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Instruksi Bentuk 8865 untuk Jadwal K-2 dan K-3

Instruksi untuk Jadwal K-2 dan K-3 (Form 8865)

Rev. 2023

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Department of the Treasury  
Internal Revenue Service  
2023  
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 Code unless  
otherwise noted.  
Schedule K-2. The information reported on Schedule K-3 is used  
to report information on a partner’s tax or information returns.  
Contents  
Page  
Who Must File  
What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1  
General Instructions . . . . . . . . . . . . . . . . . . . . . . . . . 1  
Specific Instructions . . . . . . . . . . . . . . . . . . . . . . . . . 2  
Schedule K-2, Identifying Information . . . . . . . . . . . . . 2  
Schedule K-3, Identifying Information . . . . . . . . . . . . . 3  
Any person that is required to file Form 8865, Schedule K, for a  
partnership that has items relevant to the determination of U.S.  
tax under the international provisions of the Internal Revenue  
Code (the Code) must complete the relevant parts of Schedules  
K-2 and K-3. See each part and section for a more detailed  
description of who must file each part and section. Penalties may  
apply for filing Form 8865 without all required information. The  
penalties that apply to the Form 8865 and the Schedule K-1  
apply to the Schedules K-2 and K-3, respectively. See Penalties  
in the Instructions for Form 8865.  
Part I. Partnership's Other Current Year  
International Information . . . . . . . . . . . . . . . . . . . 3  
Schedules K-2 and K-3, Parts II and III . . . . . . . . . . . . 6  
Part ll. Foreign Tax Credit Limitations . . . . . . . . . . . . . 7  
Category 1 and Category 2 filers must complete  
Part III. Other Information for Preparation of Form  
Schedule K-1 for any direct interest they hold in the partnership.  
Category 1 filers are also required to complete Schedule K-1 for  
each U.S. person that directly owns a 10% or greater direct  
interest in the partnership. These partners that are required to  
complete a Schedule K-1 must also complete a Schedule K-3 if  
the partnership has items relevant to the determination of U.S.  
tax under the international provisions. Partners may also receive  
Schedule K-3 from Category 1 filers who complete a  
Schedule K-3 on their behalf. Partners should review the  
Partner’s Instructions for Schedule K-3 (Form 1065) for how to  
complete partner tax forms for items reported on Schedule K-3  
(Form 8865).  
1116 or 1118 . . . . . . . . . . . . . . . . . . . . . . . . . . . 9  
Part IV. Information on Partners' Section 250  
Deduction With Respect to Foreign-Derived  
Intangible Income (FDII) . . . . . . . . . . . . . . . . . . 14  
Part V. Distributions From Foreign Corporations to  
Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . 16  
Part VI. Information on Partner's Section 951(a)(1)  
and Section 951A Inclusions . . . . . . . . . . . . . . . 18  
Part VII. Information To Complete Form 8621 . . . . . . 19  
Part VIII. Partners' Information for Base Erosion and  
Anti-Abuse Tax (Section 59A) . . . . . . . . . . . . . . 22  
Note. Except as otherwise required by statute, regulations, or  
other IRS guidance, a U.S. person isn’t required to obtain  
information from direct or indirect partners of the partnership to  
determine if it needs to file each of these parts.  
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26  
Future Developments  
For the latest information about developments related to  
Schedule K-2 (Form 8865) and Schedule K-3 (Form 8865), and  
their instructions, such as legislation enacted after they were  
published, go to IRS.gov/Form8865.  
Note. A U.S. person is only required to complete the relevant  
portions of the Schedules K-2 and K-3, as applicable. For  
example, if the partnership doesn’t own an interest in a foreign  
corporation, the following parts are not required: Schedules K-2  
and K-3, Part V and Part VI.  
What’s New  
Part I, box 7, (formerly required attachment of Form 8858) has  
been reserved for future use.  
Note. Schedules K-2 and K-3 consist of the most common  
international tax provisions of the Code. However, not all  
provisions are specifically identified on these schedules. To the  
extent that an international provision is impacted and isn’t  
otherwise specifically identified, check box 12 on Schedule K-2,  
Part I, and Schedule K-3, Part I, and attach a statement to both  
Schedules K-2 and K-3 (for distributive share).  
Part II: Amounts may now be entered in lines 41–43, columns  
(a)–(e), for interest expense.  
General Instructions  
See the Instructions for Form 8865, as they generally apply to  
the Schedules K-2 and K-3. This document provides additional  
instructions for the Schedules K-2 and K-3 for tax years  
beginning in 2023.  
When and Where To File  
Attach Schedule K-2, and Schedule K-3, if applicable, to Form  
8865 with your income tax return and file by the due date  
(including extensions) for that return. See the Instructions for  
Form 8865 for further information.  
Purpose of Schedules K-2 and K-3  
Schedule K-2 is an extension of Schedule K of the Form 8865  
and is used to report items of international tax relevance from the  
operation of a partnership.  
See the Instructions for Form 8865 for instructions concerning  
amendments or adjustments to Schedules K-2 and K-3.  
Schedule K-3 is an extension of Schedule K-1 (Form 8865)  
and is generally used to report the share of the items reported on  
Jan 4, 2024  
Cat. No. 35339Y  
           
report income adjustments under section 743(b) by source and  
separate category. Partners use the information to figure and  
claim a foreign tax credit on Form 1116 or 1118.  
Computer-Generated Schedules K-2  
and K-3  
Part IV of Schedules K-2 and K-3. Used to report the  
information necessary for the partner to determine its section  
250 deduction for FDII. Partners use the information to claim and  
figure a section 250 deduction for FDII on Form 8993, Section  
250 Deduction for Foreign-Derived Intangible Income (FDII) and  
Global Intangible Low-Taxed Income (GILTI).  
Generally, all computer-generated forms must receive prior  
approval from the IRS and are subject to an annual review.  
However, see the Exception below.  
Requests for approval may be submitted electronically to  
substituteforms@irs.gov or requests may be mailed to:  
Part V of Schedules K-2 and K-3. Used to report  
Internal Revenue Service  
Attention: Substitute Forms Program  
SE:W:CAR:MP:P:TP  
information the partner needs, in combination with other  
information known to the partner, to determine the amount of  
each distribution from a foreign corporation that is treated as a  
dividend or excluded from gross income because the distribution  
is attributable to previously taxed earnings and profits (PTEP) in  
the partner’s annual PTEP accounts for the foreign corporation,  
and the amount of foreign currency gain or loss on the PTEP that  
the partner is required to recognize under section 986(c).  
1111 Constitution Ave. NW  
Room 6554  
Washington, DC 20224  
Exception. If computer-generated Schedules K-2 and K-3  
conform to and do not deviate from the official form and  
schedules, they may be filed without prior approval from the IRS.  
Partners report the dividends and foreign currency gain or  
loss on Form 1040 or Form 1120. If eligible, partners also use  
this information to figure and claim a dividends received  
deduction under section 245A on Form 1120.  
Part VI of Schedules K-2 and K-3. Used to provide  
information the partner needs to determine any inclusions under  
sections 951(a)(1) and 951A. Partners use the information to  
complete Form 8992, U.S. Shareholder Calculation of Global  
Intangible Low-Taxed Income (GILTI), and Forms 1040 and 1120  
for subpart F income inclusions, section 951(a)(1)(B) inclusions,  
and section 951A inclusions.  
Part VII of Schedules K-2 and K-3. Used to provide  
information needed by partners to complete Form 8621,  
Information Return by a Shareholder of a Passive Foreign  
Investment Company or Qualified Electing Fund, and to provide  
partners with information to determine income inclusions for the  
passive foreign investment company (PFIC).  
Important. Be sure to attach the approval letter to  
computer-generated Schedule K-2 or K-3. However, if the  
computer-generated form is identical to the IRS-prescribed form,  
it doesn’t need to go through the approval process, and an  
attachment isn’t necessary.  
Every year, the IRS issues a revenue procedure to provide  
guidance for filers of computer-generated forms. In addition,  
every year, the IRS issues Pub. 1167, General Rules and  
Specifications for Substitute Forms and Schedules, which  
reprints the most recent applicable revenue procedure. Pub.  
1167 is available at IRS.gov/irb/2020-53_IRB#REV-  
PROC-2020-55. The procedures relevant to Form 8865 and  
Schedule K-1 (Form 8865) apply for purposes of Schedules K-2  
and K-3.  
Part VIII of Schedules K-2 and K-3. Used to provide  
information for the partner to figure its base erosion and  
anti-abuse tax (BEAT). Partners will use the information to  
complete Form 8991, Tax on Base Erosion Payments of  
Taxpayers With Substantial Gross Receipts.  
How To Complete Schedules K-2 and K-3  
Reporting currency. Report all amounts in U.S. dollars except  
where specified otherwise.  
Form references. These instructions refer to other forms. If the  
referenced form has been succeeded by another form, the  
references to those prior forms encompass any successor forms.  
References to Form 1040, U.S. Individual Income Tax Return,  
also include Form 1040-SR, U.S. Tax Return for Seniors. Also,  
when Form 1040 is referenced, the part may be relevant for other  
tax returns for noncorporate partners such as Form 1041, U.S.  
Income Tax Return for Estates and Trusts.  
When Form 1120, U.S. Corporation Income Tax Return, is  
referenced, the part may be relevant for other tax returns for  
corporate partners such as Form 1120-L, U.S. Life Insurance  
Company Income Tax Return.  
Specific Instructions  
If the information required in a given section exceeds the  
space provided within that section, do not enter “See  
!
CAUTION  
attached” in the section or leave the section blank.  
Instead, complete all entry spaces in the section and attach the  
remaining information on additional sheets. For all attachments,  
include the part, section, line number, and column of the relevant  
portion of Schedule K-2 and Schedule K-3. The additional  
sheets must conform to the IRS version of that section.  
Uses of the parts of Schedules K-2 and K-3, in general.  
Part I of Schedules K-2 and K-3. Used to report  
international tax items not reported elsewhere on Schedule K-2  
or K-3.  
Schedule K-2, Identifying Information  
At the top of each new page, enter the name of the partnership  
as it appears on Form 8865.  
Part II of Schedules K-2 and K-3. Used to figure the  
partnership’s income or loss by source and separate category of  
income and to report the partner’s distributive share of such  
income or loss. Partners use the information to figure and claim a  
foreign tax credit on Form 1116 or 1118.  
Part III of Schedules K-2 and K-3. Used to report  
information necessary for the partner to determine the allocation  
and apportionment of research and experimental (R&E)  
expense, interest expense, and the foreign-derived intangible  
income (FDII) deduction for the foreign tax credit limitation. Also  
used to report foreign taxes paid or accrued by the partnership  
and the partner's distributive share of such taxes. Also used to  
If the foreign partnership has an employer identification  
number (EIN), enter the EIN as it appears on Form 8865 at the  
top of each new page. Do not enter “FOREIGNUS” or “APPLIED  
FOR.Enter the reference ID number used on Form 8865, item  
G2(b). For details, see the instructions for Form 8865, item  
G2(b). Do not enter “FOREIGNUS” or “APPLIED FOR” for the  
reference ID number.  
Item A—Part applicability. Check the “Yes” box to indicate the  
applicable parts of Schedules K-2 and K-3. Complete and attach  
each applicable part to the Form 8865 and the Schedule K-1  
(Form 8865), respectively.  
2
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
               
