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Department of the Treasury
Internal Revenue Service
2022

Instructions for Schedules

K-2 and K-3 (Form 8865)

Partners’ Distributive Share Items—International and Partner’s Share of Income,
Deductions, Credits, etc.—International

Section references are to the Internal Revenue Additionally, the instructions provide K-2 and K-3 for tax years beginning in
Code unless otherwise noted. guidance on how to report information on 2022.
Contents Page Schedules K-2 and K-3, Part VII, for PFICs
for which an election under section 1296 is Purpose of Schedules K-2
What’s New . . . . . . . . . . . . . . . . . . 1 made in the current tax year, if the current
General Instructions . . . . . . . . . . . . . 1 tax year isn’t the first year of the and K-3
Specific Instructions . . . . . . . . . . . . . 3 shareholder’s holding period in the PFIC Schedule K-2 is an extension of
Schedule K-2, Identifying stock. Schedule K of the Form 8865 and is used
Information . . . . . . . . . . . . . . . 3 • The reporting of capital gains and to report items of international tax
Schedule K-3, Identifying losses in Part II. relevance from the operation of a
Information . . . . . . . . . . . . . . . 3 • When a filer must complete Part III, partnership.
Part I. Partnership's Other Current Section 1, for the apportionment factors
Year International for research and experimental (R&E) Schedule K-3 is an extension of
Information . . . . . . . . . . . . . . . 3 Schedule K-1 (Form 8865) and is
expense.
Schedule K-2, Parts II and III, and How to report information on Part III, generally used to report the share of the
Schedule K-3, Parts II and III . . . . 6 •
Section 2, and expand the section to items reported on Schedule K-2. The
Part ll. Foreign Tax Credit cover stewardship expense. information reported on Schedule K-3 is
Limitations . . . . . . . . . . . . . . . . 7 used to report information on a partner’s
Part III. Other Information for • The reporting of foreign tax
Preparation of Form 1116 or redeterminations, including new reporting tax or information returns.
1118 . . . . . . . . . . . . . . . . . . . 9 concerning contested taxes on Part III,
Part IV. Information on Partners' Section 4, line 3. Who Must File
Section 250 Deduction With • The reporting of the foreign-derived Any person that is required to file Form
Respect to Foreign-Derived intangible income (FDII) deduction on Part 8865, Schedule K, for a partnership that
Intangible Income (FDII) . . . . . . 13 IV, Section 1, line 1. has items relevant to the determination of
Part V. Distributions From Foreign U.S. tax under the international provisions
Corporations to Partnership . . . . 16 The following items are added. of the Code must complete the relevant
Part VI. Information on Partner's • An exception to completing Part V of parts of Schedules K-2 and K-3. See each
Section 951(a)(1) and Section the Schedule K-2 for distributions by a part and section for a more detailed
951A Inclusions . . . . . . . . . . . 17 foreign corporation and an exception to description of who must file each part and
Part VII. Information To Complete completing Part V of the Schedules K-3 for section. Penalties may apply for filing
Form 8621 . . . . . . . . . . . . . . . 19 a partner for distributions by a foreign Form 8865 without all required
Part VIII. Partners' Information for corporation. information. The penalties that apply to the
Base Erosion and Anti-Abuse • An exception to completing Part VI of Form 8865 and the Schedule K-1 apply to
Tax (Section 59A) . . . . . . . . . . 21 the Schedule K-2 for a controlled foreign the Schedules K-2 and K-3, respectively.
Index . . . . . . . . . . . . . . . . . . . . . 26 corporation (CFC) and an exception to See Penalties in the Instructions for Form
completing Part VI of the Schedules K-3 8865.
Future Developments for a partner for a CFC.
For the latest information about • An exception to completing Part VII for Category 1 and Category 2 filers must
developments related to Schedule K-2 any U.S. person that knows that all of the complete Schedule K-1 for any direct
(Form 8865) and Schedule K-3 (Form foreign partnership’s direct and indirect interest they hold in the partnership.
8865), and their instructions, such as partners that are U.S. persons (including Category 1 filers are also required to
legislation enacted after they were itself) are either not subject to the PFIC complete Schedule K-1 for each U.S.
published, go to IRS.gov/Form8865. rules under section 1297(d), are certain person that directly owns a 10% or greater
tax-exempt entities, or are pass-through direct interest in the partnership. These
What’s New entities with no taxable domestic owners. partners that are required to complete a
The following items are clarified. The instructions also add an exception to Schedule K-1 must also complete a
• In Part I, boxes 7, 8, and 9, reporting for completing Part VII for any PFIC, the stock Schedule K-3 if the partnership has items
Forms 5471, 8621, and 8858, and other of which has been marked to market as relevant to the determination of U.S. tax
forms. described in Regulations section under the international provisions.
• Additional reporting that may be 1.1291-1(c)(4). Partners may also receive Schedule K-3
required for Part I, box 12. from Category 1 filers who complete a
Schedule K-3 on their behalf. Partners
• The use of country codes and add a General Instructions should review the Partner’s Instructions for
new code, “XX.”
Schedule K-3 (Form 1065) for how to
• MTM elections for PFICs referenced in See the Instructions for Form 8865, as complete partner tax forms with respect to
the instructions generally refer to elections they generally apply to the Schedules K-2 items reported on Schedule K-3 (Form
under section 1296 and not any other and K-3. This document provides 8865).
section of the Code or regulations. additional instructions for the Schedules

Feb 1, 2023 Cat. No. 35339Y

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Note. Except as otherwise required by the IRS-prescribed form, it does not need share of such taxes. Also used to report
statute, regulations, or other IRS to go through the approval process, and income adjustments under section 743(b)
guidance, a U.S. person is not required to an attachment is not necessary. by source and separate category.
obtain information from direct or indirect Every year, the IRS issues a revenue Partners use the information to figure and
partners of the partnership to determine if procedure to provide guidance for filers of claim a foreign tax credit on Form 1116 or
it needs to file each of these parts. computer-generated forms. In addition, 1118.
every year, the IRS issues Pub. 1167, Part IV of Schedule K-2 (and Part IV
Note. A U.S. person is only required to General Rules and Specifications for of Schedule K-3). Used to report the
complete the relevant portions of the Substitute Forms and Schedules, which information necessary for the partner to
Schedules K-2 and K-3, as applicable. For reprints the most recent applicable determine its section 250 deduction with
example, if the partnership does not own revenue procedure. Pub. 1167 is available respect to FDII. Partners use the
an interest in a foreign corporation, the at IRS.gov/irb/2020-53_IRB#REV- information to claim and figure a section
following parts are not required: PROC-2020-55. The procedures relevant 250 deduction with respect to FDII on
Schedules K-2 and K-3, Part V and Part to Form 8865 and Schedule K-1 (Form Form 8993, Section 250 Deduction for
VI. 8865) apply for purposes of Schedules Foreign-Derived Intangible Income (FDII)
Note. Schedules K-2 and K-3 consist of K-2 and K-3. and Global Intangible Low-Taxed Income
the most common international tax How To Complete Schedules (GILTI).
provisions of the Internal Revenue Code K-2 and K-3 Part V of Schedule K-2 (and Part V
(the Code). However, not all provisions of Schedule K-3). Used to report
are specifically identified on these Reporting currency. Report all amounts information the partner needs, in
schedules. To the extent that an in U.S. dollars except where specified combination with other information known
international provision is impacted and is otherwise. to the partner, to determine the amount of
not otherwise specifically identified, check each distribution from a foreign
Form references. These instructions
box 12 on Schedule K-2, Part I, and corporation that is treated as a dividend or
refer to other forms. If the referenced form
Schedule K-3, Part I, and attach a excluded from gross income because the
has been succeeded by another form, the
statement to both Schedules K-2 and K-3 distribution is attributable to previously
references to those prior forms
(for distributive share). taxed earnings and profits (PTEP) in the
encompass any successor forms.
When and Where To File References to Form 1040, U.S. partner’s annual PTEP accounts with
Individual Income Tax Return, also include respect to the foreign corporation, and the
Attach Schedule K-2, and Schedule K-3, if Form 1040-SR, U.S. Tax Return for amount of foreign currency gain or loss on
applicable, to Form 8865 with your income Seniors. Also, when Form 1040 is the PTEP that the partner is required to
tax return and file by the due date referenced, the part may be relevant for recognize under section 986(c).
(including extensions) for that return. See other tax returns for noncorporate partners Partners report the dividends and
the Instructions for Form 8865 for further such as Form 1041, U.S. Income Tax foreign currency gain or loss on Form
information. Return for Estates and Trusts. 1040 or Form 1120, U.S. Corporation
See the Instructions for Form 8865 for When Form 1120 is referenced, the Income Tax Return. If eligible, partners
instructions concerning amendments or part may be relevant for other tax returns also use this information to figure and
adjustments to Schedules K-2 and K-3. for corporate partners such as Form claim a dividends received deduction
1120-L, U.S. Life Insurance Company under section 245A on Form 1120.
Computer-Generated Income Tax Return. Part VI of Schedule K-2 (and Part VI
Schedules K-2 and K-3 Uses of the parts of Schedules K-2 and of Schedule K-3). Used to provide
Generally, all computer-generated forms K-3, in general. information the partner needs to
determine any inclusions under sections
must receive prior approval from the IRS Part I of Schedule K-2 (and Part I of 951(a)(1) and 951A. Partners use the
and are subject to an annual review. Schedule K-3). Used to report information to complete Form 8992, U.S.
However, see the Exception below. international tax items not reported Shareholder Calculation of Global
Requests for approval may be elsewhere on Schedule K-2 or K-3. Intangible Low-Taxed Income (GILTI), and
submitted electronically to Part II of Schedule K-2 (and Part II Forms 1040 and 1120 with respect to
substituteforms@irs.gov or requests may of Schedule K-3). Used to figure the subpart F income inclusions, section
be mailed to: partnership’s income or loss by source 951(a)(1)(B) inclusions, and section 951A
and separate category of income and to inclusions.
Internal Revenue Service report the partner’s distributive share of Part VII of Schedule K-2 (and Part
Attention: Substitute Forms Program such income or loss. Partners use the VII of Schedule K-3). Used to provide
SE:W:CAR:MP:P:TP information to figure and claim a foreign information needed by partners to
1111 Constitution Ave. NW tax credit on Form 1116 or 1118. complete Form 8621, Information Return
Room 6554
Washington, DC 20224 Part III of Schedule K-2 (and Part III by a Shareholder of a Passive Foreign
of Schedule K-3). Used to report Investment Company or Qualified Electing
information necessary for the partner to Fund, and to provide partners with
Exception. If computer-generated information to determine income
determine the allocation and
Schedules K-2 and K-3 conform to and do inclusions with respect to the passive
apportionment of research and
not deviate from the official form and foreign investment company (PFIC).
experimental (R&E) expense, interest
schedules, they may be filed without prior
expense, and the foreign-derived
approval from the IRS. Part VIII of Schedule K-2 (and Part
intangible income (FDII) deduction for the VIII of Schedule K-3). Used to provide
Important. Be sure to attach the approval foreign tax credit limitation. Also used to information for the partner to figure its
letter to computer-generated report foreign taxes paid or accrued by the base erosion and anti-abuse tax (BEAT).
Schedule K-2 or K-3. However, if the partnership and the partner's distributive Partners will use the information to
computer-generated form is identical to

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complete Form 8991, Tax on Base Schedule K-3, Identifying See section 865(g). In addition, if a U.S.
Erosion Payments of Taxpayers With resident maintains an office or other fixed
Information
Substantial Gross Receipts. place of business in a foreign country,
Items A and B. Items A and B should be income from the sale of personal property
the same as reported on Schedule K-1, attributable to such office or other fixed
Specific Instructions Part I, items A1 or A2 and B. Enter the place of business is foreign source only if
If the information required in a information reported on Schedule K-1, an income tax of at least 10% of the
Part I, item A1. If there is no entry in item income from the sale is actually paid to a
! given section exceeds the space A1, then enter the information in item A2. foreign country with respect to such
CAUTION provided within that section, do
income.
not write “See attached” in the section or Items C and D. Items C and D should be
leave the section blank. Instead, complete the same as reported on Schedule K-1, If the partnership has income from the
all entry spaces in the section and attach Part II, items C and D1. sale of personal property (other than
the remaining information on additional inventory, depreciable personal property,
sheets. For all attachments, include the Item E. Item E should correspond to and certain intangible property excepted
part, section, line number, and column of Schedule K-2, Identifying Information, item from the general rule of section 865(a)),
the relevant portion of Schedule K-2 and A. and the partnership pays income tax to a
Schedule K-3. The additional sheets must Schedule K-2, Part I foreign country with respect to income
conform to the IRS version of that section. from the sale or the income is eligible for
(Partnership's Other Current resourcing under an applicable treaty,
Year International Information), check box 1 and attach a statement to
Schedule K-2, Identifying and Schedule K-3, Part I Schedules K-2 and K-3 (for distributive
share) with Table 1.
Information (Partner's Share of
At the top of each new page, enter the Partnership’s Other Current Do not combine sales of property. Each
name of the partnership as it appears on item of property sold must be listed
Form 8865. Year International Information) separately with Table 1 completed. For
This part is used to report information for column (g), enter the two-letter code from
If the foreign partnership has an international tax items not reported the list at IRS.gov/CountryCodes. Do not
employer identification number (EIN), elsewhere on the Schedule K-2. Check enter “various” or “OC” for the country
enter the EIN as it appears on Form 8865 the box to indicate whether any of the code. If the property sale is taxed by more
at the top of each new page. Do not enter following international tax items are than one country, complete a separate line
“FOREIGNUS” or “APPLIED FOR.” Enter applicable in the tax year. If applicable, for that country, but indicate in some
the reference ID number used on Form attach statements, as described below, to manner (for example, a footnote) that the
8865, item G2(b). For details, see the the Schedule K-2. property entered on both lines is the same
instructions for Form 8865, item G2(b). Do property.
not enter “FOREIGNUS” or “APPLIED If applicable, also complete
FOR” with respect to the reference ID Schedule K-3, Part I, and include with the Box 2. Foreign oil and gas taxes. A
number. Schedule K-3 the attachment(s) as separate foreign tax credit limitation is
Item A—Part applicability. Check the described below with the partner's applied with respect to foreign oil and gas
“Yes” box to indicate the applicable parts distributive share of the amounts. taxes. See section 907(a) and Regulations
section 1.907(a)-1 for details. If the
of Schedules K-2 and K-3. Complete and Box 1. Gain on personal property sale. partnership has such taxes, check box 2
attach each applicable part to the Form In general, income from the sale of and attach a completed Schedule I (Form
8865 and the Schedule K-1 (Form 8865), personal property is sourced according to 1118) to the Schedules K-2 and K-3 (with
respectively. the residence of the seller. See section the partner’s distributive share). Do not
Check the “No” box to indicate the 865. For sourcing purposes, personal complete Schedule I (Form 1118), Part I,
inapplicable parts of Schedules K-2 and property sold by the partnership is treated column 12; Part II, lines 2 through 4; or
K-3. Do not complete and attach the as sold by the partners. See section 865(i) Part III, lines 1 and 3. Attach Schedule I
inapplicable parts to the Form 8865 and (5). A U.S. citizen or resident alien (Form 1118) even if there are no corporate
the Schedule K-1 (Form 8865), individual with a tax home (as defined in partners because the limitation applies to
respectively. section 911(d)(3)) in a foreign country is individuals eligible to claim a foreign tax
treated as a nonresident with respect to credit.
the sale of personal property only if an
income tax of at least 10% of the gain Box 3. Splitter arrangements. Foreign
derived from the sale is actually paid to a taxes with respect to a foreign tax credit
foreign country with respect to that gain. splitting event are suspended until the
related income is taken into account by
the taxpayer. See section 909. There is a
Table 1. Information on Personal Property Sold (For use with Sch. K-2 foreign tax credit splitting event with
respect to foreign taxes of a payor if in
(Form 8865), Part I, box 1) (Also for use with Sch. K-3 (Form 8865), Part connection with a splitter arrangement the
I, box 1) income is or will be taken into account by
a covered person. See Regulations
(a) Property (b) Date of (c) (d) Basis (e) Amount of (f) (g) Taxing section 1.909-2(a). A covered person, as
description sale Proceeds tax paid in local Amount country defined in Regulations section 1.909-1(a)
currency of tax (enter (4), includes, for example, any entity in
paid in two-letter which the payor holds, directly or
U.S. country indirectly, at least a 10% ownership
dollars code) interest (determined by vote or value). A
payor, as defined in Regulations section
1.909-1(a)(3), includes, for example, a

