What is the penalty for filing Form 8804 late?
There are two exposures, and the smaller one is the penalty. Penalties on this kind of filing are charged by reference to the form and the length of the delay rather than to the tax, which is why a year with modest income can still be expensive. The larger figure is usually the withholding itself: the obligation is the partnership's own, so a partnership that did not withhold owes the amount, not merely a charge for late paperwork. Work out the withholding exposure across the open years first, then the penalty position, because the first normally decides how urgent the second is.
We never withheld anything, do we owe the tax as well?
Expect to. The obligation to withhold on income effectively connected with the US business and allocated to a foreign partner sits with the partnership, and where it has not withheld it carries the liability itself. That is the uncomfortable part of this regime. The money may never have been in the partnership's hands as tax, and the partner may have had none of it in cash, and the partnership is still the party that owes. Whether anything is recoverable from the partner is a matter for the partnership agreement rather than for the tax authority, and it is worth reading that agreement early.
Our foreign partner already paid their own US tax, are we clear?
Not automatically. The withholding obligation is the partnership's own and is not discharged simply because the partner settled their liability on the same income. In practice a partner who has paid affects what is ultimately collected rather than whether the partnership defaulted, and you should expect to have to demonstrate the position with the partner's own filings rather than assert it. Gather those documents before you approach the problem: the partner's return for the year, evidence of the payment, and the partnership's allocation records showing that the income is the same income.
Our statements went out late, what does that mean for the partner?
It delays them rather than penalising them. A foreign partner claims credit for the amount withheld on the strength of the per-partner statement, so until it arrives the credit is being asserted without the document that traces it, and claims in that position tend to sit in correspondence. If you are the partnership, issue the statements even if the year is long closed, because the partner may still be able to use them. If you are the partner, file on time with the allocation evidence you hold and add the statement to the file when it comes.
Is it better to file late than not file at all?
Yes, and the reasoning is about the delay rather than about goodwill. Exposure of this kind is measured against the form and how long it has been outstanding, so a year that is never filed carries an exposure that keeps growing, while a year filed late fixes it. There are also the partners to think of. Until the withholding return and the statements exist, every foreign partner is holding a credit that nothing evidences. Filing the oldest outstanding year first is usually the right order, because that is the one accumulating the most.
How many years back do we need to go?
Start from the facts rather than from a number of years. The obligation began in the first year in which income effectively connected with the US business was allocated to a foreign partner, so the roster history and the allocation records decide the scope, not a rule of thumb. Build a year-by-year table of partners, status and allocations, and the answer is often narrower than feared: partnerships commonly have years in which there was no foreign partner, or none to whom connected income was allocated. Each year then stands or falls on its own.
How do I report the sale of a foreign property?
On your residence-country return, as a disposition, with proceeds and cost base converted at the rates for their own dates. Separately, the country where the property sits may require its own return and may hold back tax at closing until a clearance or certificate is issued — Canada does this for a non-resident vendor, and the United States withholds on a foreign seller of US real property. Those steps have their own deadlines, often before closing. See clearance certificates on a property sale.
Should I use a branch or a subsidiary abroad?
A branch is the same legal entity operating in another country, so its profits and losses sit with the parent and it is taxed there as a permanent establishment. A subsidiary is a separate company, taxed in its own right, with dividends and withholding on the way home. Losses, repatriation cost and liability usually decide it, and the answer differs by country pair. See branch vs subsidiary.