Check the “No” box to indicate the inapplicable parts of  
Schedules K-2 and K-3. Do not complete and attach the  
inapplicable parts to the Form 8865 and the Schedule K-1 (Form  
8865), respectively.  
shown in Table 1. If the gain is capital, enter “long-term” or  
“short-term” in column (b). Enter the two-letter code from the list  
at IRS.gov/CountryCodes in column (f). Don’t enter “various” or  
“OC” for the country code. If the property sale is taxed by more  
than one country, complete a separate line for that country, but  
indicate in some manner (for example, a footnote) that the  
property entered on both lines is the same property.  
Schedule K-3, Identifying Information  
Items A and B. Items A and B should be the same as reported  
on Schedule K-1, Part I, items A1 or A2 and B. Enter the  
information reported on Schedule K-1, Part I, item A1. If there is  
no entry in item A1, then enter the information in item A2.  
Box 2. Foreign oil and gas taxes. A separate foreign tax  
credit limitation is applied for foreign oil and gas taxes. See  
section 907(a) and Regulations section 1.907(a)-1 for details. If  
the partnership has such taxes, check box 2 and attach a  
completed Schedule I (Form 1118) to the Schedules K-2 and  
K-3 (with the partner’s distributive share). Do not complete  
Schedule I (Form 1118), Part I, column 12; Part II, lines 2 through  
4; or Part III, lines 1 and 3. Attach Schedule I (Form 1118) even if  
there are no corporate partners because the limitation applies to  
individuals eligible to claim a foreign tax credit.  
Items C and D. Items C and D should be the same as reported  
on Schedule K-1, Part II, items C and D1.  
Item E. Item E should correspond to Schedule K-2, Identifying  
Information, item A.  
Schedule K-2, Part I (Partnership's Other  
Current Year International Information), and  
Schedule K-3, Part I (Partner's Share of  
Partnership’s Other Current Year International  
Information)  
Box 3. Splitter arrangements. Foreign taxes for a foreign tax  
credit splitting event are suspended until the related income is  
taken into account by the taxpayer. See section 909. There is a  
foreign tax credit splitting event for foreign taxes of a payor if in  
connection with a splitter arrangement, as defined in Regulations  
section 1.909-2(b), the related income was, is, or will be taken  
into account by a covered person. See Regulations section  
1.909-2(a). A covered person, as defined in Regulations section  
1.909-1(a)(4), includes, for example, any entity in which the  
payor holds, directly or indirectly, at least a 10% ownership  
interest (determined by vote or value). A payor, as defined in  
Regulations section 1.909-1(a)(3), includes, for example, a  
person that takes foreign income taxes paid or accrued by a  
partnership into account pursuant to section 702(a)(6).  
This part is used to report information for international tax items  
not reported elsewhere on the Schedule K-2. Check the box to  
indicate whether any of the following international tax items are  
applicable in the tax year. If applicable, attach statements, as  
described below, to the Schedule K-2.  
If applicable, also complete Schedule K-3, Part I, and include  
with the Schedule K-3 the attachment(s) as described below  
with the partner's distributive share of the amounts.  
Box 1. Gain on personal property sale. In general, income  
from the sale of personal property is sourced according to the  
residence of the seller. See section 865. For sourcing purposes,  
personal property sold by the partnership is treated as sold by  
the partners. See section 865(i)(5). A U.S. citizen or resident  
alien individual with a tax home (as defined in section 911(d)(3))  
in a foreign country is treated as a nonresident for the sale of  
personal property only if an income tax of at least 10% of the  
gain derived from the sale is actually paid to a foreign country for  
that gain. See section 865(g). In addition, if a U.S. resident  
maintains an office or other fixed place of business in a foreign  
country, income from the sale of personal property attributable to  
such office or other fixed place of business is foreign source only  
if an income tax of at least 10% of the income from the sale is  
actually paid to a foreign country for such income.  
If the partnership has income from the sale of personal  
property (other than inventory, depreciable personal property,  
and certain intangible property excepted from the general rule of  
section 865(a)), and the partnership pays income tax to a foreign  
country for income from the sale or the income is eligible for  
resourcing under an applicable treaty, check box 1 and attach a  
statement to Schedules K-2 and K-3 (for distributive share) with  
Table 1.  
Report foreign taxes that are potentially suspended on  
Schedule K-2, Part III, Section 4, line 2E, and each partner's  
share of such taxes on Schedule K-3, Part III, Section 4, line 2E.  
It may not be possible to determine whether taxes are  
suspended and whether related income is taken into account.  
However, where it is possible to determine that taxes are  
potentially suspended, or potentially unsuspended, it must report  
such taxes and the information requested in these instructions  
for box 3.  
For example, where a partnership owns a reverse hybrid and  
the foreign country assesses tax on the partnership for income  
earned by the reverse hybrid, such taxes are potentially  
suspended taxes.  
Check box 3 and attach a statement to Schedules K-2 and  
K-3 that includes the following for each splitter arrangement in  
which the partnership participates that would qualify as a splitter  
arrangement under section 909 if one or more partners are  
covered persons for an entity that took into account related  
income from the arrangement.  
Section 1 of attached statement—Potentially suspended  
taxes.  
1. Explanation of the splitter arrangement (for example,  
reverse hybrid owned by partnership).  
The partnership may combine sales of stock property by  
country. Otherwise, don’t combine sales of property. Each item  
of property sold must be listed separately with the information  
2. Amount of taxes paid or accrued by the partnership in  
connection with the splitter arrangement.  
Table 1. Information on Personal Property Sold (For use with Sch. K-2 (Form 8865), Part I, box 1) (Also  
for use with Sch. K-3 (Form 8865), Part I, box 1)  
(a) Property description  
(b) Long-term/short-term  
(c) Gains  
(d) Amount of tax paid (e) Amount of tax paid in U.S. (f) Taxing country  
in local currancy  
dollars  
(enter two-letter  
country code)  
3
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
           