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taxes. Include a separate section that
Attachment 1 reports the following with respect to each
splitter arrangement for which the
Reference: Regulations section 1.904-4(c)(3) partnership has taken into account any
related income.
I. Passive Income Net of II. Taxes 1. Origin year of the splitter
Allocable Expenses arrangement.
A Passive income subject to 2. Explanation of the splitter
withholding tax of 15% or more arrangement (for example, reverse hybrid
B Passive income subject to owned by partnership).
withholding tax of less than 3. Amount of taxes paid or accrued by
15% but greater than zero the partnership in connection with the
C Passive income not subject to splitter arrangement in the origin year of
any foreign tax the splitter arrangement.
D Passive income subject to no 4. Amount of related income on which
withholding tax, but subject to such taxes were paid or accrued in the
other foreign tax origin year of the splitter arrangement.
5. The two-letter code for the country
Attachment 2 to which the taxes were paid or accrued
from the list at IRS.gov/CountryCodes. Do
Reference: Regulations section 1.904-4(c)(4) not enter “various” or “OC” for the country
code.
A Name of foreign QBU 6. The separate category and source
(Complete a separate I. Passive Income Net of II. Taxes of income to which the taxes are assigned.
Attachment 2 for each foreign Allocable Expenses 7. Amount of related income taken
QBU) into account in the current tax year and the
B Passive income subject to amount of taxes originally paid that relate
withholding tax of 15% or more to that portion of the related income.
C Passive income subject to
withholding tax of less than Box 4. Foreign tax translation. If any
15% but greater than zero foreign taxes are reported on Schedules
K-2 and K-3, Part III, Section 4, check the
D Passive income not subject to box for item 4 and attach to Schedules K-2
any foreign tax
and K-3 the statement described in the
E Passive income subject to no instructions for those sections.
withholding tax, but subject to
other foreign tax Box 5. High-taxed income. If the
partnership has passive income, check
person that takes foreign income taxes following for each splitter arrangement in the box for item 5 and attach a statement
paid or accrued by a partnership into which the partnership participates that to Schedules K-2 and K-3 with Attachment
account pursuant to section 702(a)(6). would qualify as a splitter arrangement 1 or 2, or both, completed. This
Report foreign taxes that are potentially under section 909 if one or more partners information helps to determine whether a
suspended on Schedule K-2, Part III, are covered persons with respect to an partner’s passive income is high-taxed
Section 4, line 2E, and each partner's entity that took into account related passive income.
share of such taxes on Schedule K-3, Part income from the arrangement. Income received or accrued by a U.S.
III, Section 4, line 2E. It may not be Section 1 of attached person that would otherwise be passive
possible to determine whether taxes are statement—Potentially suspended income is not treated as passive income if
suspended and whether related income is taxes. the income is determined to be high-taxed
taken into account. However, where it is income. See section 904(d)(2)(B)(iii)(II).
possible to determine that taxes are 1. Explanation of the splitter To determine if income is high-taxed
potentially suspended, or potentially arrangement (for example, reverse hybrid income, a partner must group its shares of
unsuspended, it must report such taxes owned by partnership). items of passive income from a
and the information requested in these 2. Amount of taxes paid or accrued by partnership according to the rules in
instructions for box 3. the partnership in connection with the Regulations section 1.904-4(c)(3) and
For example, where a partnership owns splitter arrangement. (4).The grouping rules of paragraph (c)(3)
a reverse hybrid and the foreign country 3. Amount of related income on which apply separately to income attributable to
assesses tax on the partnership for such taxes were paid or accrued. each foreign qualified business unit (QBU)
as defined in section 989(a) of a foreign
income earned by the reverse hybrid, 4. The two-letter code for the country partnership.
such taxes are potentially suspended to which the taxes were paid or accrued
taxes. from the list at IRS.gov/CountryCodes. Do Note. Passive income is not treated as
Report foreign taxes that are potentially not enter “various” or “OC” for the country subject to a withholding tax or other
suspended on Schedule K-2, Part III, code. foreign tax when a credit is disallowed in
Section 4, line 2E, and each partner's 5. The separate category and source full for such foreign tax, for example, under
share of such taxes on Schedule K-3, Part of income to which the taxes are assigned. section 901(k).
III, Section 4, line 2E.
Section 2 of attached Example 1. In Year 1, FP, a foreign
Check box 3 and attach a statement to statement—Potentially unsuspended partnership, has two domestic corporate
Schedules K-2 and K-3 that includes the

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"Section 267A Disallowed Deduction" that
Attachment 1 for Example 1 separately lists the following information.
A. The amount of interest paid or
Reference: Regulations section 1.904-4(c)(3) accrued by the partnership for which
the partner is not allowed a deduction
I. Passive Income Net of II. Taxes under section 267A.
Allocable Expenses B. The amount of royalty paid or
A Passive income $170 $60 accrued by the partnership for which
subject to the partner is not allowed a deduction
withholding tax of under section 267A.
15% or more C. The extent to which information
B Passive income 0 0 reported on other parts of the
subject to Schedule K-3 (for example, a line in
withholding tax of Part II, Section 2) reflects interest or
less than 15% but royalty for which the partner is not
greater than zero allowed a deduction under section
C Passive income not 50 0 267A.
subject to any When completing other parts of
foreign tax
CAUTION example, a line in Part II, Section
D Passive income 0 0 ! Schedules K-2 and K-3 (for
subject to no 2), list an amount without regard to
withholding tax, but whether the partner is disallowed a
subject to other deduction under section 267A for the
foreign tax
amount.

Attachment 2 for Example 1 Note for boxes 7, 8, and 9. If the Form
8865 filer meets an exception, such as the
Reference: Regulations section 1.904-4(c)(4) multiple filer exception, to filing Forms
5471 and/or 8858, the filer is not required
A Name of foreign QBU: Country X QBU to complete and attach those forms.
(Complete a separate I. Passive Income Net of II. Taxes However, the filer must still attach to the
Attachment 2 for each foreign Allocable Expenses tax return of the U.S. person filing Form
QBU) 8865 any required statements to qualify
for the exception to filing the Forms 5471
B Passive income subject to 100 15 and/or 8858.
withholding tax of 15%
C Passive income subject to 0 0 Box 7. Form 8858 information. If
withholding tax of less than applicable, check box 7 and attach to
15% but greater than zero Form 8865 any Forms 8858, Information
Return of U.S. Persons With Respect to
D Passive income not subject to 0 0 Foreign Disregarded Entities (FDEs) and
any foreign tax
Foreign Branches (FBs), filed by the filer
E Passive income subject to no 280 40 of Form 8865 or another person who filed
withholding tax, but subject to the Form(s) 8858 on your behalf. With
other foreign tax respect to Schedule K-3, check box 7 if
box 7 was checked on the Schedule K-2;
partners with equal interests in the expenses are allocable to the dividend Form 8858 does not need to be attached
partnership. In Year 1, FP receives $100 income. to the Schedule K-3.
of passive dividend income from a For Year 1, the U.S. person filing Form
noncontrolled 10%-owned foreign 8865 checks box 5 on Part I of Box 8. Form 5471 information. If
corporation subject to a 15% withholding Schedule K-2 (Form 8865) and attaches applicable, check box 9 and attach to the
tax. FP also receives $150 of passive Attachments 1 and 2 to Schedule K-2. 8865 and Schedule K-3 any Forms 5471,
interest income from an unrelated person Information Return of U.S. Persons With
subject to a 30% withholding tax. FP FP’s owner completes the same Respect to Certain Foreign Corporations.
incurs $80 of expenses that are allocable attachments with the distributive shares See Partnership Instructions for
to the interest income. FP also receives and attaches those attachments to each Schedules K-2 and K-3 (Form 1065) for
$50 of passive dividend income from a Schedule K-3. applicability.
CFC which is not subject to tax. No Box 6. Section 267A disallowed deduc- Box 9. Other forms. If any other
expenses are allocable to the dividend tion. Check box 6 if the partnership paid international tax forms are applicable,
income. FP's branch operation in Country or accrued any interest or royalty for which check box 9 and attach the form(s) to
X that is treated as a QBU under section the U.S. person filing the Form 8865 Form 8865 and Schedule K-3. See
989(a) receives $100 of passive dividend knows, or has reason to know, that one or Partnership Instructions for Schedules K-2
income subject to a 15% withholding tax. more of the partnership’s partners is not and K-3 (Form 1065) for applicability.
Finally, FP earns $400 of passive income allowed a deduction under section 267A.
with respect to its branch operation in In addition, on Schedule K-3 filed for such Box 10. Partner loan transactions.
Country X that is treated as a QBU under partners, the U.S. person filing Form 8865 Check this box and append the completed
section 989(a). Such income is subject to should check box 6 in Part I and attach to attachment to Schedules K-2 and K-3 if
foreign tax (but not withholding tax) of $40. the Schedule K-3 a statement titled either the partnership (a) received a loan
Expenses of $120 are allocable to the from its partner (or a member of the
distributive share of branch income. No partner’s affiliated group) (“downstream

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loan”), as described in Regulations section However, box 11 should not be checked if of pass-through entity). An indirect partner
1.861-9(e)(8); or (b) loaned an amount to neither the U.S. person filing Form 8865 also includes a partner that owns the
its partner (or a member of the partner’s nor any partner for which a Schedule K-3 partnership through a foreign corporation.
affiliated group) (“upstream loan”), as is filed is a domestic corporation (other See sections 960 and 1293(f). If there is
described in Regulations section than a regulated investment company insufficient information, a direct or indirect
1.861-9(e)(9). (RIC), a real estate investment trust partner must presume such partner is
(REIT), or an S corporation). A domestic eligible to claim a foreign tax credit and
Downstream loans. On an attached corporate partner’s interest in the such partner would have to file a Form
statement, provide the details of any partnership or its indirect interest in a 1116 or Form 1118 to claim a credit.
downstream loans from a partner or a foreign branch or hybrid entity may be Accordingly, the Schedules K-2 and K-3
member of the partner’s affiliated group, treated as a separate unit and subject to must be completed.
including the amount of interest expense the dual consolidated loss (DCL) rules
paid or accrued by the partnership. Report pursuant to Regulations section On Schedule K-2, Parts II and III, report
the information separately for each 1.1503(d)-1 through 1.1503(d)-8. the partnership’s gross income, gross
separate loan. The reporting should be as receipts, cost of goods sold, certain
follows in Table 2. Box 12. Other international items. If deductions, and taxes by source and
the partnership has transactions, income, separate category. Also report information
Table 2. Downstream Loans deductions, payments, or anything else that the partner uses to allocate and
that is impacted by the international tax apportion expenses and determine the
provisions of the Code and such events source of certain items of gross income
Name of Lender’s Date Amount Interest aren’t otherwise reported on this part or and gross receipts. Unless specifically
Lender TIN of of Expense other parts of Schedules K-2 and K-3, noted below, report on Schedule K-3,
Loan Loan for the
Year report that information on a statement Parts II and III, the partner's share of the
attached to Schedules K-2 and K-3 and partnership's gross receipts, gross
check box 12. income, cost of goods sold, certain
• For box 12, file Form 926, Return by a deductions, and taxes by source and
If there are any partners in the same U.S. Transferor of Property to a Foreign separate category. The partner adds its
affiliated group as the lender, attach a Corporation. share of the partnership's foreign source
gross receipts, gross income, cost of
statement to each of the Schedules K-2 Don’t report for box 12:
goods sold, certain deductions, and taxes
and K-3 to expand the columns in the • Form 8804, Annual Return for
by separate category to its other foreign
table to include the information requested Partnership Withholding Tax; and
source gross receipts, gross income, cost
in the first two columns for each such • Form 8805, Foreign Partner’s
of goods sold, certain deductions, and
partner. Information Statement of Section 1446
taxes in that separate category to figure its
Withholding Tax.
Upstream loans. On the attached foreign tax credit. Also report on the
statement, provide the details with respect These forms are separately filed. Schedule K-3 the distributive share of
to any upstream loans to its partner or a Schedule K-2, Parts II and III, expenses and the allocation and
member of the partner’s affiliated group, apportionment factors the partner uses to
including the amount of interest income and Schedule K-3, Parts II and determine expenses allocated and
received or accrued by the partnership. III apportioned to foreign source income.
Report the information separately for each Partnership determination. The source
separate loan. The reporting should be as Note. This information is relevant to
follows in Table 3. partners computing a foreign tax credit on and separate category of certain gross
Form 1116 or 1118. Schedules K-2 and income, gross receipts, and cost of goods
Table 3. Upstream Loans K-3, Parts II and III, must be completed sold, as well as the allocation and
unless the partnership doesn’t have a apportionment of certain deductions, can
direct or indirect partner eligible to claim a be determined with respect to the
Name of Borrower’s Date Amount Interest foreign tax credit or the direct or indirect partnership. This includes deductions that
Borrower TIN of of Income partner wouldn’t have to file a Form 1116 are definitely related to certain gross
Loan Loan for the income of the partnership. See
Year or Form 1118 to claim a credit. See
section 904(j) and further discussion in the Regulations section 1.861-8(b)(1). See
next paragraphs. This requirement applies Schedule K-2, Part II, columns (a) through
regardless of whether the partnership (e); Part III, Section 1, columns (a) through
pays or accrues foreign taxes because (e); Part III, Section 3, columns (a) through
If there are any partners in the same other information, such as the source of (d); and Part III, Section 5, columns (a)
affiliated group as the borrower, attach a the partnership’s income and the value of through (f). In Part III, Section 2, columns
statement to each of the Schedules K-2 its assets, is relevant in determining the (a) through (e), some partnership assets
and K-3 to expand the columns in the partner’s foreign tax credit. A partner is may be characterized by source and
table to include the information requested eligible to claim a foreign tax credit separate category according to the
in the first two columns for each such includes a domestic corporation, a U.S. partnership. This includes certain assets
partner. citizen or resident, U.S. citizen or resident that attract directly allocated interest
Box 11. Dual consolidated loss. beneficiaries of domestic trusts and expense under Temporary Regulations
Check box 11 if either (a) the partnership estates, certain foreign corporations, and section 1.861-10T(b) and (c). See
directly or indirectly owns a foreign branch certain nonresident individuals. See Temporary Regulations section
(as defined in Regulations section sections 901 and 906. An indirect partner 1.861-10T(d)(2).
1.367(a)-6T(g)) or an interest in a hybrid includes a partner that owns the In Part III, Section 4, in the U.S. and
entity (as defined in Regulations section partnership through a pass-through entity Foreign columns, assign foreign taxes
1.1503(d)-1(b)(3)), or (b) the partnership (for example, a partnership, an S paid or accrued to a separate category
is a hybrid entity (as defined in corporation, or a trust (see Regulations and source.
Regulations section 1.1503(d)-1(b)(3)). section 1.904-5(a)(4)(iv) for the definition

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The partner's distributive share of the PTEP group, these taxes must be category by the partner. In Schedule K-2,
amounts reported on Schedule K-2 is assigned to section 951A category Part III, Section 4, in the Partner column,
reported on equivalent columns in income. enter the foreign taxes that are assigned
Schedule K-3, Parts II and III. The U.S. person completing Form 8865 to a source of income by the partner. This
Certain gross receipts, gross income, will enter code "951A" on Part III, Section includes taxes imposed on certain sales
cost of goods sold, assets, deductions, 4, column (b). This code isn’t utilized in income. The partner's distributive share of
and taxes are not assigned to a source or other portions of Parts II and III. the amounts reported on Schedule K-2
separate category with respect to the are reported on equivalent columns in
Income resourced by treaty. If a
partnership. See Partner determination, Schedule K-3, Parts II and III.
sourcing rule in an applicable income tax
later. Schedule K-2, Part II, and
treaty characterizes any U.S. source
Foreign branch category income. income as foreign source, and there is an Schedule K-3, Part II (Foreign
Report all gross receipts, gross income, election to apply the treaty, the income will Tax Credit Limitation)
cost of goods sold, and deductions that be treated as foreign source. This
are foreign branch category income. See category applies if the partnership pays or Section 1. Lines 1 Through 24.
Regulations section 1.904-4(f). Report all accrues foreign taxes on receipt of a Total Gross Income
income that would be foreign branch distribution of PTEP that is sourced from
category income of its partners as if all an annual PTEP account that corresponds Form 1118, Schedule A, requires a
partners were U.S. persons that are not to the separate category relating to U.S. corporation to separately report certain
pass-through entities. See Schedule K-2, source income included under section types of gross income and gross receipts
Part II, column (b); Part III, Sections 1 and 951(a)(1) and resourced as foreign source by source and separate category.
2, column (b); and Part III, Sections 4 and income under a treaty. Separate reporting is required because
5, column (c). The partner's distributive The designations below are only each type of gross income and gross
share of the amounts reported on the relevant for Part III, Section 4, column (f). receipts has a different sourcing rule. See
Schedule K-2 are reported on equivalent sections 861 through 865 (and section
columns in Schedule K-3, Parts II and III. Code “RBT PAS.” If an applicable
income tax treaty characterizes any U.S. 904(h) and, in some cases, U.S. income
Schedule K-3. Any amounts reported source passive category income as tax treaties). Schedules K-2 and K-3, Part
on Schedule K-2 as foreign branch foreign source passive category income, II, Section 1, generally follow the
category income should be reported as and there is an election to apply the treaty, separately reported types of gross income
general category income on the enter code “RBT PAS.” and gross receipts on Schedule A.
Schedule K-3, Parts II and III, provided to Individuals must follow the same sourcing
foreign individuals and foreign Code “RBT GEN.” If an applicable rules, but Form 1116 only requires
corporations. income tax treaty characterizes any U.S. reporting of total gross income from
source general category income as foreign sources by separate category.
Section 901(j) income. Income derived foreign source general category income,
from each sanctioned country is subject to and there is an election to apply the treaty, So, those required to file Form 1116
a separate foreign tax credit limitation. If enter code “RBT GEN.” will report line 24 by country on their Form
the partnership derives such income, 1116, Part I, line 1a. Section 1 also
enter code "901j" on the line after Code “RBT 951A.” If an applicable
“category code.” See Schedule K-2, Part income tax treaty characterizes any U.S. generally follows the types of gross
II, Sections 1 and 2, column (e); Part III, source section 951A category income as income and gross receipts separately
Sections 1 and 2, column (e); Part III, foreign source section 951A category reported on Schedule K (Form 8865).
Section 3, column (d); and Part III, income, and there is an election to apply
Sections 4 and 5, column (f). The partner's the treaty, enter code “RBT 951A.” For each line, report the total for each
country in column (g).
distributive share of the amounts reported Partner determination. In
on Schedule K-2 are reported in Schedule K-2, Part II, column (f); Part III, Country code. Forms 1116 and 1118
equivalent columns on Schedule K-3, Section 1, column (f); Part III, Section 3, require the taxpayer to report the foreign
Parts II and III. See the Instructions for lines 1 and 2, column (e); and Part III, country or U.S. possession with respect to
Form 1118 for the potential countries to be Section 5, column (g), enter the gross which the gross income and gross
listed with the section 901(j) category of income, income adjustments, and gross receipts are sourced. On lines 1 through
income. receipts of the partnership that are 24, for each gross income and gross
required to be sourced by the partner. This receipts item, enter on a separate line (A,
Note. As of the date of these instructions, includes income from the sale of most B, or C) the two-letter code from the list at
section 901(j) is the only category personal property other than inventory, IRS.gov/CountryCodes for the foreign
reported on Part II, Sections 1 and 2, depreciable property, and certain country or U.S. possession within which
column (e); Part III, Sections 1 and 2, intangible property sourced under section the gross income and gross receipts are
column (e); and Part III, Section 5, column 865. This also includes certain foreign sourced. If a type of income is sourced
(f). currency gain on section 988 transactions. from more than three countries, attach a
Section 951A category income. See the instructions for Forms 1116 and schedule with the information required on
Section 951A category income is any 1118 and Pub. 514, Foreign Tax Credit for Schedules K-2, Part II, and Schedule K-3,
amount of global intangible low-taxed Individuals, for additional details. In Part II, for that type of income.
income (GILTI) includible in gross income Schedule K-2, Part II, column (f); and Part If income is U.S. source, enter “US.” Do
under section 951A (other than passive III, Section 3, lines 3 and 4, column (e), not enter “various” or “OC” for the country
category income). (Section 951A category include deductions that are allocated and code.
income does not include passive category apportioned by the partner. This includes
income.) If the partnership pays or most interest expense and R&E expense. Note. In Part II, column (f), enter the code
accrues tax on the receipt of a distribution See Regulations sections 1.861-9(e) and “XX” if the country or U.S. possession with
of PTEP assigned to the reclassified 1.861-17(f). In Schedule K-2, Part III, respect to which the gross income and
section 951A PTEP group or section 951A Section 2, column (f), enter the assets that gross receipts are sourced by the ultimate
are assigned to a source and separate non-pass-through entity partner and the

