full submission.

How we reconstruct a fund investor's missed years

1. Identify the entity. Confirm from the K-1 whether the issuer is a domestic or foreign partnership, and whether there are alternative investment vehicles issuing separate K-1s for the same commitment.
2. Collect every statement pack. Not the K-1 face page, the whole package, for every year since admission, together with any K-3. Where a K-3 was never issued, establish whether the fund relied on the domestic filing exception.
3. Build a transfer schedule. List every disclosed transfer by foreign entity, date and allocable amount, and run the 12-month aggregation for each entity separately, adding any direct co-investments.
4. Test ownership. Calculate the look-through percentage in each foreign corporation and foreign partnership, including interests held by related persons that attribution rules bring in.
5. Confirm what the fund filed. Record the K-3 statements showing Forms 8865 and 8621 filed at fund level, and any election made. Where the record is unclear, ask the fund's investor relations contact in writing.
6. Classify each year. For every year, decide which forms were required, which were covered and which are missing, and whether the income on the filed return was complete.
7. Quantify, then choose the route. Put a number on the penalty exposure by form and year before selecting between the delinquent procedure and a streamlined submission.
8. Fix the current year first. Whatever is done about the past, the next return should carry every form that is due, so the problem stops growing.

What does the same fund look like on the UK return?

For a UK resident, the starting point is how HMRC classifies the entity. A US limited partnership is ordinarily treated as transparent for UK tax, so the investor is taxed on their share of the underlying income and gains as they arise, whether or not anything is distributed, with relief for US tax available under the UK's foreign tax credit rules and the UK and US double taxation convention. A US limited liability company is a different matter: HMRC's International Manual sets out its approach to classifying foreign entities and its general view that US limited liability companies are opaque, which can leave the investor taxed in the United States on profits as they arise and in the UK only on distributions, with a mismatch in the timing and character of the relief. Which vehicle sits between you and the portfolio therefore matters on both sides.

The practical difficulty is that the K-1 answers a US question in a US calendar year. The UK return needs the same income and gains recomputed on UK principles, in sterling, for a tax year ending on 5 April, with the nature of each receipt preserved because interest, dividends and gains are taxed at different UK rates. None of the four US forms in this guide has a UK equivalent; HMRC's interest is in the income and gains themselves, reported on the foreign and capital gains pages of the Self Assessment return. Investors who became UK resident recently should also have their position under the foreign income and gains regime, which replaced the remittance basis from 6 April 2025, considered before the first UK return is filed. Our US and UK tax accountants prepare both returns from one reconciled set of figures so the credits claimed in each country agree.

The errors we correct most often

• Keying only the numbered boxes. Return software takes the K-1 boxes; it does not read the footnotes.
• Assuming the fund files everything. True in part for Forms 8865 and 8621, never true for Form 926.
• Testing the $100,000 threshold per transfer. It is a rolling 12-month aggregate for each foreign corporation.
• Ignoring alternative investment vehicles. Each issues its own K-1, with its own footnotes, often under a different name.
• Treating a small percentage as a complete answer. It settles Form 5471 in most cases. It does not settle Form 926 or Form 8621.
• Overlooking the default regime on exit. A portfolio company sale can produce a gain taxed under the excess distribution rules in the partner's hands where no election was made.
• Filing amended returns one year at a time. The years should be prepared together so the narrative, the valuations and the reasonable cause statements are consistent.

Bringing it together

One US fund interest can carry four foreign information forms, and they do not behave alike. Form 926 is always yours. Form 8865 is usually the fund's, provided the fund is domestic and actually filed. Form 5471 depends on your look-through percentage. Form 8621 depends on who is first in the chain, what was elected and whether you have income under the default regime. The footnotes and the K-3 give you the facts; they do not give you the conclusion. More of our technical notes for cross-border investors are collected in our guides library.

If you hold a US private equity or venture fund interest and are not certain that every year's footnotes were acted on, we can review the complete K-1 packages, determine which forms were due, quantify the exposure and prepare the catch-up filings alongside your UK return. To arrange a confidential consultation, contact our cross-border team.