Attachment 1  
Reference: Regulations section 1.904-4(c)(3)  
I. Passive Income Net of Allocable Expenses  
II. Taxes  
A
B
Passive income subject to withholding tax of  
15% or more  
Passive income subject to withholding tax of  
less than 15% but greater than zero  
C
D
Passive income not subject to any foreign tax  
Passive income subject to no withholding tax,  
but subject to other foreign tax  
Attachment 2  
Reference: Regulations section 1.904-4(c)(4)  
A
Name of foreign QBU  
(Complete a separate Attachment 2 for each  
foreign QBU)  
I. Passive Income Net of Allocable Expenses  
II. Taxes  
B
C
Passive income subject to withholding tax of  
15% or more  
Passive income subject to withholding tax of  
less than 15% but greater than zero  
D
E
Passive income not subject to any foreign tax  
Passive income subject to no withholding tax,  
but subject to other foreign tax  
3. Amount of related income on which such taxes were paid  
or accrued.  
4. The two-letter code for the country to which the taxes  
were paid or accrued from the list at IRS.gov/CountryCodes. Do  
not enter “various” or “OC” for the country code.  
Box 5. High-taxed income. If the partnership has passive  
income, check the box for item 5 and attach a statement to  
Schedules K-2 and K-3 with Attachment 1 or 2, or both,  
completed. This information helps to determine whether a  
partner’s passive income is high-taxed passive income.  
5. The separate category and source of income to which the  
Income received or accrued by a U.S. person that would  
otherwise be passive income isn’t treated as passive income if  
the income is determined to be high-taxed income. See section  
904(d)(2)(B)(iii)(II). To determine if income is high-taxed income,  
a partner must group its shares of items of passive income from  
a partnership according to the rules in Regulations sections  
1.904-4(c)(3) and (4).The grouping rules of paragraph (c)(3)  
apply separately to income attributable to each foreign qualified  
business unit (QBU) as defined in section 989(a) of a foreign  
partnership.  
taxes are assigned.  
Section 2 of attached statement—Potentially  
unsuspended taxes. Include a separate section that reports  
the following for each splitter arrangement for which the  
partnership has taken into account any related income.  
1. Origin year of the splitter arrangement.  
2. Explanation of the splitter arrangement (for example,  
reverse hybrid owned by partnership).  
3. Amount of taxes paid or accrued by the partnership in  
connection with the splitter arrangement in the origin year of the  
splitter arrangement.  
Note. Passive income isn’t treated as subject to a withholding  
tax or other foreign tax when a credit is disallowed in full for such  
foreign tax, for example, under section 901(k).  
4. Amount of related income on which such taxes were paid  
Example 1. Part I, box 5: high-taxed income. In Year 1, FP,  
a foreign partnership, has two domestic corporate partners with  
equal interests in the partnership. In Year 1, FP receives $100 of  
passive dividend income from a noncontrolled 10%-owned  
foreign corporation subject to a 15% withholding tax. FP also  
receives $150 of passive interest income from an unrelated  
person subject to a 30% withholding tax. FP incurs $80 of  
expenses that are allocable to the interest income. FP also  
receives $50 of passive dividend income from a controlled  
foreign corporation (CFC) which isn’t subject to tax. No  
expenses are allocable to the dividend income. FP's branch  
operation in Country X that is treated as a QBU under section  
989(a) receives $100 of passive dividend income subject to a  
15% withholding tax. Finally, FP earns $400 of passive income  
for its branch operation in Country X that is treated as a QBU  
under section 989(a). Such income is subject to foreign tax (but  
not withholding tax) of $40. Expenses of $120 are allocable to  
or accrued in the origin year of the splitter arrangement.  
5. The two-letter code for the country to which the taxes  
were paid or accrued from the list at IRS.gov/CountryCodes.  
Don’t enter “various” or “OC” for the country code.  
6. The separate category and source of income to which the  
taxes are assigned.  
7. Amount of related income taken into account in the  
current tax year and the amount of taxes originally paid that  
relate to that portion of the related income.  
Box 4. Foreign tax translation. If any foreign taxes are  
reported on Schedules K-2 and K-3, Part III, Section 4, check the  
box for item 4 and attach to Schedules K-2 and K-3 the  
statement described in the instructions for those sections.  
4
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
       
Attachment 1 for Example 1  
Reference: Regulations section 1.904-4(c)(3)  
I. Passive Income Net of Allocable  
Expenses  
II. Taxes  
A
B
Passive income subject to  
$170  
$60  
0
withholding tax of 15% or more  
Passive income subject to  
withholding tax of less than 15%  
but greater than zero  
0
C
D
Passive income not subject to  
any foreign tax  
50  
0
0
0
Passive income subject to no  
withholding tax, but subject to  
other foreign tax  
Attachment 2 for Example 1  
Reference: Regulations section 1.904-4(c)(4)  
A
Name of foreign QBU: Country X QBU  
(Complete a separate Attachment 2 for each  
foreign QBU)  
I. Passive Income Net of Allocable Expenses  
II. Taxes  
B
C
Passive income subject to withholding tax of  
15%  
100  
0
15  
0
Passive income subject to withholding tax of  
less than 15% but greater than zero  
D
E
Passive income not subject to any foreign tax  
0
0
Passive income subject to no withholding tax,  
but subject to other foreign tax  
280  
40  
the distributive share of branch income. No expenses are  
allocable to the dividend income.  
For Year 1, the U.S. person filing Form 8865 checks box 5 on  
Part I of Schedule K-2 (Form 8865) and attaches Attachments 1  
and 2 to Schedule K-2.  
FP’s owner completes the same attachments with the  
distributive shares and attaches those attachments to each  
Schedule K-3.  
Note for boxes 8 and 9. If the Form 8865 filer meets an  
exception, such as the multiple filer exception, to filing Form  
5471, Information Return of U.S. Persons With Respect to  
Certain Foreign Corporations, the filer isn’t required to complete  
and attach that form. However, the filer must still attach to the tax  
return of the U.S. person filing Form 8865 any required  
statements to qualify for the exception to filing the Form 5471.  
Box 8. Form 5471 information. If applicable, check box 9 and  
attach to Form 8865 and Schedule K-3 any Forms 5471. See the  
Partnership Instructions for Schedules K-2 and K-3 (Form 1065)  
for applicability.  
Box 6. Section 267A disallowed deduction. Check box 6 if  
the partnership paid or accrued any interest or royalty for which  
the U.S. person filing the Form 8865 knows, or has reason to  
know, that one or more of the partnership’s partners isn’t allowed  
a deduction under section 267A. In addition, on Schedule K-3  
filed for such partners, the U.S. person filing Form 8865 should  
check box 6 in Part I and attach to the Schedule K-3 a statement  
titled "Section 267A Disallowed Deduction" that separately lists  
the following information.  
Box 9. Other forms. If any other international tax forms are  
applicable, check box 9 and attach the form(s) to Form 8865 and  
Schedule K-3. See the Partnership Instructions for Schedules  
K-2 and K-3 (Form 1065) for applicability.  
Box 10. Partner loan transactions. Check this box and  
append the completed attachment to Schedules K-2 and K-3 if  
either the partnership (a) received a loan from its partner (or a  
member of the partner’s affiliated group) (“downstream loan”), as  
described in Regulations section 1.861-9(e)(8); or (b) loaned an  
amount to its partner (or a member of the partner’s affiliated  
group) (“upstream loan”), as described in Regulations section  
1.861-9(e)(9).  
Downstream loans. On an attached statement, provide the  
details of any downstream loans from a partner or a member of  
the partner’s affiliated group, including the amount of interest  
expense paid or accrued by the partnership. Report the  
information separately for each separate loan. The reporting  
should be as follows in Table 2.  
A. The amount of interest paid or accrued by the partnership  
for which the partner isn’t allowed a deduction under section  
267A.  
B. The amount of royalty paid or accrued by the partnership  
for which the partner isn’t allowed a deduction under section  
267A.  
C. The extent to which information reported on other parts of  
the Schedule K-3 (for example, a line in Part II, Section 2)  
reflects interest or royalty for which the partner isn’t allowed  
a deduction under section 267A.  
When completing other parts of Schedules K-2 and K-3  
(for example, a line in Part II, Section 2), list an amount  
!
CAUTION  
without regard to whether the partner is disallowed a  
deduction under section 267A for the amount.  
5
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
   