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filer can’t determine the source. However, 8865, Schedule K. The sourcing rule may Line 14. Unrecaptured section 1250
don’t enter the code “XX” in Part II, column be the same for both types of rental gain. Report unrecaptured section 1250
(f), if an income tax of at least 10% of the income. gain on line 14 and not on line 12. If gain is
gain derived from the sale is actually paid both unrecaptured section 1250 gain and
Lines 7 and 8. Ordinary dividends and
to a foreign country for that gain. See net section 1231 gain, report the gain on
qualified dividends. Enter only ordinary
sections 865(e) and 865(g). Instead, enter line 14 and not on line 15, but include an
dividends on line 7 and only qualified
in Part II, column (f), the foreign country to attachment indicating the amount of
dividends on line 8.
which the partnership paid the income tax unrecaptured section 1250 gain that is
equal to at least 10% of the gain. Note. The amount by which distributions also net section 1231 gain.
Each gross income and gross receipts are attributable to PTEP in annual PTEP Line 15. Net section 1231 gain. Report
item (for example, sales vs. interest accounts of a direct or indirect partner isn’t net section 1231 gain on line 15 and not
income) may have different countries determined by the partnership and so isn’t on line 12 unless such amount is also
listed on A, B, C, etc, given that the taken into account for purposes of unrecaptured section 1250 gain. See the
partnership might not have sales income determining the ordinary dividends to be instructions for line 14.
and interest income, for example, from the entered on line 7 or the qualified dividends
same country. Line 24 should sum each to be entered on line 8. Lines 16 and 46. Section 986(c) gain
country’s total income reported on Part II, and loss. Report the partnership’s share
regardless of the line on which such Lines 11 through 15 and 27 through of a lower-tier pass-through entity’s
income is reported, whether A, B, C, etc. 30. Capital gains and losses. These section 986(c) gain or loss. This isn’t
lines generally match the types of gains reported as a net amount but rather total
Exceptions. The instructions for and losses reported separately on Form section 986(c) gains for the year are
Forms 1116 and 1118 specify exceptions 8865, Schedule K. Further, section 904(b) reported on line 16. Total section 986(c)
from the requirement to report gross (2)(B) contains rules regarding losses for the year are reported on line 46.
income and gross receipts by foreign adjustments to account for capital gain
country or U.S. possession regarding rate differentials (as defined in section Note. Don’t figure or report foreign
RICs and section 863(b). See the 904(b)(3)(D)) for any tax year. currency gain or loss under section 986(c)
instructions for Forms 1116 and 1118 for for distributed PTEP sourced from an
these exceptions that apply in completing Example Partnership has the following
the Schedules K-2 and K-3, Parts II and III. amounts for the tax year 2022: annual PTEP account of a person other
than the partnership (for example, a
Don’t enter a foreign country or U.S. partner).
possession (to report on a Example 3. Table
country-by-country basis) for lines 16 Lines 17 and 47. Section 987 gain and
through 18. Short- term capital loss. The source of section 987 gain or
gains/losses loss is generally determined by reference
Note. Schedules K-2 and K-3 request to the source of the income or asset giving
Total $900
that gross income and gross receipts be rise to such gain or loss. It’s also possible
reported by country or U.S. possession U.S. Source $1,000 to obtain section 987 gain or loss
because such information is requested on Passive category $400 information from Form 8858. This isn’t
Forms 1116 and 1118. Income and taxes (France) reported as a net amount but rather total
are reported by country on the Forms section 987 gains for the year are reported
1116 and 1118 so that the IRS may initially Passive category ($300) on line 17. Total section 987 losses for the
(Canada)
evaluate whether taxpayers are claiming year are reported on line 47.
credits for compulsory payments to foreign Passive category ($200)
governments. (Halti) Lines 18 and 48. Section 988 gain and
loss. The source of foreign currency gain
Example 2. In Year 1, FP, a foreign These amounts are reported on or loss on section 988 transactions is
partnership, has employees who perform Schedule K-2, Part II, Section 11, as generally determined by reference to the
services in Country X and Country Y. FP follows: residence of the taxpayer or QBU on
earns $25,000 of general category whose books the asset, liability, or item of
income or expense is properly reflected. If
services income, $10,000 with respect to Example 4. Table
Country X and $15,000 with respect to the source is determined by reference to
Country Y. The two-letter code for Country the residence of the taxpayer partner, the
X is XX and the two-letter country code for (a) U.S. (b) Foreign section 988 gain and loss would be
source source reported in column (f).
Country Y is YY. The U.S. person filing passive
Form 8865 makes the following entries on Line 20. Other income. Attach a
the first two lines of Schedule K-2, Part II, Line 11
statement to both Schedules K-2 and K-3
under line 2. A US $1,000 describing the amount and type of other
B FR $400 income. The statement must conform to
Example 2 Table the format of Part II.
C CA ($300)
Description (d) D HA ($200) Line 24. Total gross income. Enter the
total gross income received from all
A XX $10,000 sources on line 24. Then, add the gross
Line 12. Net long-term capital gain. Do income on lines 1 through 23 by country or
B YY $15,000 not include gains reported on lines 13, 14, possession and enter the total by country
and 15 on line 12. in rows A, B, and C (and additional rows if
Line 13. Collectibles (28%) gain. more than three countries). The sum of the
Lines 3 and 4. Rental income. These Report collectibles gain on line 13 and not amounts in rows A, B, C, etc., doesn’t
lines are reported separately because line 12. need to equal the amount on line 24 given
they are reported separately on Form

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that not every gross income amount is property. See Temporary Regulations Schedule K-2, Part III, and
required to be reported by country. section 1.861-9T(e)(1).
Schedule K-3, Part III (Other
Line 28. Net long-term capital loss. Lines 41 through 43. Other interest ex- Information for Preparation of
Don’t include losses reported on line 29. pense. A partner's distributive share of a
partnership's interest expense that is not Form 1116 or 1118)
Line 29. Collectibles loss. Report
directly allocable to income from specific
collectibles loss on line 29 and not on Section 1. R&E Expenses
partnership property is generally allocated
line 28.
and apportioned by the partner, subject to Apportionment Factors
Section 2. Lines 25 through 54. Total certain exceptions, and included in
deductions. Form 1118, Schedule A, column (f). See Temporary Regulations This information is relevant to partners to
requires a corporation to separately report section 1.861-9T(e)(1). allocate and apportion its R&E expense
certain types of deductions and losses by Interest expense incurred by certain for foreign tax credit limitation purposes.
source and separate category. Separate individuals, estates, and trusts is
reporting is required because each type of characterized based on the categories of A Form 8865 filer isn’t required to
deduction may be allocated and interest expense in sections 163 and 469: complete Section 1 of Part III unless either
apportioned according to a different active trade or business interest, (1) the partnership incurs R&E expense,
methodology. See, for example, investment interest, or passive activity or (2) the partner is expected to license,
Regulations sections 1.861-8 through -20 interest, adjusted for any interest expense sell, or transfer its intangible property to
and Temporary Regulations sections directly allocated under Temporary the partnership (as provided in
1.861-8T and -9T. For purposes of Regulations section 1.861-10T. See Regulations section 1.861-17(f)(3)).
allocating and apportioning expenses, in Regulations section 1.861-9T(d). The
general, a partner adds the distributive amounts in each category of interest Deductible R&E expenses, as
share of the partnership's deductions to its expense are reported on lines 41 through described in section 174, are ordinarily
other deductions incurred directly by the 43. See the Partnership Instructions for definitely related to gross intangible
partner. See Regulations section Schedules K-2 and K-3 (Form 1065) for an income reasonably connected with
1.861-8(e)(15). Generally, Section 2 example. Also see the Partnership relevant broad product categories of the
follows the separately reported types of Instructions for Schedules K-2 and K-3 taxpayer and are allocable to gross
deductions and losses on Form 1118, (Form 1065) for instances when interest intangible income as a class related to
Schedule A. Individuals must generally expense may reduce passive category such product categories. The product
follow the same expense allocation and income or income in other categories and categories are determined by reference to
apportionment rules, but Form 1116 only an attachment may be necessary. If the the three-digit classification of the SIC
requires separate reporting of certain partnership's only partners are corporate code. In general, R&E expenses are
deductions by separate category. See partners, do not report the partnership’s apportioned based on gross receipts.
Form 1116, Part I, lines 2 through 5. interest expense by the categories of
Generally, Section 2 also corresponds to interest expense in sections 163 and 469. R&E expenses are allocated and
the deductions separately reported on All such interest expense may be reported apportioned by the partner. See
Form 8865, Schedule K. as business interest expense on line 41. Regulations section 1.861-17(f)(1). This
Line 32. R&E expenses. In general, Exception. See Regulations section requires that Form 8865 reports to its
R&E expenses are allocated and 1.861-9(e)(8) and (9) for a special rule for partners the gross receipts by SIC code
apportioned by the partner and reported in partnership loans. See also the according to source and separate
column (f). See Regulations section instructions for box 10 of Part I. category of income. This also requires that
1.861-17(f). R&E expenses, as described the Form 8865 reports the amount of R&E
in section 174, are ordinarily definitely Note. Interest expense is always included expense performed in the United States
related to gross intangible income on lines 39 through 43 and not on other and outside the United States to apply
reasonably connected with relevant broad lines. exclusive apportionment. See Regulations
product categories of the taxpayer and are section 1.861-17(f)(2).
allocable to gross intangible income as a Line 45. Foreign taxes not creditable
class related to such product categories. but deductible. See the instructions for Column (e). As of the date of these
The product categories are determined by Forms 1116 and 1118 for examples of instructions, the only separate category
reference to the three-digit classification of foreign taxes that are not creditable but that could be included in column (e) is the
the Standard Industrial Classification deductible. section 901(j) category of income. See the
Manual (SIC code). Instructions for Form 1118 for the potential
Note. Foreign taxes that are creditable countries to be listed with the section
Line 38. Charitable contributions. (even if a partner chooses to deduct such 901(j) category of income.
Charitable contribution deductions are taxes) are not reported as expenses on Line 1. Enter the gross receipts by SIC
apportioned solely to U.S. source gross Part II. Creditable taxes are reported on code for each grouping. Such gross
income. See Regulations section Part III, Section 4. receipts include both the partnership's
1.861-8(e)(12). So, this deduction should
be reported in column (a). Lines 49 and 50. Other deductions. gross receipts and certain other parties'
Attach to the Schedules K-2 and K-3 a gross receipts. See Regulations section
Lines 39 and 40. Interest expense spe- statement describing the amount and type 1.861-17(d)(3) and (4). Sales of parties
cifically allocable under Regulations of other deductions. The statement must controlled by the partnership should be
sections 1.861-10 and -10T. Apart from conform to the format of Part II. included on line 1 if such controlled parties
interest expense entered on line 39, enter can reasonably be expected to benefit
on line 40 interest expense that is directly from the R&E expense connected with the
allocable under Temporary Regulations product categories. This includes sales
section 1.861-10T to income from specific that benefit from the partner's R&E
partnership property. Such interest expenses if licensed through the
expense is treated as directly allocable to partnership. Sales of uncontrolled parties
income generated by such partnership are also taken into account if such sales

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involve intangible property that was the asset that is the basis of stock in assets according to such classifications. If
licensed or sold to the uncontrolled party if nonaffiliated 10%-owned corporations, the partnership has no such partners, do
the uncontrolled party can reasonably be adjust such amount for earnings and not complete Schedule K-2, Part III,
expected to benefit from the R&E profits (E&P). See Regulations section Section 2, lines 6b through d; or
expense. 1.861-12(c)(2)(i)(A). Schedule K-3, Part III, Section 2, lines 6b
through d. Include the total amount on
Line 2. Report the amount of R&E Note. Attach to Form 1065 a second Part line 6a.
expense related to activity performed in III, Section 2, if the filer reports both the tax Line 6a is the sum of lines 1 and 2 less
the United States and the amount of R&E book value and the alternative tax book the sum of lines 3, 4, and 5. Line 6a is
expense related to activity performed value of its assets. divided into the types of assets on lines
outside the United States by SIC code.
The total of the amounts on Schedule K-2, Column (b). Characterize the pro rata 6b, 6c, and 6d if the partnership has
Part III, Section 1, line 2, must equal share of the partnership assets that give partners other than corporate partners.
Schedule K-2, Part II, line 32. Similarly, the rise to foreign branch category income as See the Partnership Instructions
total of the amounts on Schedule K-3, Part assets in the foreign branch category. See Schedules K-2 and K-3 (Form 1065), for
III, Section 1, line 2, must equal Regulations section 1.861-9(e)(10). an example.
Schedule K-3, Part II, line 32. Column (e). As of the date of these Schedule K-3. If the partnership's
instructions, the only separate category partners are not limited to corporate
Note. Line 2 is not reported according to
that could be included in column (e) is the partners, when completing Schedule K-3,
source or separate category.
section 901(j) category of income. See the Part III, Section 2, for the corporate
Note. The SIC code for line 2B(i) does Instructions for Form 1118 for the potential partners with an interest of 10% or more in
not need to be the same SIC code for countries to be listed with the section the partnership, do not complete lines 6b
line 2A(i). 901(j) category of income. through d. Include the total distributive
Line 1. On Schedule K-2, report the share on line 6a.
Section 2. Interest Expense average of the beginning-of-year and Lines 7 and 8. The amounts reported on
end-of-year inside basis in the lines 7 and 8 are subsets of the amounts
Apportionment Factors partnership’s total assets. See reported on line 6 representing the value
Regulations section 1.861-9(g)(2)(i)(A). of stock held by the partnership in certain
This information is relevant to a partner to On Schedule K-3, report the partner’s foreign corporations. In determining its
allocate and apportion interest expense distributive share of the assets reported on foreign tax credit limitation, a partner
for foreign tax credit limitation purposes. Schedule K-2. should disregard interest expense that is
Complete this Section 2 only if the Line 2. On Schedule K-2, report the “properly allocable'' to stock of a
partnership or the partners have interest partnership’s average of the 10%-owned foreign corporation that has
expense or stewardship expense. beginning-of-year and end-of-year inside been characterized as a section 245A
basis adjustments under sections 734(b) asset. See section 904(b)(4) and
Stewardship expenses. In the case of and 743(b). On Schedule K-3, report the Regulations section 1.904(b)-3(a)(1)(ii).
the partner’s stewardship expenses partner’s distributive share of the The amount of properly allocable
incurred to oversee the partnership, the adjustments reported on Schedule K-2. deductions is determined by treating the
partnership's value is determined and section 245A subgroup for each separate
characterized under the asset method in Lines 3 and 4. On Schedule K-2, report category as a statutory grouping for
Regulations section 1.861-9 (taking into reductions in the partnership's asset purposes of allocating and apportioning
account any adjustments under sections values to reflect the partnership's directly interest deductions on the basis of assets.
734(b) and 743(b)). See Regulations allocable interest under Regulations Assets in a section 245A subgroup only
section 1.861-8(e)(4)(ii)(C). So, the section 1.861-10(e) and Temporary include stock of a specified 10%-owned
reporting below for Part III, Section 2, for Regulations section 1.861-10T. See also foreign corporation that has been
interest expense apportionment factors Temporary Regulations section characterized as a section 245A asset.
generally applies to the partner’s 1.861-9T(e)(1). On Schedule K-3, report The stock is characterized as a section
stewardship expense apportionment. the partner’s distributive share of the 245A asset to the extent it generates
reduction in asset values reported on income that would generate a dividends
Schedule K-2.
For corporate partners with an interest received deduction under section 245A if
in the partnership of 10% or more, interest Line 5. On Schedule K-2, report the distributed. This does not include income
expense, including the partner's average value of partnership assets that is included as GILTI, subpart F
distributive share of partnership interest excluded from the apportionment formula. income, or a section 951(a)(1)(B) inclusion
expense, is apportioned by reference to See section 864(e)(3). On Schedule K-3, or income described in section 245(a)(5)
the partner's assets, including the report the partner’s distributive share of (which gives rise to a dividends received
partner's pro rata share of partnership the excluded assets reported on deduction under section 245 instead of
assets. See Regulations section Schedule K-2. section 245A).
1.861-9(e)(2). Interest expense is Line 6. Individual partners who are In the case of a specified 10%-owned
apportioned based on the average value general partners or who are limited foreign corporation that is not a CFC, all of
of assets. See Regulations section partners with an interest in the partnership the value of its stock is potentially in a
1.861-9(g)(2)(i)(A). A taxpayer can use of 10% or more follow the same rules as section 245A subgroup because the stock
either the tax book value or the alternative corporate partners whose interest in the generally generates dividends eligible for
book value of its assets. See Regulations partnership is 10% or more except that the section 245A deduction (and cannot
section 1.861-9(i). Under both methods, their interest expense must be generate an inclusion under section
the partner uses the partnership's inside apportioned according to the interest 951(a)(1) or 951A(a)), if the partner meets
basis in its assets, including adjustments expense classifications under sections the requirements for eligibility. See
required under sections 734(b) and 163 and 469. See Regulations section Regulations section 1.904(b)-3(c)(2).
743(b). See Regulations section 1.961-9T(d). This includes reporting the However, because there may not be
1.861-9(e)(2) and -9(e)(3). When reporting information to determine if a partner is