and K-3, Parts II and III, must be completed unless the  
Table 2. Downstream Loans  
partnership doesn’t have a direct or indirect partner eligible to  
claim a foreign tax credit or the direct or indirect partner wouldn’t  
have to file a Form 1116 or Form 1118 to claim a credit. See  
section 904(j) and further discussion in the next paragraphs. This  
requirement applies regardless of whether the partnership pays  
or accrues foreign taxes because other information, such as the  
source of the partnership’s income and the value of its assets, is  
relevant in determining the partner’s foreign tax credit. A partner  
that is eligible to claim a foreign tax credit includes a domestic  
corporation, a U.S. citizen or resident, U.S. citizen or resident  
beneficiaries of domestic trusts and estates, certain foreign  
corporations, and certain nonresident individuals. See sections  
901 and 906. An indirect partner includes a partner that owns the  
partnership through a pass-through entity (for example, a  
partnership, an S corporation, or a trust (see Regulations section  
1.904-5(a)(4)(iv) for the definition of pass-through entity)). An  
indirect partner also includes a partner that owns the partnership  
through a foreign corporation. See sections 960 and 1293(f). If  
there is insufficient information, a direct or indirect partner must  
presume such partner is eligible to claim a foreign tax credit and  
such partner would have to file a Form 1116 or 1118 to claim a  
credit. Accordingly, the Schedules K-2 and K-3 must be  
completed.  
Name of  
Lender  
Lender’s  
TIN  
Date  
of  
Amount  
of  
Interest  
Expense  
for the  
Year  
Loan  
Loan  
If there are any partners in the same affiliated group as the  
lender, attach a statement to each of the Schedules K-2 and K-3  
to expand the columns in the table to include the information  
requested in the first two columns for each such partner.  
Upstream loans. On the attached statement, provide the  
details for any upstream loans to its partner or a member of the  
partner’s affiliated group, including the amount of interest income  
received or accrued by the partnership. Report the information  
separately for each separate loan. The reporting should be as  
follows in Table 3.  
Table 3. Upstream Loans  
Name of  
Borrower  
Borrower’s  
TIN  
Date  
of  
Loan  
Amount  
of  
Loan  
Interest  
Income  
for the  
Year  
On Schedule K-2, Parts II and III, report the partnership’s  
gross income, gross receipts, cost of goods sold, certain  
deductions, and taxes by source and separate category. Also  
report information that the partner uses to allocate and apportion  
expenses and determine the source of certain items of gross  
income and gross receipts. Unless specifically noted below,  
report on Schedule K-3, Parts II and III, the partner's share of the  
partnership's gross receipts, gross income, cost of goods sold,  
certain deductions, and taxes by source and separate category.  
The partner adds its share of the partnership's foreign source  
gross receipts, gross income, cost of goods sold, certain  
deductions, and taxes by separate category to its other foreign  
source gross receipts, gross income, cost of goods sold, certain  
deductions, and taxes in that separate category to figure its  
foreign tax credit. Also report on the Schedule K-3 the  
If there are any partners in the same affiliated group as the  
borrower, attach a statement to each of the Schedules K-2 and  
K-3 to expand the columns in the table to include the information  
requested in the first two columns for each such partner.  
Box 11. Dual consolidated loss. Check box 11 if either (a)  
the partnership directly or indirectly owns a foreign branch (as  
defined in Regulations section 1.367(a)-6T(g)) or an interest in a  
hybrid entity (as defined in Regulations section 1.1503(d)-1(b)  
(3)), or (b) the partnership is a hybrid entity (as defined in  
Regulations section 1.1503(d)-1(b)(3)). However, box 11 should  
not be checked if neither the U.S. person filing Form 8865 nor  
any partner for which a Schedule K-3 is filed is a domestic  
corporation (other than a regulated investment company (RIC), a  
real estate investment trust (REIT), or an S corporation). A  
domestic corporate partner’s interest in the partnership or its  
indirect interest in a foreign branch or hybrid entity may be  
treated as a separate unit and subject to the dual consolidated  
loss (DCL) rules pursuant to Regulations sections 1.1503(d)-1  
through 1.1503(d)-8.  
distributive share of expenses and the allocation and  
apportionment factors the partner uses to determine expenses  
allocated and apportioned to foreign source income.  
Partnership determination. The source and separate  
category of certain gross income, gross receipts, and cost of  
goods sold, as well as the allocation and apportionment of  
certain deductions, can be determined for the partnership. This  
includes deductions that are definitely related to certain gross  
income of the partnership. See Regulations section 1.861-8(b)  
(1). See Schedule K-2, Part II, columns (a) through (e); Part III,  
Section 1, columns (a) through (e); Part III, Section 3, columns  
(a) through (d); and Part III, Section 5, columns (a) through (f). In  
Part III, Section 2, columns (a) through (e), some partnership  
assets may be characterized by source and separate category  
according to the partnership. This includes certain assets that  
attract directly allocated interest expense under Temporary  
Regulations sections 1.861-10T(b) and (c). See Temporary  
Regulations section 1.861-10T(d)(2).  
Box 12. Other international items. If the partnership has  
transactions, income, deductions, payments, or anything else  
that is impacted by the international tax provisions of the Code  
and such events aren’t otherwise reported on this part or other  
parts of Schedules K-2 and K-3, report that information on a  
statement attached to Schedules K-2 and K-3 and check box 12.  
For box 12, file Form 926, Return by a U.S. Transferor of  
Property to a Foreign Corporation.  
Don’t report for box 12:  
In Part III, Section 4, in the U.S. and Foreign columns, assign  
foreign taxes paid or accrued to a separate category and source.  
Form 8804, Annual Return for Partnership Withholding Tax;  
and  
The partner's distributive share of the amounts reported on  
Schedule K-2 is reported on equivalent columns in  
Schedule K-3, Parts II and III.  
Certain gross receipts, gross income, cost of goods sold,  
assets, deductions, and taxes are not assigned to a source or  
separate category for the partnership. See Partner  
determination, later.  
Form 8805, Foreign Partner’s Information Statement of  
Section 1446 Withholding Tax.  
These forms are separately filed.  
Schedules K-2 and K-3, Parts II and III  
Note. This information is relevant to partners computing a  
foreign tax credit on Form 1116 or Form 1118. Schedules K-2  
6
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
         
Foreign branch category income. Report all gross receipts,  
gross income, cost of goods sold, and deductions that are  
foreign branch category income. See Regulations section  
1.904-4(f). Report all income that would be foreign branch  
category income of its partners as if all partners were U.S.  
persons that are not pass-through entities. See Schedule K-2,  
Part II, column (b); Part III, Sections 1 and 2, column (b); and  
Part III, Sections 4 and 5, column (c). The partner's distributive  
share of the amounts reported on the Schedule K-2 are reported  
on equivalent columns in Schedule K-3, Parts II and III.  
Schedule K-3. Any amounts reported on Schedule K-2 as  
foreign branch category income should be reported as general  
category income on the Schedule K-3, Parts II and III, provided  
to foreign individuals and foreign corporations.  
Partner determination. In Schedule K-2, Part II, column (f);  
Part III, Section 1, column (f); Part III, Section 3, lines 1 and 2,  
column (e); and Part III, Section 5, column (g), enter the gross  
income, income adjustments, and gross receipts of the  
partnership that are required to be sourced by the partner. This  
includes income from the sale of most personal property other  
than inventory, depreciable property, and certain intangible  
property sourced under section 865. This also includes certain  
foreign currency gain on section 988 transactions. See the  
instructions for Forms 1116 and 1118 and Pub. 514, Foreign Tax  
Credit for Individuals, for additional details. In Schedule K-2, Part  
II, column (f); and Part III, Section 3, lines 3 and 4, column (e),  
include deductions that are allocated and apportioned by the  
partner. This includes most interest expense and R&E expense.  
See Regulations sections 1.861-9(e) and 1.861-17(f). In  
Schedule K-2, Part III, Section 2, column (f), enter the assets that  
are assigned to a source and separate category by the partner.  
In Schedule K-2, Part III, Section 4, in the Partner column, enter  
the foreign taxes that are assigned to a source of income by the  
partner. This includes taxes imposed on certain sales income.  
The partner's distributive share of the amounts reported on  
Schedule K-2 are reported in equivalent columns on  
Section 901(j) income. Income derived from each sanctioned  
country is subject to a separate foreign tax credit limitation. If the  
partnership derives such income, enter code "901j" on the line  
after “category code.See Schedule K-2, Part II, Sections 1 and  
2, column (e); Part III, Sections 1 and 2, column (e); Part III,  
Section 3, column (d); and Part III, Sections 4 and 5, column (f).  
The partner's distributive share of the amounts reported on  
Schedule K-2 are reported in equivalent columns on  
Schedule K-3, Parts II and III.  
Schedule K-3, Parts II and III. See the Instructions for Form 1118  
for the potential countries to be listed with the section 901(j)  
category of income.  
Schedule K-2, Part II, and Schedule K-3, Part II  
(Foreign Tax Credit Limitation)  
Section 1. Lines 1 Through 24. Total Gross Income  
Note. As of the date of these instructions, section 901(j) is the  
only category reported on Part II, Sections 1 and 2, column (e);  
Part III, Sections 1 and 2, column (e); and Part III, Section 5,  
column (f).  
Form 1118, Schedule A, requires a corporation to separately  
report certain types of gross income and gross receipts by  
source and separate category. Separate reporting is required  
because each type of gross income and gross receipts has a  
different sourcing rule. See sections 861 through 865 (and  
section 904(h) and, in some cases, U.S. income tax treaties).  
Schedules K-2 and K-3, Part II, Section 1, generally follow the  
separately reported types of gross income and gross receipts on  
Schedule A. Individuals must follow the same sourcing rules, but  
Form 1116 only requires reporting of total gross income from  
foreign sources by separate category.  
Section 951A category income. Section 951A category  
income is any amount of global intangible low-taxed income  
(GILTI) includible in gross income under section 951A (other  
than passive category income). (Section 951A category income  
doesn’t include passive category income.) If the partnership  
pays or accrues tax on the receipt of a distribution of PTEP  
assigned to the reclassified section 951A PTEP group or section  
951A PTEP group, these taxes must be assigned to section  
951A category income.  
The U.S. person completing Form 8865 will enter code  
"951A" on Part III, Section 4, column (b). This code isn’t utilized  
in other portions of Parts II and III.  
So, those required to file Form 1116 will report line 24 by  
country on their Form 1116, Part I, line 1a. Section 1 also  
generally follows the types of gross income and gross receipts  
separately reported on Form 8865, Schedule K.  
Income resourced by treaty. If a sourcing rule in an  
applicable income tax treaty characterizes any U.S. source  
income as foreign source, and there is an election to apply the  
treaty, the income will be treated as foreign source. This  
category applies if the partnership pays or accrues foreign taxes  
on receipt of a distribution of PTEP that is sourced from an  
annual PTEP account that corresponds to the separate category  
relating to U.S. source income included under section 951(a)(1)  
and resourced as foreign source income under a treaty.  
For each line, report the total for each country in column (g).  
Country code. Forms 1116 and 1118 require the taxpayer to  
report the foreign country or U.S. territory for which the gross  
income and gross receipts are sourced. On lines 1 through 24,  
for each gross income and gross receipts item, enter on a  
separate line (A, B, or C) the two-letter code from the list at  
IRS.gov/CountryCodes for the foreign country or U.S. territory  
within which the gross income and gross receipts are sourced. If  
a type of income is sourced from more than three countries,  
attach a schedule with the information required on Schedules  
K-2, Part II, and Schedule K-3, Part II, for that type of income.  
The designations below are only relevant for Part III, Section  
4, column (f).  
Code “RBT PAS.” If an applicable income tax treaty  
characterizes any U.S. source passive category income as  
foreign source passive category income, and there is an election  
to apply the treaty, enter code “RBT PAS.”  
If income is U.S. source, enter “US.Do not enter “various” or  
“OC” for the country code.  
Code “RBT GEN. If an applicable income tax treaty  
characterizes any U.S. source general category income as  
foreign source general category income, and there is an election  
to apply the treaty, enter code “RBT GEN.”  
Note. In Part II, column (f), enter the code “XX” if the country or  
U.S. territory for which the gross income and gross receipts are  
sourced by the ultimate non-pass-through entity partner and the  
filer can’t determine the source. However, don’t enter the code  
“XX” in Part II, column (f), if an income tax of at least 10% of the  
gain derived from the sale is actually paid to a foreign country for  
that gain. See sections 865(e) and 865(g). Instead, enter in Part  
II, column (f), the foreign country to which the partnership paid  
the income tax equal to at least 10% of the gain.  
Code “RBT 951A. If an applicable income tax treaty  
characterizes any U.S. source section 951A category income as  
foreign source section 951A category income, and there is an  
election to apply the treaty, enter code “RBT 951A.”  
7
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
             
Each gross income and gross receipts item (for example,  
sales vs. interest income) may have different countries listed on  
A, B, C, etc., given that the partnership might not have sales  
income and interest income, for example, from the same country.  
Line 24 should sum each country’s total income reported on Part  
II, regardless of the line on which such income is reported,  
whether A, B, C, etc.  
Exceptions. The instructions for Forms 1116 and 1118  
specify exceptions from the requirement to report gross income  
and gross receipts by foreign country or U.S. territory regarding  
RICs and section 863(b). See the instructions for Forms 1116  
and 1118 for these exceptions that apply in completing the  
Schedules K-2 and K-3, Parts II and III. Don’t enter a foreign  
country or U.S. territory (to report on a country-by-country basis)  
for lines 16 through 18.  
Example 3. Table 1  
Short- term capital  
gains/losses  
Total  
$900  
U.S. source  
$1,000  
$400  
Passive category  
(France)  
Passive category  
(Canada)  
($300)  
($200)  
Passive category  
(Halti)  
These amounts are reported on Schedule K-2, Part II, Section  
11, as follows.  
Note. Schedules K-2 and K-3 request that gross income and  
gross receipts be reported by country or U.S. territory because  
such information is requested on Forms 1116 and 1118. Income  
and taxes are reported by country on the Forms 1116 and 1118  
so that the IRS may initially evaluate whether taxpayers are  
claiming credits for compulsory payments to foreign  
Example 3. Table 2  
(a) U.S.  
source  
(b) Foreign  
source  
passive  
governments.  
Example 2. In Year 1, FP, a foreign partnership, has  
employees who perform services in Country X and Country Y. FP  
earns $25,000 of general category services income, $10,000 for  
Country X and $15,000 for Country Y. The two-letter code for  
Country X is XX and the two-letter country code for Country Y is  
YY. The U.S. person filing Form 8865 makes the following entries  
on the first two lines of Schedule K-2, Part II, line 2.  
Line 11  
A US  
B FR  
$1,000  
$400  
C CA  
D HA  
($300)  
($200)  
Example 2 Table  
Line 12. Net long-term capital gain. Don’t include gains  
reported on lines 13, 14, and 15 on line 12.  
Description  
(d)  
Line 13. Collectibles (28%) gain. Report collectibles gain on  
A
B
XX  
YY  
$10,000  
$15,000  
line 13 and not line 12.  
Line 14. Unrecaptured section 1250 gain. Report  
unrecaptured section 1250 gain on line 14 and not on line 12. If  
gain is both unrecaptured section 1250 gain and net section  
1231 gain, report the gain on line 14 and not on line 15, but  
include an attachment indicating the amount of unrecaptured  
section 1250 gain that is also net section 1231 gain.  
Lines 3 and 4. Rental income. These lines are reported  
separately because they are reported separately on Form 8865,  
Schedule K. The sourcing rule may be the same for both types of  
rental income.  
Line 15. Net section 1231 gain. Report net section 1231 gain  
on line 15 and not on line 12 unless such amount is also  
unrecaptured section 1250 gain. See the instructions for line 14.  
Lines 7 and 8. Ordinary dividends and qualified dividends.  
Enter only ordinary dividends on line 7 and only qualified  
dividends on line 8.  
Lines 16 and 46. Section 986(c) gain and loss. Report the  
partnership’s share of a lower-tier pass-through entity’s section  
986(c) gain or loss. This isn’t reported as a net amount but rather  
total section 986(c) gains for the year are reported on line 16.  
Total section 986(c) losses for the year are reported on line 46.  
Note. The amount of distributions which are attributable to  
PTEP in annual PTEP accounts of a direct or indirect partner  
isn’t determined by the partnership and so isn’t taken into  
account for purposes of determining the ordinary dividends to be  
entered on line 7 or the qualified dividends to be entered on  
line 8.  
Note. Don’t figure or report foreign currency gain or loss under  
section 986(c) for distributed PTEP sourced from an annual  
PTEP account of a person other than the partnership (for  
example, a partner).  
Lines 11 through 15 and 27 through 30. Capital gains and  
losses. These lines generally match the types of gains and  
losses reported separately on Form 8865, Schedule K. Further,  
section 904(b)(2)(B) contains rules regarding adjustments to  
account for capital gain rate differentials (as defined in section  
904(b)(3)(D)) for any tax year.  
Lines 17 and 47. Section 987 gain and loss. The source of  
section 987 gain or loss is generally determined by reference to  
the source of the income or asset giving rise to such gain or loss.  
It’s also possible to obtain section 987 gain or loss information  
from Form 8858. This isn’t reported as a net amount but rather  
total section 987 gains for the year are reported on line 17. Total  
section 987 losses for the year are reported on line 47.  
Example 3. Part II and III: capital gains and losses.  
Partnership has the following amounts for the tax year 2023.  
Lines 18 and 48. Section 988 gain and loss. The source of  
foreign currency gain or loss on section 988 transactions is  
generally determined by reference to the residence of the  
taxpayer or QBU on whose books the asset, liability, or item of  
income or expense is properly reflected. If the source is  
determined by reference to the residence of the taxpayer  
8
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
                     