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eligible for a section 245A deduction (for Section 3. Foreign-Derived to foreign countries or to U.S.
example, due to tiered ownership), the Intangible Income (FDII) Deduction possessions.
partner must determine to what extent the
stock is treated as an asset in a section Apportionment Factors Attachment. As previously mentioned in
the instructions for Schedule K-2, Part I,
245A subgroup.
Note. Do not complete this Section 3 if box 4, and Schedule K-3, Part I, box 4 (for
With respect to a partnership-owned there are no domestic corporate partners distributive share), for each of the
specified 10% foreign corporation that is (whether direct or indirect). amounts listed in lines 1 through 3, attach
not a CFC, report on line 7, columns (a) to the Schedules K-2 and K-3 a statement
through (e), the total value of the stock in reporting the following information.
This information is relevant to partners
all such foreign corporations. The value of • The dates on which the taxes were paid
to allocate and apportion their FDII
the stock is the partnership's basis in the or accrued.
deduction under section 250(a)(1)(A) for
stock adjusted to take into account the • The exchange rates used.
foreign tax credit limitation purposes. The
E&P of the foreign corporations as • The amounts in both foreign currency
deduction is definitely related and
explained in Regulations section and U.S. dollars. See section 986(a).
allocable to the class of gross income
1.861-12(c)(2). Attach to the Schedules
included in the partner’s foreign-derived
K-2 and K-3 a statement with the following Column (a). Enter the code for the type
deduction eligible income (FDDEI) (as
information for each foreign corporation of tax.
defined in section 250(b)(4)) and is
for which adjusted basis is reported on
apportioned within the class, if necessary,
line 7. Codes for Types of Tax
ratably between the statutory grouping (or
• Name of foreign corporation.
among the statutory groupings) of gross
• EIN or reference ID number. Do not Code Type of Tax
income and the residual grouping of gross
enter“ FOREIGNUS” or “APPLIED FOR.”
income based on the relative amounts of
• Percentage of voting and value of stock WHTD Withholding tax on
FDDEI in each grouping. See Regulations
owned by partnership in such foreign dividends
section 1.861-8(e)(13). If the partner is a
corporation. WHTP Withholding tax on
member of a consolidated group, see
• Value of the stock in such corporation distributions of PTEP
Regulations section 1.861-14(e)(4).
included in each of the groupings on lines WHTB Withholding tax on
Accordingly, this section requires
6b through 6d (identify separately each of branch remittances
information that its partners use to
those groupings).
determine the source and separate WHTR Withholding tax on
If the specified 10%-owned foreign category of its income such that partners rents, royalties, and
corporation is a CFC, a portion of the may allocate and apportion the FDII license fees
value of stock in each separate category deduction under section 250(a)(1)(A) for WHTI Withholding tax on
and in the residual grouping for U.S. purposes of the foreign tax credit interest
source income is subdivided between a limitation.
section 245A and non-section 245A ECI Taxes paid or accrued
subgroup under the rules described in Lines 1 and 2. Report the partnership’s to foreign countries or
Regulations section 1.861-13(a)(5). foreign-derived gross receipts and cost of possessions on certain
However, because there will generally not goods sold, respectively, by source and effectively connected
be information to apply the stock separate category. income
characterization rules described in Lines 3 and 4. Report the partnership’s OTHS Other foreign taxes
paid or accrued on
Regulations section 1.861-13(a)(5), the deductions allocable to foreign-derived sales income
partner must apply those rules to gross receipts and other partnership
characterize the stock. deductions apportioned to foreign-derived OTHR Other foreign taxes
With respect to partnership-owned gross receipts, respectively. See Part IV, paid or accrued on
CFCs, report on line 8, column (f), the total Section 2, lines 11 and 12. Although these services income
value of its stock in all such foreign deduction amounts are necessary to OTH Other foreign taxes
corporations. The value of the stock is the figure the partner’s FDII deduction, once paid or accrued
partnership's inside basis in the stock this amount is determined, the actual FDII
adjusted to take into account the E&P of deduction itself is allocated and If there are multiple types of tax for the
the foreign corporations as explained in apportioned as described in Regulations same country, generate multiple alpha
Regulations section 1.861-12(c)(2). Attach section 1.861-8(e)(13). rows for the same country, one row for
each type of tax. For example, see below:
to the Schedules K-2 and K-3 a statement Column (d). As of the date of these
with the following information for each instructions, the only separate category
Codes for Multiple Types of Tax
foreign corporation for which basis is that could be included in column (d) is the
reported on line 8. section 901(j) category of income. See the
• Name of foreign corporation. Instructions for Form 1118 for the potential Description (a)
• EIN or reference ID number. Do not countries to be listed with the section Type
enter “FOREIGNUS ”or “APPLIED FOR.” 901(j) category of income. of tax
• Percentage of voting and value of stock A AA WHTD
owned by partnership in such foreign
corporation. Section 4. Foreign Taxes B BB OTH
• Value of the stock in such corporation. Note. Don’t complete this Section 4 if the
partnership doesn’t pay or accrue foreign Column (b). Taxes assigned to section
taxes. 951A category. Taxes assigned to
section 951A category income are taxes
In Part III, Section 4, assign foreign paid or accrued on distributions of PTEP
taxes paid or accrued (including on U.S. assigned to the reclassified section 951A
source income) to a separate category PTEP and section 951A PTEP groups.
and source. Include taxes paid or accrued This might not be able to be completed

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due to lack of information regarding the list at IRS.gov/CountryCodes. Don’t enter There is no need to report the amounts
treatment of the current year distributions. “various” or “OC” for country code. on line 2 by country.
Column (f). Other category. Exceptions The instructions for Forms Line 3. Enter in U.S. dollars the change
1116 and 1118 specify exceptions from in foreign tax as a result of a foreign tax
Foreign taxes paid or accrued to redetermination. See section 905(c) and
the requirement to report gross income
sanctioned countries. No credit is Regulations section 1.905-3 through -5. If
and gross receipts by foreign country or
allowed for foreign taxes paid or accrued the amount is less than the original foreign
U.S. possession regarding RICs and
to certain sanctioned countries. tax, report the change as a negative
section 863(b).
amount. If the amount is more than the
Foreign taxes related to PTEP Example 3. The facts are the same as
original foreign tax, report the change as a
resourced by treaty. If the partnership in Example 2, earlier. FP uses the cash
positive amount.
pays or accrues foreign taxes on receipt of method of accounting and pays taxes of
a distribution of PTEP that is sourced from $1,000 and $3,000 to Countries XX and Note. Payment of additional foreign taxes
an annual PTEP account that corresponds YY, respectively. The U.S. person that relate to an earlier tax year by a
to the separate category relating to U.S. completes Part III, Section 4, line 1, as partnership that uses the cash method of
source income included under section follows. accounting does not result in a foreign tax
951(a)(1) and resourced as foreign source
income under a treaty, such taxes are redetermination. See Regulations section
included in column (f). Example 3 Table 1.905-3(a). Such amounts should be
reported on line 1 as foreign taxes paid by
On the line after "category code," enter the partnership in the current year. Report
(a) (e)
one of the following codes. the U.S. tax year to which the foreign tax
Code “RBT PAS.” If an applicable Direct Paid Type of Foreign relates. This would be the U.S. tax year
income tax treaty treats any U.S. source (section tax that includes the close of the foreign tax
901/903)
passive category income as foreign foreign year to which the tax relates. Report the
source passive category income, and the taxes date on which the tax was paid. If there is
partner elected to apply the treaty, enter more than one date tax is paid, enter one
code “RBT PAS.” A XX OTHR 1,000 of the dates paid on the schedule itself
B YY OTHR 3,000 and then attach to the Schedules K-2 and
Code “RBT GEN.” If an applicable K-3 a statement including all of the
income tax treaty treats any U.S. source information reported on the schedule with
general category income as foreign Line 2. Enter on line 2 a negative
source general category income, and the number for the sum of the taxes in the the other dates paid.
partner elected to apply the treaty, enter following categories. If there is more than one
code “RBT GEN.” A. Taxes on foreign mineral income redetermination in a year with respect to
(section 901(e)). different countries, report such
Code “RBT 951A.” If an applicable redeterminations on separate lines. Enter
income tax treaty treats any U.S. source B. Reserved.
section 951A category income as foreign C. Taxes attributable to boycott the two-letter code from the list at IRS.gov/
operations (section 908). CountryCodes. Similarly, if there is more
source section 951A category income, than one redetermination in a year with
and the partner elected to apply the treaty, D. Reduction in taxes for failure to
timely file (or furnish all of the respect to the same country, but the
enter code “RBT 951A.” redeterminations are related to different
information required on) Form 8865
Line 1. Enter in U.S. dollars the total (section 6038(c)). years, report such redeterminations on
foreign taxes (described in section 901 or E. Foreign income taxes paid or separate lines.
section 903) that were paid or accrued by accrued during the current tax year Exceptions. The instructions for
the partnership (according to its method of with respect to splitter arrangements Forms 1116 and 1118 specify exceptions
accounting for such taxes). Do not reduce under section 909. from the requirement to report gross
the amount that you report on line 1 by the F. Foreign taxes on foreign corporate income and gross receipts by foreign
reductions reported on line 2. Do not distributions. For example, report country or U.S. possession with respect to
report redetermined taxes on line 1. taxes on dividends eligible for a RICs and section 863(b). Don’t enter
Report such taxes on line 3. deduction under section 245A and “various” or “OC” for the country code.
If the partnership uses the cash method ineligible for credit under section
of accounting, check the "Paid" box and 245A(d). Also, include taxes on a In addition, if the direct or indirect
enter foreign taxes paid during the tax distribution of PTEP assigned to the partners are corporations, attach a
year on line 1. Report each partner's share following PTEP groups: reclassified statement that includes the information on
on Schedule K-3, Part III, Section 3, line 1. section 965(a) PTEP, reclassified Schedule L (Form 1118), Parts I and II, as
section 965(b) PTEP, section 965(a), applicable, with respect to each foreign
If the partnership uses the accrual and section 965(b) PTEP, a portion of tax redetermination. If the direct or indirect
method of accounting, check the which is not creditable. It may not be partners are individuals, estates, or trusts,
"Accrued" box and enter foreign taxes possible to determine the amount of a attach a statement that includes the
accrued on line 1. Report each partner's distribution that is attributable to information on Schedule C (Form 1116),
share on Schedule K-3, Part III, Section 4, non-previously taxed E&P or PTEP for Parts I and II, as applicable, with respect
line 1. which a foreign tax credit may be to each foreign tax redetermination. If the
Note. Check only one box “Paid” or partially or entirely disallowed. indirect partners are unknown, attach a
“Accrued” depending on the method of However, it’s important to track this statement that includes both the
accounting the partnership has to take into amount as a tax on a distribution. information on Schedule L (Form 1118),
account foreign taxes. G. Other. Attach a statement to the Parts I and II, as applicable; and
Schedules K-2 and K-3 indicating the Schedule C (Form 1116), Parts I and II, as
Enter on a separate line (that is, after A, reason for the reduction. applicable.
B, and C), taxes paid or accrued to each
country. Enter the two-letter code from the

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Contested taxes. In general, a Net positive income adjustments from all Schedule K-2, Part IV
contested foreign income tax liability section 743(b) basis adjustments means
(Information on Partners’
doesn’t accrue until the contest is resolved the excess of all section 743(b)
and the amount of the liability has been adjustments allocated to the partner that Section 250 Deduction With
finally determined. In addition, a contested increase the partner's taxable income over Respect to Foreign-Derived
foreign income tax liability isn’t a all section 743(b) adjustments that Intangible Income (FDII)), and
reasonable approximation of the final decrease the partner's taxable income.
foreign income tax liability and so isn’t Attach to the Schedules K-2 and K-3 a Schedule K-3, Part IV
considered an amount of tax paid for statement showing each section 743(b) (Information on Partner’s
purposes of section 901 until the contest is basis adjustment making up the total and Section 250 Deduction With
resolved. So, a partnership generally identify the assets to which it relates and Respect to Foreign-Derived
doesn’t take into account a contested the separate category and source of the
liability as a creditable foreign tax income generated by the assets. Make Intangible Income (FDII))
expenditure until the contest is resolved sure to include the class of gross income
and the liability has been paid. See or deduction, for example, sales income, Note. This information is relevant to
Regulations section 1.905-1(f)(1). interest income, or depreciation partners that figure a section 250
However, to the extent that a partnership deduction. You may group these section deduction with respect to FDII on Form
has remitted a contested foreign income 743(b) basis adjustments by asset 8993. This part is relevant for a direct
tax liability to a foreign country, partners category or description in cases where domestic corporate partner (other than
may elect to claim a provisional foreign tax multiple assets are affected if the assets REITs, RICs, and S corporations) or a
credit for its distributive share of such generate the same separate category and partner which is a partnership that has a
contested foreign income tax liability. See source of income. The section 743(b) direct or indirect domestic corporate
Regulations section 1.905-1(f)(2). positive income adjustments should be partner (other than REITs, RICs, and S
For partnerships that are contesting a included as relevant in other parts of the corporations) that determines the
foreign income tax liability with a foreign Schedule K-2. For example, the section domestic corporate partner's FDII. If there
country, but have remitted all or a portion 743(b) income adjustments should be is insufficient information, a partner must
of such contested liability, report reflected as part of the total depreciation presume the indirect partner is a domestic
information about the contested tax on reported on Part II, Section 2. corporate partner or a partnership that has
a direct or indirect domestic corporate
line 3, and check the “Contested tax” box. Line 2. For partnerships other than partner and the partner must complete the
In addition, attach a statement and include PTPs, report the total of all partners' Schedules K-2 and K-3, Part IV,
information necessary for partners to shares of the net negative income accordingly. These schedules are
complete Form 7204 and Schedule L adjustment resulting from all section required to be completed if the foreign
(Form 1118) (for direct or indirect 743(b) basis adjustments. Net negative partnership has direct or indirect domestic
corporate partners), or Schedule C (Form income adjustments from all section corporate partners, though the partnership
1116), (for direct or indirect individual, 743(b) basis adjustments means the does not have foreign-derived gross
trust, or estate partners), including a excess sum of all section 743(b) receipts. Even if a partnership has no
description of the contest and a adjustments allocated to the partner that foreign activities, and so has no FDDEI as
description of the contested foreign decrease partner taxable income over all reported in Section 2 of this part, still
income tax. If it’s unknown whether the section 743(b) adjustments that increase report the information required by
partners are corporations, individuals, partner taxable income. Attach to the Sections 1 and 3 of this part so that any
estates, or trusts, provide the information Schedules K-2 and K-3 a statement domestic corporate partner can correctly
necessary for the partners to complete showing each section 743(b) basis determine its section 250 deduction. For
both Schedule L (Forms 1118), Parts I and adjustment making up the total and example, a domestic corporate partner
II (as applicable); and Schedule C (Form identify the assets to which it relates and would still need information about the
1116), Parts I and II (as applicable). the separate category and source of the partnership’s qualified business asset
income generated by the assets. Make investment (see the instructions for line 7
Section 5. Other Tax Information sure to include the class of gross income of this part) in such a case to determine its
or deduction, for example, sales income, deemed tangible income return and
This information is relevant to partners interest income, or depreciation deemed intangible income. See section
computing a foreign tax credit. deduction. You may group these section 250(b)(2).
743(b) basis adjustments by asset Section 250 allows a domestic
Column (b). Do not report any amounts category or description in cases where corporation a deduction for its FDII, and a
in this column. multiple assets are affected if the assets direct or indirect domestic corporate
Column (f). As of the date of these generate the same separate category and partner must take into account certain
instructions, this column will only include source of income. The section 743(b) activities of a partnership in computing the
the section 901(j) category and the negative income adjustments should be domestic corporation's FDII. For the
countries relevant to that category. See included as relevant in other parts of the treatment of a domestic corporation that is
the Instructions for Form 1118 for the Schedule K-2. For example, the section a partner in a partnership, see Regulations
potential countries to be listed with the 743(b) income adjustments should be sections 1.250(b)-1(e), 1.250(b)-2(g), and
section 901(j) category of income. No reflected as part of the total depreciation 1.250(b)-3(e). These instructions
credit is allowed for taxes paid or accrued reported on Part II, Section 2. generally indicate how to complete Part IV
to a country described in section 901(j). (of both Schedules K-2 and K-3).
However, a deduction is generally allowed However, Schedule K-2 includes the total
for a tax described in section 901(j). of all partners’ amounts and Schedule K-3
Line 1. For partnerships other than includes each partner’s share.
publicly traded partnerships (PTPs), report Enter each amount and total amounts
the total of all partners’ shares of the net in U.S. dollars. Determine and report the
positive income adjustments resulting partner's share of each item of the
from all section 743(b) basis adjustments.