partner, the section 988 gain and loss would be reported in  
column (f).  
certain exceptions, and included in column (f). See Temporary  
Regulations section 1.861-9T(e)(1).  
Interest expense incurred by certain individuals, estates, and  
trusts is characterized based on the categories of interest  
expense in sections 163 and 469: active trade or business  
interest, investment interest, or passive activity interest, adjusted  
for any interest expense directly allocated under Temporary  
Regulations section 1.861-10T. See Regulations section  
1.861-9T(d). The amounts in each category of interest expense  
are reported on lines 41 through 43. See the Partnership  
Instructions for Schedules K-2 and K-3 (Form 1065) for an  
example. Also see the Partnership Instructions for Schedules  
K-2 and K-3 (Form 1065) for instances when interest expense  
may reduce passive category income or income in other  
categories and an attachment may be necessary. If the  
partnership's only partners are corporate partners, do not report  
the partnership’s interest expense by the categories of interest  
expense in sections 163 and 469. All such interest expense may  
be reported as business interest expense on line 41.  
Line 20. Other income. Attach a statement to both Schedules  
K-2 and K-3 describing the amount and type of other income.  
The statement must conform to the format of Part II.  
Line 24. Total gross income. Enter the total gross income  
received from all sources on line 24. Then, add the gross income  
on lines 1 through 23 by country or U.S. territory and enter the  
total by country in rows A, B, and C (and additional rows if more  
than three countries). The sum of the amounts in rows A, B, C,  
etc., doesn’t need to equal the amount on line 24 given that not  
every gross income amount is required to be reported by  
country.  
Line 28. Net long-term capital loss. Don’t include losses  
reported on line 29.  
Line 29. Collectibles loss. Report collectibles loss on line 29  
and not on line 28.  
Exception. See Regulations sections 1.861-9(e)(8) and (9)  
for a special rule for partnership loans. See also the instructions  
for box 10 of Part I.  
Section 2. Lines 25 Through 54. Total Deductions  
Form 1118, Schedule A, requires a corporation to separately  
report certain types of deductions and losses by source and  
separate category. Separate reporting is required because each  
type of deduction may be allocated and apportioned according  
to a different methodology. See, for example, Regulations  
sections 1.861-8 through -20 and Temporary Regulations  
sections 1.861-8T and -9T. For purposes of allocating and  
apportioning expenses, in general, a partner adds the  
distributive share of the partnership's deductions to its other  
deductions incurred directly by the partner. See Regulations  
section 1.861-8(e)(15). Generally, Section 2 follows the  
separately reported types of deductions and losses on Form  
1118, Schedule A. Individuals must generally follow the same  
expense allocation and apportionment rules, but Form 1116 only  
requires separate reporting of certain deductions by separate  
category. See Form 1116, Part I, lines 2 through 5. Generally,  
Section 2 also corresponds to the deductions separately  
reported on Form 8865, Schedule K.  
Note. Interest expense is always included on lines 39 through  
43 and not on other lines.  
Line 45. Foreign taxes not creditable but deductible. See  
the instructions for Forms 1116 and 1118 for examples of foreign  
taxes that are not creditable but deductible.  
Note. Foreign taxes that are creditable (even if a partner  
chooses to deduct such taxes) are not reported as expenses on  
Part II. Creditable taxes are reported on Part III, Section 4.  
Lines 49 and 50. Other deductions. Attach to the Schedules  
K-2 and K-3 a statement describing the amount and type of  
other deductions. The statement must conform to the format of  
Part II.  
Schedule K-2, Part III, and Schedule K-3, Part III  
(Other Information for Preparation of Form 1116  
or 1118)  
Line 32. R&E expenses. In general, R&E expenses are  
allocated and apportioned by the partner and reported in column  
(f). See Regulations section 1.861-17(f). R&E expenses, as  
described in section 174, are ordinarily definitely related to gross  
intangible income reasonably connected with relevant broad  
product categories of the taxpayer and are allocable to gross  
intangible income as a class related to such product categories.  
The product categories are determined by reference to the  
three-digit classification of the Standard Industrial Classification  
Section 1. R&E Expenses Apportionment Factors  
This information is relevant to partners to allocate and apportion  
its R&E expense for foreign tax credit limitation purposes.  
A Form 8865 filer isn’t required to complete Section 1 of Part  
III unless either (a) the partnership incurs R&E expense; or (b)  
the partner is expected to license, sell, or transfer its intangible  
property to the partnership (as provided in Regulations section  
1.861-17(f)(3)).  
Line 38. Charitable contributions. Charitable contribution  
deductions are apportioned solely to U.S. source gross income.  
See Regulations section 1.861-8(e)(12). So, this deduction  
should be reported in column (a).  
Deductible R&E expenses, as described in section 174, are  
ordinarily definitely related to gross intangible income  
reasonably connected with relevant broad product categories of  
the taxpayer and are allocable to gross intangible income as a  
class related to such product categories. The product categories  
are determined by reference to the three-digit classification of  
the SIC code. In general, R&E expenses are apportioned based  
on gross receipts.  
Lines 39 and 40. Interest expense specifically allocable un-  
der Regulations sections 1.861-10 and -10T. Apart from  
interest expense entered on line 39, enter on line 40 interest  
expense that is directly allocable under Temporary Regulations  
section 1.861-10T to income from specific partnership property.  
Such interest expense is treated as directly allocable to income  
generated by such partnership property. See Temporary  
Regulations section 1.861-9T(e)(1).  
R&E expenses are allocated and apportioned by the partner.  
See Regulations section 1.861-17(f)(1). This requires that Form  
8865 reports to its partners the gross receipts by SIC code  
according to source and separate category of income. This also  
requires that the Form 8865 reports the amount of R&E expense  
performed in the United States and outside the United States to  
Lines 41 through 43. Other interest expense. A partner's  
distributive share of a partnership's interest expense that isn’t  
directly allocable to income from specific partnership property is  
generally allocated and apportioned by the partner, subject to  
9
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
                       