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partnership contained on this form in more details. Deductions properly partnerships that are partners in a
accordance with the partner's distributive allocable to gross DEI are determined lower-tier partnership), the QBAI of the
share of the underlying item of income, without regard to sections 163(j), 170(b) domestic corporation for the tax year is
gain, deduction, and loss of the (2), 172, 246(b), and 250. increased by the sum of the domestic
partnership. Report these amounts based Lines 3 through 7 are exclusions from corporation’s partnership QBAI with
on the best information available about DEI used to determine the partner’s DEI. respect to each partnership for the tax
how its partners might use this information year. See Regulations section
to determine their FDII deduction. Certain Line 3. Section 951(a) inclusions. 1.250(b)-2(g)(1). Partnership QBAI is the
information may be reported differently to Don’t include any amount on this row. sum of the domestic corporation’s
each partner depending on federal income Line 4. CFC dividends. Enter the proportionate share of the partnership’s
tax determinations that the partner makes. amount of any dividend received from a adjusted basis in the property and the
Each partner must then calculate its FDII CFC with respect to which the partner is a domestic corporation’s partner specific
deduction using Form 8993 including the U.S. shareholder as defined under section QBAI basis in the property for the
information reported on Schedule K-3, 951(b). partnership tax year that ends with or
Part IV. A partner must obtain any further within the tax year. See Regulations
necessary information from the Note. The amount by which distributions section 1.250(b)-2(g)(2). Partnership
partnership to correctly determine its FDII are attributable to PTEP in annual PTEP specified tangible property means, with
deduction. accounts of a direct or indirect partner isn’t respect to a domestic corporation,
Special rules for determining foreign taken into account for purposes of tangible property that is used in the trade
use apply to transactions that involve determining the CFC dividends to be or business of the partnership, of a type
property or services provided to related entered on line 4. with respect to which a deduction is
allowable under section 167, and used in
parties (see section 250(b)(5)(C) and Line 5. Financial services income. the production of gross income included in
Regulations section 1.250(b)-6). Enter the amount of net financial services the domestic corporation’s gross DEI. See
For special substantiation requirements income (as defined in section 904(d)(2) Regulations section 1.250(b)-2(g)(5).
under the regulations, see sections (D)) before interest and R&E deductions.
1.250(b)-3(f), 1.250(b)-4(d)(3), and If the portion of partnership specified
1.250(b)-5(e)(4). In all other cases, a Line 6. Domestic oil and gas extraction tangible property cannot be determined
taxpayer claiming a deduction under income. Enter the amount of net (for example, if it is not known if property
section 250 will still be required to domestic oil and gas extraction income gives rise to the production of gross
substantiate that it is entitled to the before interest and R&E deductions. The income in one of the excluded categories
deduction even if it is not subject to the term “domestic oil and gas extraction from DEI that is determined by the partner,
specific substantiation requirements income” means income described in which would cause such property to not
contained in the regulations. See section section 907(c)(1) determined by be classified as partnership specified
6001 and Regulations section substituting “within the United States” for tangible property), then in reporting the
1.6001-1(a). So, the partner must be able “without the United States.” amount of a partner's share of the
to satisfy the general or special Line 7. Foreign branch income. Enter partnership QBAI, separately state any
substantiation requirements to be eligible the amount of net foreign branch income information so a direct or indirect domestic
for the deduction. before interest and R&E deductions (as corporate partner can distinguish between
As described above, determine the defined in section 904(d)(2)(J)). Report all the amount of the adjusted bases in a
partner's share of each item below in income that would be foreign branch partnership's tangible property that the
accordance with the partner's distributive income of its partners as if all partners domestic corporation would include in its
share of the underlying item of income, were U.S. persons. adjusted bases in the partnership
specified tangible property and the
gain, deduction, and loss of the Line 8. Partnership QBAI. Enter the amount of the adjusted bases in the
partnership. amount, if any, of the partnership QBAI. partnership's tangible property that the
A domestic corporation’s QBAI is its domestic corporation would not include in
Section 1. Information To share of the average of the aggregate its adjusted bases in the partnership
Determine Deduction Eligible adjusted bases, determined as of the specified tangible property.
Income (DEI) and Qualified close of each quarter of the tax year, in If tangible property was used in the
certain specified tangible property. See production of DEI and in the production of
Business Asset Investment (QBAI) Regulations section 1.250(b)-2(b). The income that is non-DEI, then it is
on Form 8993 adjusted basis is determined by using the considered dual-use property and treated
alternative depreciation system under as specified tangible property in the same
Line 1. Net income (loss). This amount section 168(g) and allocating depreciation proportion that the amount of the gross
may equal Form 8865, Schedule M-1, deductions with respect to such property income included in DEI produced with
line 9, Income (loss). ratably to each day during the period in the respect to the property bears to the total
Line 2a. DEI gross receipts. Enter all tax year to which such depreciation amount of gross income produced with
gross receipts from whatever source relates. See Regulations section respect to the property. See Example 2 of
derived except for amounts included on 1.250(b)-2(e). The specified tangible Regulations section 1.250(b)-2(g)(8) for
lines 3 through 7. property is that which is used in the trade guidance on how to calculate the partner
or business of the corporation in the adjusted basis. If specified tangible
Line 2b. DEI cost of goods sold. Enter production of gross income included in the property is only partially depreciable, then
the amount of cost of goods sold domestic corporation’s gross DEI and is of only the depreciable portion is QBAI.
attributable to the amount on line 2a. a type with respect to which a deduction is
Line 2c. DEI properly allocated and ap- allowable under section 167. See Example 5. X and Y are both
portioned deductions. Enter the amount Regulations section 1.250(b)-2(b). If a domestic corporations which are partners
of deductions (including taxes) properly domestic corporation holds an interest in in FP, a partnership that holds three types
allocable to the amount on line 2a. See one or more partnerships during a tax year of assets—A, B, and C. All types of assets
Regulations section 1.250(b)-1(d)(2) for (including indirectly through one or more are tangible property used in the trade or

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business of FP and with respect to which a foreign use as defined in Regulations Column (a). General property. Enter
deduction is allowable under section 167. sections 1.250(b)-3 and 1.250(b)-4(d)(2). the amount of the deductions that are
The production of income from A assets is allocated and apportioned to gross FDDEI
DEI with respect to X and Y. Thus, the A Each place where services is listed from all sales of general property.
assets are partnership specified tangible refers to amounts connected to services
property with respect to X and Y, and FP that, as established to the satisfaction of Column (b). Intangible property. Enter
includes a proportionate amount of the the Secretary, are provided to any person, the amount of the deductions that are
adjusted bases of all A assets in or with respect to property, located outside allocated and apportioned to gross FDDEI
calculating each partner’s partnership the United States as defined in from all sales of intangible property.
QBAI. The production of income from B Regulations section 1.250(b)-5. Column (c). Services. Enter the amount
assets is DEI with respect to X. However, of the deductions that are allocated and
with respect to Y, the production of If a transaction includes both a sales apportioned to gross FDDEI from all
income from B assets is non-DEI. Thus, component and a service component, the services.
the B assets are partnership specified transaction is classified as either a sale or Line 12. Other apportioned deduc-
tangible property with respect to X only, as a service according to the overall tions. Enter all other apportioned
and FP includes a proportionate amount of predominant character of the transaction. deductions that relate to gross FDDEI that
the adjusted bases of all B assets only in See Regulations section 1.250(b)-3(d). are not otherwise included on lines 11, 13,
calculating X’s partnership QBAI. The C
assets are dual-use property because the and 16. If a deduction does not bear a
production of only part of the income from For purposes of determining a definite relationship to a class of gross
the C assets is DEI with respect to X and domestic corporation’s deductions that income constituting less than all of gross
Y. Thus, the C assets are partnership are properly allocable to gross FDDEI, the income, it shall ordinarily be treated as
specified tangible property with respect to corporation’s deductions are allocated definitely related and allocable to all of the
both X and Y, but FP includes a and apportioned to gross FDDEI under the taxpayer's gross income, including gross
proportionate amount of the adjusted rules of Regulations sections 1.861-8 DEI and gross FDDEI, except where
bases of all C assets in calculating each through 1.861-14T and 1.861-17 by otherwise directed in the regulations.
partner’s partnership QBAI only in the treating section 250(b) as an operative
proportion that the amount of the gross section described in Regulations section
income included in DEI produced with 1.861-8(f). See Regulations section Section 3. Other Information for
respect to the C assets bears to the total 1.250(b)-1(d)(2). Preparation of Form 8993
amount of gross income produced with Line 9. Gross receipts. Enter the Line 13. Interest deduction. The term
respect to the C assets. amount, if any, of the partnership's “interest” refers to the gross amount of
foreign-derived gross receipts separately interest expense incurred by a partnership
Section 2. Information To for aggregate sales of general property, in a given year. Generally, interest
aggregate sales of intangible property, expense includes any expense that is
Determine Foreign-Derived and aggregate services. Foreign-derived currently deductible under section 163
Deduction Eligible Income on gross receipts means gross receipts that (including original issue discount), and
Form 8993 are used to figure gross FDDEI as defined interest equivalents. See Temporary
in Regulations section 1.250(b)-1(c)(16). Regulations sections 1.861-9T(b) for the
Foreign-derived gross receipts means, Line 10. COGS. Enter the amount of cost definition of interest equivalents and
with respect to a partnership, gross of goods sold attributable to the amount(s) 1.861-9T(c) for sections that disallow,
receipts of the partnership for the on line 9. suspend, or require the capitalization of
interest deductions. Include excess
partnership's tax year that are used to For purposes of this form, when business interest expense determined
figure gross FDDEI as defined in figuring FDDEI, cost of goods sold under section 163(j)(4) on this line. Under
Regulations section 1.250(b)-1. includes the cost of goods sold to Regulations section 1.250(b)-1(d)(2)(ii),
customers, and the adjusted basis of deductions are determined without regard
Each place where general property is non-inventory property sold or otherwise to sections 163(j),170(b)(2), 172, 246(b),
listed refers to amounts connected to the disposed of in trade or business. and 250.
sale, lease, exchange, or other disposition In making that determination, attribute Lines 13A and 13B. Interest expense
of general property to a foreign person costs of goods sold to gross receipts using specifically allocable under Regula-
and, as established to the satisfaction of a reasonable method in accordance with tions sections 1.861-10(e) and -10T.
the Secretary, is for a foreign use as Regulations section 1.250(b)-1(d)(1). Apart from interest expense entered on
defined in Regulations sections 1.250(b)-3
and 1.250(b)-4(d). The term “general Cost of goods sold must be attributed line 13A, enter on line 13B interest
property” means any property other than to gross receipts with respect to gross DEI expense that is directly allocable under
intangible property; a security (as defined or gross FDDEI regardless of whether Temporary Regulations section 1.861-10T
in section 475(c)(2)); an interest in a certain costs included in cost of goods to income from specific partnership
partnership, trust, or estate; or a sold can be associated with activities property. Such interest expense is treated
commodity described in section 475(e)(2) undertaken in an earlier tax year (including as directly allocable to income generated
(A) that is not a physical commodity or a a year before the effective date of section by such partnership property. See
commodity described in section 475(e)(2) 250). Temporary Regulations section
(B) through (D). Line 11. Allocable deductions. Enter 1.861-9T(e)(1).
the amount of the allocable deductions. Line 13C. Enter all interest deductions
Each place where intangible property is See Regulations section 1.250(b)-1(d)(2) not otherwise included on lines 13A and
listed refers to amounts connected to the for more details. Enter the amounts of 13B.
sale, license, exchange, or other interest and R&E expenses on lines 13
disposition of intangible property to a and 16, respectively. Deductions are Line 14. Interest expense apportion-
foreign person and, as established to the determined without regard to sections ment factors. Report information that a
satisfaction of the Secretary, is for a 163(j),170(b)(2), 172, 246(b), and 250.

Inst. for Schedules K-2 and K-3 (Form 8865) (2022) -15-

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partner will use to allocate and apportion reasonably connected with relevant broad Use Part V of the Schedule K-3 to
its interest expense for FDII purposes. product categories of the taxpayer and are report the partner's share of the amounts
Interest deductions are apportioned to allocable to all items of gross income as a reported on Part V of the Schedule K-2.
gross DEI and FDDEI based ordinarily on class related to such product categories.
the tax book value of the taxpayer’s The product categories are generally Exception. Part V of the Schedule K-2
assets. See Regulations section determined by reference to the three-digit isn’t required to be completed for
1.861-9T(g)(1)(i). A taxpayer can use SIC code. R&E expenses are apportioned distributions by a foreign corporation if the
either the tax book value or the alternative between the statutory and residual U.S. person filing Form 8865 knows that (i)
tax book value of its assets. See groupings based on an analysis of the none of the distributions by the foreign
Regulations section 1.861-9(i). Under both taxpayer’s gross receipts from certain corporation are attributable to PTEP in
methods, the partner uses the sales, leases, licenses, and services. See annual PTEP accounts of any direct or
partnership's inside basis in its assets, Regulations section 1.861-17. The indirect partner, and (ii) none of the
including adjustments required under exclusive apportionment rule in partnership’s direct or indirect partners are
sections 734(b) and 743(b). See Regulations section 1.861-17(c) does not eligible to claim a deduction under section
Regulations sections 1.861-9(e)(2) apply for purposes of apportioning R&E to 245A with respect to any distribution by
and -9(e)(3). When reporting the asset gross DEI and gross FDDEI. the foreign corporation. Still, the filer may
be required to append Attachment 3 to the
that is the basis of stock in nonaffiliated R&E expenses are allocated and Schedule K-2 (discussed below).
10%-owned corporations, adjust such apportioned by the partner. This requires
amount for E&P. See Regulations section that the reporting to the partners of the Exception. Part V of the Schedule K-3
1.861-12(c)(2)(i)(A). gross receipts related to certain income for a partner doesn’t need to be completed
The total interest deductions for the within the statutory and residual groupings for distributions by a foreign corporation if
members of the corporation's affiliated within a SIC code and the partner’s the filer of Form 8865 knows that (i) none
group are allocated and apportioned to the distributive share of the partnership’s R&E of the distributions by the foreign
statutory and residual groupings under deductions, if any, connected with the SIC corporation are attributable to PTEP in
proposed, final, and Temporary codes. annual PTEP accounts of the partner or
any U.S. person that is treated as
Regulations sections 1.861-8 through Line 15. R&E gross receipts by SIC indirectly owning stock of the foreign
1.861-14. code. Enter the gross receipts that corporation through the partner (“relevant
resulted in gross income for each indirect partners”), and (ii) the partner and
Note. The Total column is not a sum of category, DEI, FDDEI, and then Total relevant indirect partners aren’t eligible to
DEI and FDDEI but rather refers to the Gross Receipts. Note that the Total claim a deduction under section 245A for
partnership’s specific line totals (that is, column is not a sum of DEI and FDDEI but any distributions by the foreign
that would also include non-DEI). rather refers to all the partnership’s gross corporation. Still, the filer may be required
Line 14A. Enter the amount of the receipts. Such gross receipts include both to append Attachment 4 to the
average of the beginning-of-year and the partnership's sales and certain other Schedule K-3 for the partner (discussed
end-of-year inside basis in the parties' sales. See Regulations section below). If this exception is applicable with
partnership's assets. See Regulations 1.861-17(d). Gross receipts from certain respect to a foreign corporation, the sum
section 1.861-9(g)(2)(i)(A). transactions of parties both controlled or of the amounts reported on Part V of the
uncontrolled by the partnership may be Schedules K-3 for the foreign corporation
Line 14B. Enter the amount of the included on line 15. See, generally, may not equal the amounts reported on
average of the beginning-of-year and Regulations section 1.861-17(d). Part V of the Schedule K-2 for the foreign
end-of-year inside basis adjustments
under sections 734(b) and 743(b). Line 16. Enter the amount of R&E corporation.
expense by SIC code.
Lines 14C and 14D. Enter the amount of Rows A–O. Use rows A–O to report
the reductions in the partnership's asset information for each distribution by a
values to reflect the partnership's directly Schedule K-2, Part V, and foreign corporation for its stock that the
allocable interest under Regulations Schedule K-3, Part V (Distributions partnership (directly or through
pass-through entities) owns (within the
section 1.861-10(e) and Temporary From Foreign Corporations to meaning of section 958) other than solely
Regulations section 1.861-10T. See also
Temporary Regulations section Partnership) by reason of applying section 318(a)(3)
(providing for downward attribution) as
1.861-9T(e)(1). Note. The following information, in provided in section 958(b).
Line 14E. Enter the amount of the combination with other information known
average value of assets excluded from the to the partners, including Schedule P Each row should relate to the
apportionment formula. See section (Form 5471), is relevant for certain partnership’s direct ownership of stock in
864(e)(3). partners to exclude from gross income the foreign corporation or direct ownership
distributions to the extent that they are of the ownership interests in a
Lines 15 and 16. R&E expenses appor- pass-through entity that (directly or
attributable to PTEP in their annual PTEP
tionment factors. Lines 15 and 16 aren’t through other pass-through entities) owns
accounts and report foreign currency gain
required to be completed unless either (1) (within the meaning of section 958) stock
or loss with respect to the PTEP on Forms
the partnership incurs R&E expense; or in the foreign corporation other than solely
1040 and 1120. If eligible, partners use
(2) the partner is expected to license, sell, by reason of applying section 318(a)(3)
this information for purposes of a
or transfer its intangible property to the (providing for downward attribution) as
dividends received deduction under
partnership (as provided in Regulations provided in section 958(b). For example, if
section 245A on Form 1120.
section 1.861-17(f)(3)). These lines a partnership (upper-tier partnership)
require information that a partner will use Use Part V of the Schedule K-2 to directly owns 50% of the foreign
to allocate and apportion its R&E expense report the distributions made by foreign corporation's stock and owns 50% of the
for FDII purposes. corporations to the partnership. foreign corporation's stock through
R&E expenses deducted under section another partnership (lower-tier
174 are definitely related to all income partnership), then distributions by the
foreign corporation to each of the

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upper-tier partnership and the lower-tier   Part V (Form 8865). Rows for distributions       investment income PTEP (NII PTEP), 
partnership are to be reported on separate  for a partnership's direct ownership of          append Attachment 3 to Schedule K-2 and 
rows on the upper-tier partnership's Part V foreign corporation stock should be listed       Attachment 4 to each Schedule K-3 in the 
(Form 8865). If the partnership owns stock  before rows for distributions for a              following format, adding additional rows 
of a foreign corporation through another    partnership’s ownership of foreign               as necessary for each distribution by a 
partnership (lower-tier partnership) from   corporation stock through a pass-through         foreign corporation. For more information 
which it receives a Part V of Schedule K-3  entity.                                          about net investment income and net 
(Form 1065 or 8865), the partnership must      If the partnership received a                 investment income tax relating to CFCs 
replicate each line of the Part V,          Schedule K-3 from another partnership            and qualified electing funds (QEFs), see 
Schedule K-3 (Form 1065 or 8865) on its     with an attachment related to net                Regulations section 1.1411-10.

Attachment 3 (Schedule K-2)

(a) Name of          (b) EIN or reference   (c) Date of  (d) Functional       (e) Amount of NII      (f) Spot rate        (g) Amount of NII 
distributing foreign    ID number           distribution currency of          PTEP in functional     (functional currency PTEP in U.S. dollars
corporation                                              distributing foreign      currency          to U.S. dollars)
                                                         corporation

Attachment 4 (Schedule K-3)

(a) Name of          (b) EIN or reference   (c) Date of  (d) Functional       (e) Partner’s share of (f) Spot rate        (g) Partner’s share of 
distributing foreign    ID number           distribution currency of             NII PTEP in         (functional currency NII PTEP in U.S. 
corporation                                              distributing foreign functional currency    to U.S. dollars)        dollars
                                                         corporation

Note. If additional rows are required,      share of the total of the amounts reported       Column (j).  If the distributing foreign 
attach statements to Schedules K-2 and      on line 9, column (f), of Schedules J (Form      corporation is a qualified foreign 
K-3 that look like the current version of   5471) on a separate category of income           corporation, determined without regard to 
Part V.                                     basis filed with respect to the distributing     section 1(h)(11)(C)(iii)(I), check the box. 
                                            foreign corporation, as reported on line 9, 
Column (b).  Enter the EIN or reference                                                      See section 1(h)(11)(C).
                                            column (f), of the Schedule J (Form 5471) 
ID number of the distributing foreign                                                        Schedule K-2, Part VI 
                                            with code “TOTAL” entered on line a that 
corporation. Do not enter “FOREIGNUS” 
                                            is filed with respect to the distributing 
or “APPLIED FOR.” For basic information                                                      (Information on Partners' 
                                            foreign corporation. If a Schedule J (Form 
about reference ID numbers (including the                                                    Section 951(a)(1) and Section 
                                            5471) with code “TOTAL” entered on line 
requirements as to the characters                                                            951A Inclusions), and 
                                            a is not filed with respect to the distributing 
permitted), see the Instructions for Form 
                                            foreign corporation, then the total of the 
1118.                                                                                        Schedule K-3, Part VI 
                                            amounts reported in column (f) with              (Information on Partner's 
Column (c).  Enter the year, month, and     respect to a distributing foreign 
day on which the distribution was made      corporation should equal the partnership's       Section 951(a)(1) and Section 
using the format YYYYMMDD.                  share of the amount reported on line 9,          951A Inclusions)
Column (d).  Enter the applicable           column (f), of the Schedule J (Form 5471) 
three-character alphabet code for the       filed with respect to the distributing foreign   Note.   This information is relevant to 
foreign corporation’s functional currency   corporation.                                     partners completing Form 8992 and 
                                                                                             Forms 1040 and 1120 for income 
using the ISO 4217 standard. These          Column (g).  Enter the exchange rate on          inclusions under section 951(a) (subpart F 
codes are available at iso.org/iso-4217-    the date of distribution used to translate       inclusions), section 951(a)(1)(B) 
currency-codes.html.                        the amount of the distribution in functional     inclusions, and section 951A inclusions.
                                            currency to U.S. dollars. See section 
Note.  Columns (e) and (f) are reported in  989(b)(1). Report the exchange rate using             Schedules K-2 and K-3, Part VI, must 
functional currency.                        the "divide-by convention" specified under       be completed for a CFC if the partnership 
Column (e).  This represents the            Reporting exchange rates on Form 5471            owns (within the meaning of section 958) 
partnership's share of the amount           in the Instructions for Form 5471.               stock of the CFC, unless the partnership 
                                                                                             owns stock of the CFC solely by reason of 
distributed in functional currency. See     Column (h).  Enter the amount of the             applying section 318(a)(3) (providing for 
Schedule R (Form 5471), column (c).         distribution in U.S. dollars. Translate          downward attribution) as provided in 
Column (f). This represents the             column (e) using the spot rate reported in       section 958(b).
partnership's share of the amount of E&P    column (g).
distributed in functional currency. See     Column (i).  Enter the amount of E&P                  Generally, a foreign corporation is a 
Schedule R (Form 5471), column (d). The     distributed in U.S. dollars. Translate           CFC if more than 50% of either the total 
total of the amounts reported in column (f) column (f) using the spot rate reported in       combined voting power of all classes of 
with respect to a distributing foreign      column (g).                                      stock entitled to vote or the total value of 
corporation should equal the partnership’s                                                   the stock of the corporation is owned 
                                                                                             (within the meaning of section 958(a)) or is 

Inst. for Schedules K-2 and K-3 (Form 8865) (2022)          -17-

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considered as owned by applying the inclusions, and GILTI inclusion, for CFCs completed for general category income.
rules of section 958(b) by U.S. owned (within the meaning of section 958) Enter the appropriate code on line a.
shareholders. For this purpose, a U.S. by the partnership.
shareholder is a U.S. person (as defined Note. The other reporting requirements
in section 957(c)) who owns (within the The U.S. person completing Form 8865 with respect to reporting income by
meaning of section 958(a)), or is must complete Part VI of Schedules K-2 separate category don’t change by reason
considered as owning by applying the and K-3 by assuming that each partner in of reporting GILTI items that include
rules of ownership of section 958(b), 10% the partnership is a U.S. shareholder of general category income on a Part VI
or more of the total combined voting the CFC and is required to include in gross completed for passive category income.
power of all classes of stock entitled to income its share of the CFC's subpart F
vote, or 10% or more of the total value of income, its section 951(a)(1)(B) inclusion,
Codes for Categories of Income
shares of all classes of stock of such and its GILTI.
foreign corporation. A partner's GILTI is calculated based Code Category of Income
Exception. Part VI of Schedule K-2 upon its share of the following amounts for
doesn’t need to be completed with respect each CFC for which it is a U.S. PAS Passive Category
to a CFC if the partnership does not have shareholder: tested income, tested loss, Income
a direct or indirect partner (through QBAI, tested loss QBAI amount, tested 901j Section 901(j) Income
pass-through entities only) that is a U.S. interest income, and tested interest GEN General Category
shareholder of the CFC required to include expense (collectively, GILTI items) (a Income
in gross income a subpart F income CFC's subpart F income and GILTI items,
inclusion and/or section 951(a)(1)(B) CFC items). Line b. If any portion of a CFC item is
inclusion with respect to the CFC, or A partner's share of a CFC's subpart F U.S. source, complete a separate Part VI
calculate section 951A inclusions by income, amounts used to determine its for U.S.-source CFC items, and check the
taking into account GILTI items (defined section 956 amount for a CFC, and a box on line b on such separate Part VI.
below) of the CFC. CFC's GILTI items may not be limited to Line 1. Use lines A through K to report
Exception. Part VI of Schedule K-3 for the partner's share of such income, information with respect to CFCs owned
a partner doesn’t need to be completed for amounts, or items through its ownership in (within the meaning of section 958) by the
a CFC if the filer of Form 8865 knows that the partnership. However, for purposes of partnership, and for which Part VI of
(i) the partner isn’t a U.S. shareholder of completing Part VI of Schedules K-2 and Schedules K-2 and K-3 must be
the CFC required to include in gross K-3, use only the partner's share of a completed. If the partnership owns a CFC
income a subpart F income inclusion CFC's subpart F income, amounts used to through another partnership (lower-tier
and/or section 951(a)(1)(B) inclusion for determine its section 956 amount with partnership) from which it receives a
the CFC, or figure section 951A inclusions respect to a CFC, and a CFC's GILTI Schedule K-3 (Form 1065 or 8865), Part
by taking into account GILTI items items through the partner's ownership in VI, replicate each line of the Schedule 3
(defined below) of the CFC; and (ii) no the partnership. (Form 1065 or 8865), Part VI, that is
U.S. person that indirectly owns (through A partner's share through its ownership related to the CFC on Schedule K-2 (Form
pass-through entities only) an interest in in the partnership of subpart F income and 8865), Part VI. For example, if a
the CFC through the partner is a U.S. GILTI items is generally anticipated to be partnership directly owns 50% of the
shareholder of the CFC required to include calculated by multiplying the percentage in CFC's stock and owns 50% of the CFC's
in gross income a subpart F income column (d) by the amount of subpart F stock through a lower-tier partnership, the
inclusion and/or section 951(a)(1)(B) income or GILTI item, respectively. For CFC should be listed on two lines with one
inclusion for the CFC, or figure section example, in general, a partner's share line related to the partnership's direct
951A inclusions by taking into account through its ownership interest in the ownership and the other line related to the
GILTI items (defined below) of the CFC. If partnership of tested income in column (i) partnership's ownership through the
the filer doesn’t complete Part VI of is anticipated to be calculated by lower-tier partnership. Lines related to a
Schedule K-3 for a partner for a CFC, the multiplying the percentage in column (d) partnership's direct ownership of CFCs
sum of each partner’s share of the CFC’s by the amount of tested income in column should be listed before lines related to a
subpart F income, section 951(a)(1)(B) (g). If the partner’s share through its partnership's non-direct ownership of
inclusion for the CFC, and share of the ownership in the partnership of subpart F CFCs. If additional lines are required,
CFC’s GILTI items (defined below) income or GILTI items is not calculated by attach to the Schedules K-2 and K-3 a
reported on all Schedules K-3 may not multiplying the percentage in column (d) schedule that looks like the current version
equal the aggregate share of subpart F by the amount of subpart F income or of Part VI.
income of the CFC, the aggregate section GILTI items, respectively (for example, Column (a). Enter the name of each
951(a)(1)(B) inclusion for the CFC, and because of special allocations), then, CFC for which Part VI must be completed.
the aggregate share of the CFC’s GILTI instead of entering a percentage in column
items (defined below), respectively, (d) for that CFC, attach a statement to the Column (b). Enter the EIN or reference
reported on the Schedule K-2. Schedules K-2 and K-3 explaining the ID number of the CFC. Do not enter
Use Schedule K-2, Part VI, to report the partner’s share through its ownership in “FOREIGNUS ” or “APPLIED FOR.” For
information on the partnership’s share of the partnership of the CFC’s subpart F and basic information about reference ID
the amounts its partners will need to figure GILTI items. numbers (including the requirements as to
the characters permitted), see the
their subpart F income inclusions, section Line a. Complete a separate Part VI for Instructions for Form 1118.
951(a)(1)(B) inclusions, and GILTI each applicable separate category of
inclusions, for CFCs owned (within the income. However, all GILTI items must be Column (c). Enter the end of the CFC’s
meaning of section 958) by the reported on only one Part VI. If GILTI items tax year using the format YYYYMMDD.
partnership. Use Schedule K-3, Part VI, to include passive category income, report Column (d). Enter the partners' share of
report the partner’s share of the amounts all GILTI items on the Part VI completed CFC items through the partners'
needed to determine its subpart F income for passive category income; otherwise, ownership in the partnership (aggregate
inclusions, section 951(a)(1)(B) report all GILTI items on the Part VI

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share). See Regulations sections              Column (m).  Enter the aggregate share         PFICs with respect to which no QEF or 
1.951-1(b), 1.951-1(e), and 1.951A-1(d)       of the CFC's tested interest income. A         section 1296 MTM election has been 
(1) for rules on determining the partners'    CFC's tested interest income is reported       made and unpedigreed QEFs (section 
share.                                        of Schedule I-1 (Form 5471), line 10c.         1291 funds), and PFICs with respect to 
                                                                                             which pedigreed QEF, section 1296 MTM, 
Column (e). Enter the aggregate share of      Column (n).  Enter the aggregate share         qualifying insurance corporation (QIC), or 
the amount of the CFC's subpart F             of the CFC's tested interest expense. A        other elections have been, or may be, 
income, if any. Note that an amount           CFC's tested interest expense is reported      made.
determined under section 956(a) is not        on Schedule I-1 (Form 5471), line 9d.
considered subpart F income. For                                                             The U.S. person filing the Form 8865 
guidance on computing a CFC's subpart F       Schedule K-2, Part VII, and                    must also use Schedule K-2, Part VII, to 
income and the partners' share of a CFC's     Schedule K-3, Part VII                         report information for any PFIC with 
subpart F income, see Worksheet A in the                                                     respect to which the U.S. person is 
Instructions for Form 5471.                   (Information To Complete Form 
                                                                                             making an MTM election under section 
                                              8621)
Column (f). Enter the amount determined                                                      1296 in the current tax year if the current 
                                                                                             tax year is not the first year of the U.S. 
under section 956 with respect to the         Note.  This information is relevant to         person’s holding period in such stock 
partners that relates to the partners'        partners completing Form 8621 and/or           (“non-initial section 1296 MTM election”). 
ownership in the partnership, as described    that determine income inclusions for the       See section 1296(j)(1)(A) and Regulations 
in these instructions for column (f)          PFICs reported on Schedule K-2, Part VII,      section 1.1296-1(i) for more information.
(aggregate section 951(a)(1)(B) inclusion).   and Schedule K-3, Part VII.
In determining the section 956 amount,                                                       Use Schedule K-3, Part VII, to report 
use only the partners' share through their    Except as otherwise provided,                  the partner's share, through its ownership 
ownership in the partnership of:              Schedules K-2 and K-3, Part VII, must be       in the partnership, of the amounts reported 
• The average of the amounts of U.S.          filed for every partnership that owns PFIC     on Schedule K-2, Part VII.
property held (directly or indirectly) by the stock directly or indirectly.
                                                                                             Complete only one line on both 
CFC as of the close of each quarter of the    However, the U.S. person filing the            Sections 1 and 2 for each PFIC for which 
CFC’s tax year, and                           Form 8865 isn’t required to complete           reporting on Schedules K-2 and K-3, Part 
• The applicable earnings of the CFC.         Schedules K-2 and K-3, Part VII, for a         VII, is required. Each line completed for a 
Do not reduce the amount reported in          foreign corporation if the U.S. person         PFIC in Section 1 should correspond to 
column (f) for any reduction to the           knows that all of the foreign partnership’s    the same line on Section 2. If there is no 
partners' section 956 amount under            direct and indirect partners that are U.S.     information to report for a PFIC in Section 
Regulations section 1.956-1(a)(2). For        persons (including itself) are either (i) not  2, columns (c) through (o), only complete 
guidance on computing the partners'           subject to the PFIC rules for the              the name and EIN of the PFIC in Section 
share of a CFC's earnings invested in U.S.    corporation under section 1297(d)              2, columns (a) and (b), and leave columns 
property; see Worksheet B in the              because they are subject to the subpart F      (c) through (o) blank for that PFIC. For 
Instructions for Form 5471.                   rules for the corporation, (ii) tax-exempt     additional information on determining 
Column (g).  Enter the CFC's tested           entities that aren’t subject to the PFIC       indirect ownership of PFICs, see 
income, if any, from line 6 of Schedule I-1   rules for the corporation under                Regulations section 1.1291-1(b)(8).
(Form 5471) for each CFC.                     Regulations section 1.1291-1(e), or (iii) 
                                              pass-through entities with no indirect U.S.    The partnership may have additional 
Column (h).  Enter the CFC's tested loss,                                                    required information for a PFIC for certain 
                                              taxable partners. Additionally, the U.S. 
if any, from line 6 of Schedule I-1 (Form                                                    columns (for example, scenarios where 
                                              person filing the Form 8865 isn’t required 
5471) for each CFC. The loss amounts                                                         the partnership may have multiple different 
                                              to complete Schedules K-2 and K-3, Part 
should be shown as negative numbers.                                                         events for the PFIC in the same tax year, 
                                              VII, for a PFIC the stock of which has been 
Column (i). Enter the aggregate share of      marked to market as described in               such as multiple dates of acquisitions of, 
the tested income listed in column (g) for    Regulations section 1.1291-1(c)(4).            or distributions with respect to, the PFIC 
each CFC with tested income.                  Instead, the U.S. person filing the Form       stock). In that case, complete Schedules 
Column (j). Enter the aggregate share of      8865 should report the partnership’s           K-2, and K-3, Part VII, with the first of such 
the tested loss listed in column (h) for      mark-to-market (MTM) gain or loss on           entries for a PFIC and attach a statement 
each CFC with tested loss. The loss           Form 8865 (Schedule K) (if required) and       including the remaining entries for each 
amounts should be shown as negative           report the partners’ shares of such            such PFIC to Schedule K-2, Part VII, and 
numbers.                                      amounts on Part III of Schedule K-1 (Form      its corresponding Schedules K-3, Part VII, 
                                              8865) (if required). Note, however, there      with Attachments 5 and/or 6 completed.
Column (k).  If the CFC has a tested loss     may be instances in which the U.S. person 
                                                                                             If the partnership has additional PFICs 
in column (h), enter zero. If the CFC has     filing the Form 8865 will need additional 
                                                                                             for which to report information that don’t fit 
tested income in column (g), enter the        information for the PFIC the stock of which 
                                                                                             on single Schedules K-2 and K-3, Part VII, 
aggregate share of QBAI. A CFC's QBAI is      has been marked to market as described 
                                                                                             attach additional Parts VII of Schedules 
reported on Schedule I-1 (Form 5471),         in Regulations section 1.1291-1(c)(4) to 
                                                                                             K-2 and K-3, as needed.
line 8.                                       meet its tax obligations, such as when the 
Column (l). If the CFC has tested income      section 1291 rules apply to the U.S. 
in column (g), enter zero. If the CFC has a   person filing the Form 8865 because stock      Section 1. General Information on 
tested loss in column (h), enter as a         wasn’t marked to market in the first year of   Passive Foreign Investment 
negative number the aggregate share of        its holding period. In such instances, the     Company (PFIC), Qualified 
the CFC's tested loss QBAI amount. See        U.S. person filing the Form 8865 may use 
Regulations section 1.951A-4(b)(1)(iv). A     Part VII to report the needed information.     Electing Fund (QEF), or Qualifying 
                                                                                             Insurance Corporation (QIC)
CFC's tested loss QBAI amount is              Use Schedule K-2, Part VII, to report 
reported on Schedule I-1 (Form 5471),         certain information for any PFIC owned,        Columns (a) through (c).  Enter the 
line 9c, which must be translated to U.S.     directly or indirectly, by the partnership for name, U.S. EIN or reference ID number, 
dollars.                                      which reporting is required, including         and address of each PFIC held directly or 