apply exclusive apportionment. See Regulations section  
1.861-17(f)(2).  
Note. Attach to Form 1065 a second Part III, Section 2, if the  
filer reports both the tax book value and the alternative tax book  
value of its assets.  
Column (e). As of the date of these instructions, the only  
separate category that could be included in column (e) is the  
section 901(j) category of income. See the Instructions for Form  
1118 for the potential countries to be listed with the section  
901(j) category of income.  
Column (b). Characterize the pro rata share of the partnership  
assets that give rise to foreign branch category income as assets  
in the foreign branch category. See Regulations section  
1.861-9(e)(10).  
Line 1. Enter the gross receipts by SIC code for each grouping.  
Such gross receipts include both the partnership's gross receipts  
and certain other parties' gross receipts. See Regulations  
sections 1.861-17(d)(3) and (4). Sales of parties controlled by  
the partnership should be included on line 1 if such controlled  
parties can reasonably be expected to benefit from the R&E  
expense connected with the product categories. This includes  
sales that benefit from the partner's R&E expenses if licensed  
through the partnership. Sales of uncontrolled parties are also  
taken into account if such sales involve intangible property that  
was licensed or sold to the uncontrolled party if the uncontrolled  
party can reasonably be expected to benefit from the R&E  
expense.  
Column (e). As of the date of these instructions, the only  
separate category that could be included in column (e) is the  
section 901(j) category of income. See the Instructions for Form  
1118 for the potential countries to be listed with the section  
901(j) category of income.  
Line 1. On Schedule K-2, report the average of the  
beginning-of-year and end-of-year inside bases in the  
partnership’s total assets. See Regulations section 1.861-9(g)(2)  
(i)(A). On Schedule K-3, report the partner’s distributive share of  
the assets reported on Schedule K-2.  
Line 2. On Schedule K-2, report the partnership’s average of  
the beginning-of-year and end-of-year inside bases adjustments  
under sections 734(b) and 743(b). On Schedule K-3, report the  
partner’s distributive share of the adjustments reported on  
Schedule K-2.  
Line 2. Report the amount of R&E expense related to activity  
performed in the United States and the amount of R&E expense  
related to activity performed outside the United States by SIC  
code. The total of the amounts on Schedule K-2, Part III, Section  
1, line 2, must equal Schedule K-2, Part II, line 32. Similarly, the  
total of the amounts on Schedule K-3, Part III, Section 1, line 2,  
must equal Schedule K-3, Part II, line 32.  
Lines 3 and 4. On Schedule K-2, report reductions in the  
partnership's asset values to reflect the partnership's directly  
allocable interest under Regulations section 1.861-10(e) and  
Temporary Regulations section 1.861-10T. See also Temporary  
Regulations section 1.861-9T(e)(1). On Schedule K-3, report the  
partner’s distributive share of the reduction in asset values  
reported on Schedule K-2.  
Note. Line 2 isn’t reported according to source or separate  
category.  
Line 5. On Schedule K-2, report the average value of  
partnership assets excluded from the apportionment formula.  
See section 864(e)(3). On Schedule K-3, report the partner’s  
distributive share of the excluded assets reported on  
Schedule K-2.  
Note. The SIC code for line 2B(i) doesn’t need to be the same  
SIC code for line 2A(i).  
Section 2. Interest Expense Apportionment  
Factors  
Line 6. Individual partners who are general partners or who are  
limited partners with an interest in the partnership of 10% or  
more follow the same rules as corporate partners whose interest  
in the partnership is 10% or more except that their interest  
expense must be apportioned according to the interest expense  
classifications under sections 163 and 469. See Regulations  
section 1.961-9T(d). This includes reporting the assets  
according to such classifications. If the partnership has no such  
partners, don’t complete Schedule K-2, Part III, Section 2, lines  
6b through d; or Schedule K-3, Part III, Section 2, lines 6b  
through d. Include the total amount on line 6a.  
Line 6a is the sum of lines 1 and 2 less the sum of lines 3, 4,  
and 5. Line 6a is divided into the types of assets on lines 6b, 6c,  
and 6d if the partnership has partners other than corporate  
partners. See the Partnership Instructions Schedules K-2 and  
K-3 (Form 1065) for an example.  
This information is relevant to a partner to allocate and apportion  
interest expense for foreign tax credit limitation purposes.  
Complete this Section 2 only if the partnership or the partners  
have interest expense or stewardship expense.  
Stewardship expenses. In the case of the partner’s  
stewardship expenses incurred to oversee the partnership, the  
partnership's value is determined and characterized under the  
asset method in Regulations section 1.861-9 (taking into  
account any adjustments under sections 734(b) and 743(b)).  
See Regulations section 1.861-8(e)(4)(ii)(C). So, the reporting  
below for Part III, Section 2, for interest expense apportionment  
factors generally applies to the partner’s stewardship expense  
apportionment.  
Schedule K-3. If the partnership's partners aren’t limited to  
corporate partners, when completing Schedule K-3, Part III,  
Section 2, for the corporate partners with an interest of 10% or  
more in the partnership, don’t complete lines 6b through d.  
Include the total distributive share on line 6a.  
For corporate partners with an interest in the partnership of  
10% or more, interest expense, including the partner's  
distributive share of partnership interest expense, is apportioned  
by reference to the partner's assets, including the partner's pro  
rata share of partnership assets. See Regulations section  
1.861-9(e)(2). Interest expense is apportioned based on the  
average value of assets. See Regulations section 1.861-9(g)(2)  
(i)(A). A taxpayer can use either the tax book value or the  
alternative book value of its assets. See Regulations section  
1.861-9(i). Under both methods, the partner uses the  
Lines 7 and 8. The amounts reported on lines 7 and 8 are  
subsets of the amounts reported on line 6 representing the value  
of stock held by the partnership in certain foreign corporations. In  
determining its foreign tax credit limitation, a partner should  
disregard interest expense that is “properly allocable'' to stock of  
a 10%-owned foreign corporation that has been characterized as  
a section 245A asset. See section 904(b)(4) and Regulations  
section 1.904(b)-3(a)(1)(ii). The amount of properly allocable  
deductions is determined by treating the section 245A subgroup  
for each separate category as a statutory grouping for purposes  
partnership's inside basis in its assets, including adjustments  
required under sections 734(b) and 743(b). See Regulations  
sections 1.861-9(e)(2) and (3). When reporting the basis in an  
asset which is stock in nonaffiliated 10%-owned corporations,  
adjust such amount for earnings and profits (E&P). See  
Regulations section 1.861-12(c)(2)(i)(A).  
10  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
   
of allocating and apportioning interest deductions on the basis of  
assets. Assets in a section 245A subgroup only include stock of  
a specified 10%-owned foreign corporation that has been  
characterized as a section 245A asset.  
The stock is characterized as a section 245A asset to the  
extent it generates income that would generate a dividends  
received deduction under section 245A if distributed. This  
doesn’t include income that is included as GILTI, subpart F  
income, or a section 951(a)(1)(B) inclusion or income described  
in section 245(a)(5) (which gives rise to a dividends received  
deduction under section 245 instead of section 245A).  
In the case of a specified 10%-owned foreign corporation that  
isn’t a CFC, all of the value of its stock is potentially in a section  
245A subgroup because the stock generally generates  
dividends eligible for the section 245A deduction (and cannot  
generate an inclusion under section 951(a)(1) or 951A(a)) if the  
partner meets the requirements for eligibility. See Regulations  
section 1.904(b)-3(c)(2). However, because there may not be  
information to determine if a partner is eligible for a section 245A  
deduction (for example, due to tiered ownership), the partner  
must determine to what extent the stock is treated as an asset in  
a section 245A subgroup.  
For a partnership-owned specified 10% foreign corporation  
that isn’t a CFC, report on line 7, columns (a) through (e), the  
total value of the stock in all such foreign corporations. The value  
of the stock is the partnership's basis in the stock adjusted to  
take into account the E&P of the foreign corporations as  
explained in Regulations section 1.861-12(c)(2). Attach to the  
Schedules K-2 and K-3 a statement with the following  
information for each foreign corporation for which adjusted basis  
is reported on line 7.  
This information is relevant to partners to allocate and  
apportion their FDII deduction under section 250(a)(1)(A) for  
foreign tax credit limitation purposes. The deduction is definitely  
related and allocable to the class of gross income included in the  
partner’s foreign-derived deduction eligible income (FDDEI) (as  
defined in section 250(b)(4)) and is apportioned within the class,  
if necessary, ratably between the statutory grouping (or among  
the statutory groupings) of gross income and the residual  
grouping of gross income based on the relative amounts of  
FDDEI in each grouping. See Regulations section 1.861-8(e)  
(13). If the partner is a member of a consolidated group, see  
Regulations section 1.861-14(e)(4). Accordingly, this section  
requires information that its partners use to determine the source  
and separate category of its income such that partners may  
allocate and apportion the FDII deduction under section 250(a)  
(1)(A) for purposes of the foreign tax credit limitation.  
Lines 1 and 2. Report the partnership’s foreign-derived gross  
receipts and cost of goods sold, respectively, by source and  
separate category.  
Lines 3 and 4. Report the partnership’s deductions allocable  
to foreign-derived gross receipts and other partnership  
deductions apportioned to foreign-derived gross receipts,  
respectively. See Part IV, Section 2, lines 11 and 12. Although  
these deduction amounts are necessary to figure the partner’s  
FDII deduction, once this amount is determined, the actual FDII  
deduction itself is allocated and apportioned as described in  
Regulations section 1.861-8(e)(13).  
Column (d). As of the date of these instructions, the only  
separate category that could be included in column (d) is the  
section 901(j) category of income. See the Instructions for Form  
1118 for the potential countries to be listed with the section  
901(j) category of income.  
Name of foreign corporation.  
EIN or reference ID number. Do not enter “FOREIGNUS” or  
“APPLIED FOR.”  
Section 4. Foreign Taxes  
Percentage of voting and value of stock owned by the  
partnership in such foreign corporation.  
Note. Don’t complete this Section 4 if the partnership doesn’t  
Value of the stock in such corporation included in each of the  
pay or accrue foreign taxes.  
groupings on lines 6b through 6d (identify separately each of  
those groupings).  
In Part III, Section 4, assign foreign taxes paid or accrued  
(including on U.S. source income) to a separate category and  
source. Include taxes paid or accrued to foreign countries or to  
U.S. territories.  
If the specified 10%-owned foreign corporation is a CFC, a  
portion of the value of stock in each separate category and in the  
residual grouping for U.S. source income is subdivided between  
a section 245A and non-section 245A subgroup under the rules  
described in Regulations section 1.861-13(a)(5). However,  
because there will generally not be information to apply the stock  
characterization rules described in Regulations section  
1.861-13(a)(5), the partner must apply those rules to  
characterize the stock.  
For partnership-owned CFCs, report on line 8, column (f), the  
total value of its stock in all such foreign corporations. The value  
of the stock is the partnership's inside basis in the stock adjusted  
to take into account the E&P of the foreign corporations as  
explained in Regulations section 1.861-12(c)(2). Attach to the  
Schedules K-2 and K-3 a statement with the following  
information for each foreign corporation for which basis is  
reported on line 8.  
Attachment. As previously mentioned in the instructions for  
Schedule K-2, Part I, box 4, and Schedule K-3, Part I, box 4 (for  
distributive share), for each of the amounts listed in lines 1  
through 3, attach to the Schedules K-2 and K-3 a statement  
reporting the following information.  
The dates on which the taxes were paid or accrued.  
The exchange rates used.  
The amounts in both foreign currency and U.S. dollars. See  
section 986(a).  
Column (a). Enter the code for the type of tax.  
Name of foreign corporation.  
EIN or reference ID number. Do not enter “FOREIGNUS” or  
“APPLIED FOR.”  
Percentage of voting and value of stock owned by the  
partnership in such foreign corporation.  
Value of the stock in such corporation.  
Section 3. Foreign-Derived Intangible Income  
(FDII) Deduction Apportionment Factors  
Note. Don’t complete this Section 3 if there are no domestic  
corporate partners (whether direct or indirect).  
11  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
   