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indirectly by the partnership during its tax Column (i). Enter the total value of all IF... THEN...
year. Do not enter “FOREIGNUS” or shares in the PFIC held by the partnership • this is the first year of check the box.
“APPLIED FOR.” at the end of the tax year. If the PFIC the partnership's
For basic information about reference shares are not publicly traded, it is holding period in stock
ID numbers (including the requirements as possible to rely upon periodic account of the foreign
to the characters permitted), see the statements provided at least annually to corporation, and
Instructions for Form 8621. determine the value of a PFIC unless there • the foreign corporation
is actual knowledge or reason to know is a PFIC under the
Columns (d) and (e). Enter the income test or asset
based on readily accessible information
beginning and end of the PFIC's tax year test of section 1297(a)
that the statements do not reflect a
using the format YYYYMMDD. • the foreign corporation check the box.
reasonable estimate of the PFIC's value
Column (f). Enter each class of shares and the information provides a more was a PFIC in a prior
in the PFIC owned by the partnership reasonable estimate of the PFIC's value. tax year of the
using the following codes. partnership's holding
Note. A partner may need additional period, and
Codes for Classes of PFIC Shares information not required to be reported on • the foreign corporation
is not a "former PFIC"
this Schedule K-2, Part VII, (or the within the meaning of
partner’s Schedule K-3, Part VII) from the Regulations section
Code Class of PFIC Shares partnership with respect to the value of the 1.1291-9(j)(2)(iv)
COM Common or Ordinary PFIC shares as of a particular date to aid
Shares the partner in making certain elections • the foreign corporation do not check the box.
was a PFIC in a prior
PRE Preferred Shares under Regulations section 1.1291-10, tax year of the
1.1297-3, or 1.1298-3. partnership's holding
OTH Other Equity Interest period, and
Column (j). Check the box if the foreign
VAR Multiple Classes of corporation has indicated that it has • the foreign
corporation is a "former
Shares or Equity documented eligibility to be treated as a PFIC" within the
Interests QIC. See section 1297(f) and Regulations meaning of Regulations
section 1.1297-4 for additional information section 1.1291-9(j)(2)
Column (g). If the partnership acquired on QICs. (iv)
any PFIC shares during its tax year,
provide the date(s) of acquisition of such Column (k). Check the box if the PFIC
shares using the format YYYYMMDD. If has indicated that its shares are
the partnership acquired no shares in a "marketable stock" as defined in section Note. If the foreign corporation is a
particular PFIC during its tax year, leave 1296(e) and Regulations section “former PFIC” within the meaning of
this column blank with respect to that 1.1296-2. Regulations section 1.1291-9(j)(2)(iv), a
PFIC. Column (l). Check the box if the PFIC partner may need additional information
also constitutes a CFC within the meaning not required to be reported on this
Reminder. If the partnership acquired of section 957 (PFIC/CFC). Schedule K-2, Part VII, (or the partner’s
shares in a PFIC on multiple dates during Schedule K-3, Part VII) from the
the tax year, append a completed Reminder. If the U.S. person filing the partnership with respect to the PFIC to aid
Attachment 5 to Schedule K-2, Part VII, Form 8865 knows that all of the the partner in making certain elections
and its corresponding Schedules K-3, Part partnership's direct and indirect partners under Regulations section 1.1298-3.
VII, providing such dates. that are U.S. persons (including itself)
aren’t subject to the PFIC rules with
Attachment 5 respect to a PFIC/CFC under section Section 2. Additional Information
1297(d) because they are subject to the on PFIC or QEF
Additional Information for Section 1 subpart F rules with respect to the
corporation, it’s not required to complete
General Information Annual Schedules K-2 and K-3, Part VII, for the General Information
Information PFIC/CFC.
(a) (b) (g) Columns (a) and (b). Enter the name
Name of PFIC EIN or Dates PFIC Note. If the PFIC is a PFIC/CFC, a and U.S. EIN (or reference ID number) of
reference ID shares partner may need certain additional each PFIC held directly or indirectly by the
number acquired during information with respect to the PFIC/ partnership during its tax year. Do not
tax year (if CFC’s E&P not required to be reported on enter “FOREIGNUS” or “APPLIED FOR.”
applicable) this Schedule K-2, Part VII, (or the
partner’s Schedule K-3, Part VII) from the QEF Information
partnership to aid the partner in making
certain elections under Regulations Columns (c) and (d). Enter the
section 1.1291-9, 1.1297-3, or 1.1298-3. partnership's share of the total ordinary
earnings and net capital gain (as defined
Column (m). Complete column (m) in in Regulations section 1.1293-1(a)(2)) of
the following manner. the PFIC for the partnership’s tax year in
which or with which the tax year of the
PFIC ends in columns (c) and (d),
respectively. The PFIC should provide a
Column (h). Enter the total number of all statement that provides information to
classes of shares of the PFIC the assist in determining these amounts. See
partnership owned at the end of its tax Regulations section 1.1295-1(g) for
year.

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additional information on annual PFIC election, section 1296 MTM election Column (k). Enter the total amount of
statements. (including a non-initial section 1296 MTM distributions the partnership received from
Provide the information received in an election), or other election has been made the PFIC in the 3 preceding tax years, or, if
annual information statement for the PFIC, by a partner or other indirect PFIC shorter, the total amount of distributions
unless the U.S. person filing the Form shareholder. Accordingly, complete the partnership received during its holding
8865 hasn’t made, or doesn’t intend to columns (g) through (o) for each PFIC for period of the PFIC stock. However, don’t
make, a QEF election for the PFIC. which reporting on Schedule K-2, Part VII, enter any amount in this column with
and Schedule K-3, Part VII, is required. respect to a PFIC for which the U.S.
Note. Certain partners may need However, note the instructions for column person filing the Form 8865 has made a
additional information not required to be (k) regarding reporting distributions from pedigreed QEF election or section 1296
reported on this Schedule K-2, Part VII, (or PFICs for which the U.S. person filing the MTM election (other than a non-initial
the partner’s Schedule K-3, Part VII) from Form 8865 has made a pedigreed QEF section 1296 MTM election).
the QEF for its computation of its net election or section 1296 MTM election
capital gain (as defined in Regulations (other than a non-initial section 1296 MTM Column (l). Enter the date(s) on which
section 1.1293-1(a)(2)) to make certain election). the partnership disposed of any block of
stock in the PFIC during the partnership's
computations under section 1061 or the Reminder. If the partnership has tax year, if any, using the format
regulations thereunder. The U.S. person additional required information for a PFIC YYYYMMDD.
preparing the Form 8865 may request, or for any of columns (g) through (j) or (l)
the foreign partnership for which the Form through (m) (for example, multiple Column (m). If the partnership disposed
8865 is filed may aid the U.S. person filing distributions for the PFIC stock), the U.S. of any block of stock in the PFIC during
the Form 8865 in obtaining, such person filing the Form 8865 must the partnership's tax year, enter the
information from the QEF, though the QEF complete such column with the first of amount realized by the partnership on
isn’t required to provide such information. such entries and attach a statement each disposition.
See section 1061 and Regulations including the remaining entries to Column (n). If the partnership disposed
sections 1.1061-4 and 1.1061-6 for more Schedule K-2, Part VII, and its of any block of stock in the PFIC during
information. corresponding Schedules K-3, Part VII, the partnership's tax year, enter the
with the information contained in partnership's tax basis in the shares of the
MTM Information Attachment 6. PFIC on the date of disposition.
Columns (e) and (f). Enter the fair Column (g). Enter the date(s) on which Schedule K-3. Enter the partner's
market value of the PFIC stock at the the partnership initially acquired each share, through its ownership in the
beginning and end of the partnership’s tax block of stock in the PFIC using the format partnership, of the partnership's tax basis
year in columns (e) and (f), respectively. If YYYYMMDD. in the PFIC shares. The partner's share of
any shares of the PFIC were acquired Column (h). Enter the amount of each the basis in the PFIC shares should
during the tax year for which the Form distribution of cash and/or the fair market include any applicable adjustments
8865 is being filed, the fair market value in value of any other property distributed to specific to the partner, such as section
column (e) should reflect the fair market the partnership by the PFIC during the tax 743(b) adjustments or adjustments made
value of those shares as of the date of year, if any. under the PFIC regime. See sections
acquisition. This information must be 1293(d) and 1296(b), and Regulations
provided unless the U.S. person filing the Note. Deemed distributions by QEFs do sections 1.1297-3 and 1.1298-3 for
Form 8865 hasn’t made, or doesn’t intend not need to be reported on this adjustments made under the PFIC regime.
to make, a section 1296 MTM election for Schedule K-2, Part VII (or the partner’s
Column (o). Enter the partnership's gain
the PFIC, including a non-initial section Schedule K-3, Part VII). However,
or loss on the disposition of PFIC shares.
1296 MTM election. partners which have made, or intend to
This equals column (m) minus column (n).
Reminder. The U.S. person filing the make, an election under section 1294, and
Form 8865 isn’t required to complete which are deemed to have received a Schedule K-2, Part VIII
Schedules K-2 and K-3, Part VII, for a distribution from the QEF, may require this (Partners’ Information for Base
PFIC the stock of which has been marked information to complete any computations
to market as described in Regulations under section 1294 (including for Form Erosion and Anti-Abuse Tax
section 1.1291-1(c)(4), though it may use 8621, if required). See section 1294(f) and (Section 59A)), and
Part VII to provide the partners with Regulations section 1.1294-1T for Schedule K-3, Part VIII
additional information to meet their tax additional information.
(Partner’s Information for Base
obligations for the PFIC in certain Column (i). Enter the date(s) of Erosion and Anti-Abuse Tax
instances, such as when the section 1291 distribution of the amounts entered in
rules apply because the stock wasn’t column (h) using the format YYYYMMDD. (Section 59A))
marked to market the first year of the
shareholder’s holding period. Column (j). Enter the total creditable Note. This information is relevant for
foreign taxes attributable to a distribution partners completing Form 8991.
from the PFIC. See section 1291(g) and This Part VIII of Schedules K-2 and K-3
Section 1291 and Other the instructions for Form 8621, Part V, must be completed for corporate partners
Information line 16d, for additional information on who are determining if they are subject to
Note. Generally, the information in creditable foreign taxes attributable to the base erosion and anti-abuse tax
columns (g) through (o) is to assist PFIC distributions, including apportioning (BEAT), and to figure their BEAT, if any.
shareholders of section 1291 funds in creditable foreign taxes to the portion of a This information includes the partner's
satisfying any information reporting distribution which constitutes an excess share of the partnership's gross receipts,
obligations and in computing income distribution and certain rules related to the partner's amount of base erosion
inclusions for section 1291 funds. creditable foreign taxes on a disposition of payments made through the partnership,
However, this information may be relevant PFIC stock. and the partner's base erosion tax
to PFICs for which a pedigreed QEF benefits. The BEAT is generally levied on

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certain large corporations that have Exception for certain other Section 2. Base Erosion Payments
deductions and certain other items paid or partners. Don’t complete Schedule K-3, and Base Erosion Tax Benefits
accrued to foreign related parties (a base Part Vlll, for a partner that is an individual.
erosion payment) that are 3% of their Don’t complete Schedule K-3, Part VIII, Column (b). Base erosion payments.
total deductions or higher (2% in the for a partner that is an S corporation. For purposes of determining whether a
case of certain banks or registered payment or accrual by a partnership is a
securities dealers), a determination Complete Section 1, lines 1–4, of
referred to as the base erosion percentage Schedule K-3, Part VIII, for partners that base erosion payment, any amount paid
test. Partnerships aren’t subject to the are RICs and REITs but don’t complete or accrued by the partnership is treated as
BEAT; however, corporate partners of a Section 2 for these partners. paid or accrued by each partner based on
the partner's distributive share of the item
partnership that are applicable taxpayers of deduction with respect to that amount.
under Regulations section 1.59A-2 may Section 1. Applicable Taxpayer A partner that is an applicable taxpayer
be subject to the BEAT. Except for has a base erosion payment for any
purposes of determining a partner's base Lines 1a through 4a. Enter the
amount paid or accrued by the partnership
erosion tax benefits under Regulations partnership's total gross receipts for the
to a foreign person (as defined in
section 1.59A-7(d)(1), and whether a current year and each of the 3 preceding
Regulations section 1.59A-1(b)(10)) that is
taxpayer is a registered securities dealer, tax years. The determination of the
a related party to the partner (as defined in
BEAT determinations are made by the partnership's gross receipts is made in
Regulations section 1.59A-1(b)(12)) with
partner. See Regulations section 1.59A-7 accordance with Regulations section
respect to which a deduction is allowable
for further information regarding the 1.448-1T(f)(2)(iv).
under chapter 1 and for certain other items
application of section 59A to partnerships Lines 1b through 4b. Complete lines 1b in lines 13 and 15. See Regulations
and the Instructions for Form 8991 for through 4b if the partnership has a foreign section 1.59A-3 and the Instructions for
additional information on whether a partner or there is reason to know it has a Form 8991 for more information on the
corporate partner is an applicable foreign partner through a partner that is a definition of a base erosion payment.
taxpayer subject to the BEAT. pass-through entity. Enter the
Column (c). Base erosion tax benefits.
To complete Schedules K-2 and K-3, partnership’s total gross receipts on
A partner's distributive share of any
Part VIII, the foreign related parties of income effectively connected with a U.S.
deduction or reduction in gross receipts
each partner must be identified, subject to trade or business (ECI) for the current
attributable to a base erosion payment is
the exception for small partners. It’s year and each of the 3 preceding tax years
the partner's base erosion tax benefit. A
expected that the partners will collaborate which the foreign partner(s) would take
partner's base erosion tax benefits are
to identify the foreign related parties of into account as income that is ECI. If the
determined separately for each asset,
each partner. A foreign related party with foreign partner(s) is subject to tax on a net
payment, or accrual, as applicable, and
respect to the partner is a foreign person basis pursuant to an applicable income
aren’t netted with other items. A partner's
that is: tax treaty of the United States, enter the
base erosion tax benefit may be more than
• Any 25% owner of the applicable gross receipts that would be attributable to
the partner's base erosion payment (for
taxpayer (as defined in Regulations transactions taken into account in
example, in the case of special allocations
section 1.59A-1(b)(17)(ii)(A)), determining its net taxable income.
made by the partnership). See the
• Any person who is related (within the Lines 1c through 4c. Complete lines 1c Instructions for Form 8991 and
meaning of section 267(b) or 707(b)(1)) to through 4c if the partnership has a foreign Regulations section 1.59A-7(d) for further
the applicable taxpayer or any 25% owner partner or has reason to know it has a information concerning a partner's base
of the applicable taxpayer, or foreign partner through a partner that is a erosion tax benefits.
• Any other person who is related to the pass-through entity. Enter the total
General. For line 8, columns (b) and (c);
applicable taxpayer within the meaning of non-ECI gross receipts as the difference
line 9, columns (b) and (c); line 10(a),
Regulations section 1.59A-1(b)(17)(i)(C). between column (a) and column (b).
columns (b) and (c); line 11, columns (b)
Exception for small partners. Part Schedule K-3. For purposes of and (c); line 12, columns (b) and (c);
VIII of Schedule K-3 isn’t required to be section 59A, each partner in a partnership line 13, columns (b) and (c); line 14(a),
prepared for small partners meeting the includes on its Schedule K-3, Part VIII, the columns (b) and (c); line 15, columns (b)
following 3 requirements. share of partnership gross receipts in and (c); and line 16, columns (b) and (c),
1. The partner's interest in the proportion to the partner's distributive don’t include amounts that a partner
partnership represents less than 10% of share (as determined under sections doesn’t take into account pursuant to the
the capital and profits of the partnership at 704(b) and (c)) of items of gross income exception for certain small partners. See
all times during the tax year. that were taken into account by the Regulations section 1.59A-7(d)(2) and
2. The partner is allocated less than partnership under section 703 or 704(c) Exception for small partners, earlier. For
10% of each partnership item of income, (such as remedial or curative items under Schedule K-2, Part VIII, report the total
gain, loss, deduction, and credit for the tax Regulations sections 1.704-3(c) or (d)). allocated to all partners, and for
Schedule K-3, Part VIII, report the amount
year. Line 5. Amounts included in the de- allocated to each individual partner.
3. The partner's interest in the nominator of the base erosion per-
partnership has a fair market value of less centage as described in Regulations Line 8. Purchase or creation of proper-
than $25 million on the last day of the section 1.59A-2(e)(3). Enter the amount ty rights for intangibles (patents,
partner's tax year, determined using a of deductions and other items allocated to trademarks, etc.).
reasonable method. the partners from the partnership that will
be included in the denominator of the Column (a). Enter the amount paid or
accrued by the partnership in connection
See Regulations section 1.59A-7(d)(2) partners' base erosion percentage. For a
for further information regarding the description of deductions that aren’t with the acquisition or creation of
intangible property rights (patents,
application of the exception for small included in the denominator, see
partners. Regulations section 1.59-2(e)(3)(ii). copyrights, trademarks, trade secrets,
etc.) that is subject to the allowance for

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depreciation (or amortization in lieu of the services cost method exception in Column (c). Enter the amount of
depreciation) for the tax year. section 59A(d)(5). base erosion tax benefits attributable to
amounts paid or accrued to any foreign
Column (b). Enter the amount paid or Line 10b. Compensation/consideration
persons that are a related party of any of
accrued to all foreign persons that are a paid for services excepted by section
the partners for the purchase of tangible
related party of any of the partners in 59A(d)(5).
property.
connection with the acquisition or creation
Column (a). Enter the amounts paid
of intangible property rights (patents, Line 13. Premiums and/or other con-
or accrued by the partnership to any
copyrights, trademarks, trade secrets, siderations paid or accrued for rein-
foreign person that is a related party of
etc.) that is subject to the allowance for surance as covered by section 59A(d)
any of the partners for services qualifying
depreciation (or amortization in lieu of (3) and section 59A(c)(2)(A)(iii).
for the services cost method exception in
depreciation).
section 59A(d)(5). Column (a). Enter the amount paid or
accrued by the partnership for the tax year
Column (c). Enter the amount of the Line 11. Interest expense.
partners' base erosion tax benefits for reinsurance.
attributable to deductions allowed under Column (a). Enter the amount of
Column (b). Enter the amount of any
chapter 1 for the tax year for depreciation interest paid or accrued by the partnership
premiums or other consideration paid or
(or amortization in lieu of depreciation) for the tax year (excluding interest paid or
accrued to all foreign persons that are a
with respect to intangible property rights accrued in a prior year treated as paid or
related party of any of the partners for
acquired in the current year or prior years accrued in the current year under section
reinsurance taken into account under
from all foreign persons that are a related 163(j) or similar provisions).
section 803(a)(1)(B) (relating to return
party of any of the partners.
Column (b). Enter the amount of premiums and premiums or other
Line 9. Rents, royalties, and license interest expense paid or accrued to all consideration arising out of indemnity
fees. foreign persons that are a related party of reinsurance that reduces life insurance
any of the partners (excluding interest paid gross income) or section 832(b)(4)(A)
Column (a). Enter the amount paid or (relating to amounts deducted from gross
or accrued in a prior year treated as paid
accrued by the partnership for the tax year premiums written on insurance contracts
or accrued in the current year under
for the use or right to use tangible or section 163(j) or similar provisions). for return premiums and premiums paid
intangible property resulting in rents, for reinsurance).
royalties, and/or license fees. Column (c). Enter the amount of the
partners' base erosion tax benefits Column (c). Enter the amount of the
Column (b). Enter the amount paid or partners' base erosion tax benefits
attributable to interest expense paid or
accrued to all foreign persons that are a attributable to premiums or other
accrued by the partnership that is allowed
related party of any of the partners for the consideration as described in section
as a deduction in the current tax year. If
use or right to use tangible or intangible 59A(c)(2)(A)(iii) paid or accrued to any
the partner is a foreign person, include the
property resulting in rents, royalties, foreign person that is a related party of
individual lines from column (c) of
and/or license fees. any of the partners for reinsurance.
Worksheet A on the applicable
Column (c). Enter the amount of the Schedule K-3. Line 14a. Nonqualified derivative pay-
partners' base erosion tax benefits ments.
Schedule K-3. When completing
attributable to amounts paid or accrued to
line 11 on the Schedule K-3, if the partner
all foreign persons that are a related party Column (a). Enter the amount paid or
is a foreign person, enter the total from
of any of the partners for the use or right to accrued by the partnership for the tax year
column (a) of Worksheet A on the
use tangible or intangible property that attributable to derivative contracts as
partner's Schedule K-3 in column (a) of
results in rents, royalties, and/or license defined in section 59A(h)(4).
line 11, enter the total from column (b) of
fees.
Worksheet A on the Schedule K-3 in Column (b). Enter the amount paid or
Line 10a. Compensation/consideration column (b) of line 11 and enter the total accrued to all foreign persons that are a
paid for services NOT excepted by from column (c) of Worksheet A on the related party of any of the partners with
section 59A(d)(5). Schedule K-3 in column (c) of line 11. respect to derivative contracts that are not
Column (a). Enter the amount paid or Complete Worksheet A for all eligible for the qualified derivative
accrued by the partnership for the tax year partnership-related items and complete a payment exception under section 59A(h)
as compensation or consideration for Worksheet A for each foreign partner's and Regulations section 1.59A-6. Don’t
services, excluding any amount that share of the amounts reported on the include any amount paid that is a qualified
qualifies for the services cost method partnership Worksheet A and attach a derivative payment on line 14a, column
exception in section 59A(d)(5). statement containing the partner’s share (b).
of the information in Worksheet A to the Column (c). Enter the amount of base
Column (b). Enter the amount paid or Schedule K-3. erosion tax benefits attributable to
accrued to all foreign persons that are a nonqualified derivative payments paid or
related party of any of the partners as Line 12. Payments for the purchase of
compensation or consideration for tangible personal property. accrued to any foreign person that is a
related party of any of the partners.
services, excluding any amount that Column (a). Enter the amount paid or
qualifies for the services cost method accrued by the partnership for the tax year Line 14b. Qualified derivative pay-
exception in section 59A(d)(5). for the purchase of tangible personal ments excepted by section 59A(h).
Column (c). Enter the amount of the property. Enter the total amount of qualified
derivative payments paid or accrued by
partners' base erosion tax benefits Column (b). Enter the amount paid or the partnership. Generally, a qualified
attributable to amounts paid or accrued to accrued to all foreign persons that are a derivative payment is any payment made
all foreign persons that are a related party related party of any of the partners for the by the taxpayer pursuant to a derivative
of any of the partners representing purchase of tangible personal property. contract, provided that the taxpayer
compensation or consideration paid for recognizes gain or loss on the derivative
services, excluding amounts qualifying for contract as if it were sold for its fair market

Inst. for Schedules K-2 and K-3 (Form 8865) (2022) -23-

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value on the last business day of the tax Column (c). Enter the base erosion by section 871 or 881, with respect to
year; treats the gain or loss as ordinary; tax benefits attributable to amounts paid or which tax has been withheld under
and treats the character of all other items accrued to certain expatriated entities section 1441 or 1442 at 30% (0.30)
of income, deduction, gain, or loss for a described in column (b) resulting in a statutory withholding tax rate. Enter
payment pursuant to the derivative as reduction of gross receipts of the the aggregate amount of the partners'
ordinary. A payment isn’t a qualified partnership. base erosion tax benefits, reported on
derivative payment if the payment would lines 8 through 16, on which tax is
Line 16. Other payments—specify.
be treated as a base erosion payment if it imposed under section 871 or 881 and
weren’t made pursuant to a derivative Column (a). Enter the amount paid or with respect to which tax has been
(such as interest, royalty, or services accrued for the tax year by the partnership deducted and withheld under section 1441
income). For a contract with both that hasn’t been included on lines 8 or 1442 at a 30% statutory withholding tax
derivative and nonderivative components, through 15 above. rate.
a payment isn’t a qualified derivative
payment if it’s properly allocable to the Column (b). Enter the amount paid or Line 18(c). Portion of base erosion tax
nonderivative component. accrued to any foreign person that is a benefits reported on lines 6 through
related party of any of the partners that is 16, on which tax is imposed by section
Line 15. Payments reducing gross re- a base erosion payment that hasn’t 871 or 881, with respect to which tax
ceipts made to surrogate foreign cor- otherwise been included on lines 8 has been withheld under section 1441
poration. through 15 above. or 1442 at a reduced withholding rate
pursuant to an income tax treaty.
Column (a). Enter the amount paid or Column (c). Enter the amount of the Multiply the ratio of percentage withheld
accrued by the partnership for the tax year partners' base erosion tax benefits related divided by 30% (0.30) times base erosion
to certain expatriated entities described in to other specified base erosion payments tax benefit. Complete Worksheet B for all
section 59A(d)(4)(C)(i). not listed in any of the categories on lines partnership-related items and attach a
Column (b). Enter the amount paid or 8 through 15 above. Worksheet B to the Schedule K-3 for each
accrued to certain expatriated entities that Attachment. For amounts reported on partner's share of the amounts reported on
results in a reduction of the gross receipts line 16, attach a statement to both the partnership Worksheet B.
of the partnership. This amount includes Schedules K-2 and K-3 (for distributive Complete Worksheet B to determine
payments to a surrogate foreign share) describing the type and amount of the portion of the base erosion tax
corporation that is a related party to the other payments, using the same column benefits, reported on lines 8 through 16,
partner, but only if the entity first became a headings as specified in this schedule: on which tax is imposed under section 871
surrogate foreign corporation after “Total Base Erosion Payment,” “Total or 881 and with respect to which tax has
November 9, 2017. The amount also Base Erosion Tax Benefit.” For each type been deducted and withheld at a reduced
includes payments to a foreign person that of payment, the attachment must identify withholding tax rate (but not exempt from
is a member of the same expanded the relationship of a partner to the foreign tax) pursuant to a U.S. income tax treaty.
affiliated group, as defined in section related party consistent with the Keep a copy of the completed Worksheet
7874(c)(1), as the surrogate foreign categories and instructions for columns (b) B for the partnership’s records.
corporation. A surrogate foreign and (c) of this schedule.
corporation is defined in section 7874(a)
(2)(B) but doesn’t include a foreign Line 17(c). Base erosion tax benefits
corporation that is treated as a domestic related to payments reported on lines
corporation under section 7874(b). 6 through 16, on which tax is imposed

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Worksheet A—Interest Paid or Accrued by the Partnership
                                 (a)                  (b)                     (c)
                            Total Interest Paid or Interest Paid or       Interest Expense Paid 
                            Accrued in the Current  Accrued to Foreign    or Accrued to Foreign 
                            Year                   Related Parties of the Related Parties of the 
                                                   Foreign Partner in the Foreign Partner That Is 
                                                   Current Year           Allowed as a 
                                                                          Deduction in the 
                                                                          Current Year
(1) Interest Expense on 
Liabilities Described in 
Regulations Section 
1.882-5(A)(1)(ii)(A) or (B) 
(Direct Allocations)
(2) Interest Paid on U.S.- 
Booked Liabilities Under 
Regulations Section 
1.882-5(d)(2)(vii)
(3) Interest Paid on All 
Other Liabilities of the 
Partnership
Totals. Combine line (1) 
through line (3)

Worksheet B—Section 2, Line 18, Column (c)

Section 2, Line 18
A                           B                      C                D                  E
Type of base        Amount of base   Treaty-reduced   Divide column C         Multiply column B 
erosion payment     erosion tax      withholding rate by 30% (0.30)           by column D
                    benefit                           (round to 4 
                                                      decimal places)
                                                     %
                                                     %
                                                     %
                                                     %
                                                     %
                                                     %
Add the amounts in column E and enter the total on line 18, column (c)

Inst. for Schedules K-2 and K-3 (Form 8865) (2022)                        -25-

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Index
 
A                            F                            O                             S
Attachment 1 4               Foreign branch category      Ordinary dividends and        Schedule K-2, Identifying 
Attachment 2 4                 income 7                     qualified dividends 8        Information  3
Attachment 3 17              Foreign oil and gas taxes 3  Other deductions  9           Schedule K-3, Identifying 
Attachment 4 17              Foreign tax translation 4    Other income  8                Information  3
Attachment 5 20              Foreign taxes not creditable Other interest expense   9    Section 250 deduction re 
                               but deductible 9           Other international items   6  FDII 13
B                            Foreign taxes paid or        Other Tax Information   13    Section 267A disallowed 
                               accrued to sanctioned                                     deduction  5
Base Erosion and               countries 12               P                             Section 901(j) income               7
  Anti-Abuse Tax  21         Foreign taxes related to                                   Section 951(a)(1) and 
Base Erosion Payments and      PTEP resourced by          Part III. Other Information    Section 951A 
  Base Erosion Tax             treaty 12                    for Preparation of Form      Inclusions   17
  Benefits 22                Foreign-derived DEI on         1116 or 1118  9             Section 951A category 
Box 1. Gain on personal        Form 8993 15               Part IV. Information on        income 7
  property sale.  3          Foreign-derived gross          Partners’ Section 250       Section 986(c) gain and 
                               receipts 15                  Deduction With Respect       loss 8
                                                            to Foreign-Derived 
C                            Foreign-Derived Intangible     Intangible Income           Section 987 gain and loss             8
Capital gains and losses 8     Income (FDII) Deduction      (FDII) 13                   Section 988 gain and loss             8
Charitable contributions 9     apportionment factors   11                               Specific Instructions              3
                                                          Part VI. Information on 
Codes for Classes of PFIC    Form 8621, Information to      Partners' Section 951(a)    Splitter arrangements               3
  Shares 20                    Complete  19                 (1) and Section 951A        Stewardship Expenses                10
Codes for Types of Tax  11   Form 8858 information   5      Inclusions) 17
Collectibles (28%) gain 8    Future Developments   1      Part VII. Information To      T
Collectibles loss 9                                         Complete Form 8621     19
Computer-Generated           G                            Part VIII. Partners'          Table 1. Information on 
  Schedules K-2 and K-3    2 General Instructions 1         Information for Base         Personal Property Sold               3
Country code 7               Gross income  7                Erosion and Anti-Abuse      Taxes assigned to section 
                                                            Tax (Section 59A)   21       951A category                   11
Currency 2                                                                              Total deductions 9
                                                          Partner determination   7
                             H                            Partner’s section 250         Total gross income               8
D                            High-taxed income 4            deduction re FDII   13
DEI and QBAI on Form                                      Partnership                   U
  8993 14                    I                              determination 6             Unrecaptured section 1250 
Distributions from foreign   Income resourced by          Parts of Sch. K-2, in          gain 8
  corporations to              treaty 7                     general   2                 Upstream Loans   6
  partnership 16                                          Parts of Schedules K-2 and 
Downstream loans    6        Interest expense 9
                                                            K-3, in general 2
Dual consolidated loss  6    Interest expense                                           W
                               apportionment factors   10 PFIC, QEF general 
                                                            information 19              What’s New 1
E                            N                            Purchase or creation of       Where to File 2
                                                            property rights for         Who Must File 1
EIN 3                        Net long-term capital gain 8   intangibles 22              Worksheet A, Interest Paid 
Example 1 4                  Net long-term capital loss 9                                or Accrued by the 
Example 2 8                  Net section 1231 gain 8      R                              Partnership  25
Example 3 12                                                                            Worksheet B, Sec. 2, 
Example 5 14                                              R&E expenses  9                Line 18, Column (c)                25
                                                          Rental income 8

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