Codes for Types of Tax  
Line 1. Enter in U.S. dollars the total foreign taxes (described in  
section 901 or section 903) that were paid or accrued by the  
partnership (according to its method of accounting for such  
taxes). Don’t reduce the amount that you report on line 1 by the  
reductions reported on line 2. Don’t report redetermined taxes on  
line 1. Report such taxes on line 3.  
Code  
Type of Tax  
WHTD  
WHTP  
Withholding tax on dividends  
Withholding tax on distributions of  
PTEP  
Note. Don’t include on line 1 any foreign taxes not creditable but  
WHTB  
WHTR  
Withholding tax on branch  
remittances  
deductible as reported on Part II, Section 2, line 45.  
If the partnership uses the cash method of accounting, check  
the "Paid" box and enter foreign taxes paid during the tax year on  
line 1. Report each partner's share on Schedule K-3, Part III,  
Section 3, line 1.  
If the partnership uses the accrual method of accounting,  
check the "Accrued" box and enter foreign taxes accrued on  
line 1. Report each partner's share on Schedule K-3, Part III,  
Section 4, line 1.  
Withholding tax on rents, royalties,  
and license fees  
WHTI  
ECI  
Withholding tax on interest  
Taxes paid or accrued to foreign  
countries or U.S. territories on certain  
effectively connected income  
OTHS  
OTHR  
OTH  
Other foreign taxes paid or accrued  
on sales income  
Note. Check only one box “Paid” or “Accrued” depending on the  
method of accounting the partnership has to take into account  
foreign taxes.  
Enter on a separate line (that is, after A, B, and C), taxes paid  
or accrued to each country. Enter the two-letter code from the list  
at IRS.gov/CountryCodes. Don’t enter “various” or “OC” for  
country code.  
Exceptions The instructions for Forms 1116 and 1118  
specify exceptions from the requirement to report gross income  
and gross receipts by foreign country or U.S. territory regarding  
RICs and section 863(b). These exceptions apply as well to  
reporting of taxes in this section.  
Example 4. Part III, Section 4: multiple country sources:  
foreign taxes The facts are the same as in Example 2, earlier.  
FP uses the cash method of accounting and pays taxes of  
$1,000 and $3,000 to Countries XX and YY, respectively. The  
U.S. person completes Part III, Section 4, line 1, as follows.  
Other foreign taxes paid or accrued  
on services income  
Other foreign taxes paid or accrued  
If there are multiple types of tax for the same country,  
generate multiple alpha rows for the same country, one row for  
each type of tax. For example, see below.  
Codes for Multiple Types of Tax  
Description  
(a)  
Type of tax  
A
B
AA  
BB  
WHTD  
OTH  
Column (b). Taxes assigned to section 951A category.  
Taxes assigned to section 951A category income are taxes paid  
or accrued on distributions of PTEP assigned to the reclassified  
section 951A PTEP and section 951A PTEP groups. This might  
not be able to be completed due to lack of information regarding  
the treatment of the current year distributions.  
Example 4 Table  
(a)  
(e)  
Direct (section  
901/903)  
foreign taxes  
Type of tax  
Foreign  
Paid  
Column (f). Other category.  
Foreign taxes paid or accrued to sanctioned countries.  
No credit is allowed for foreign taxes paid or accrued to certain  
sanctioned countries.  
A
B
XX  
YY  
OTHR  
OTHR  
1,000  
3,000  
Foreign taxes related to PTEP resourced by treaty. If the  
partnership pays or accrues foreign taxes on receipt of a  
distribution of PTEP that is sourced from an annual PTEP  
account that corresponds to the separate category relating to  
U.S. source income included under section 951(a)(1) and  
resourced as foreign source income under a treaty, such taxes  
are included in column (f).  
Line 2. Enter on line 2 a negative number for the sum of the  
taxes in the following categories.  
A. Taxes on foreign mineral income (section 901(e)).  
B. Reserved.  
C. Taxes attributable to boycott operations (section 908).  
D. Reduction in taxes for failure to timely file (or furnish all of  
the information required on) Form 8865 (section 6038(c)).  
E. Foreign income taxes paid or accrued during the current  
tax year for splitter arrangements under section 909.  
F. Foreign taxes on foreign corporate distributions. For  
example, report taxes on dividends eligible for a deduction  
under section 245A and ineligible for credit under section  
245A(d). Also, include taxes on a distribution of PTEP  
assigned to the following PTEP groups: reclassified section  
965(a) PTEP, reclassified section 965(b) PTEP, section  
965(a), and section 965(b) PTEP, a portion of which isn’t  
creditable. It may not be possible to determine the amount of  
a distribution that is attributable to non-previously taxed E&P  
or PTEP for which a foreign tax credit may be partially or  
entirely disallowed. However, it’s important to track this  
amount as a tax on a distribution.  
On the line after "category code," enter one of the following  
codes.  
Code “RBT PAS.” If an applicable income tax treaty treats any  
U.S. source passive category income as foreign source passive  
category income, and the partner elected to apply the treaty,  
enter code “RBT PAS.”  
Code “RBT GEN. If an applicable income tax treaty treats any  
U.S. source general category income as foreign source general  
category income, and the partner elected to apply the treaty,  
enter code “RBT GEN.”  
Code “RBT 951A. If an applicable income tax treaty treats any  
U.S. source section 951A category income as foreign source  
section 951A category income, and the partner elected to apply  
the treaty, enter code “RBT 951A.”  
12  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
       
G. Other. Attach a statement to the Schedules K-2 and K-3  
indicating the reason for the reduction.  
There is no need to report the amounts on line 2 by country.  
contested foreign income tax. If it’s unknown whether the  
partners are corporations, individuals, estates, or trusts, provide  
the information necessary for the partners to complete both  
Schedule L (Form 1118), Parts I and II (as applicable); and  
Schedule C (Form 1116) Parts I and II (as applicable).  
Partnerships must also file a statement each year for which  
there are one or more contested liabilities outstanding or in  
which a contested tax is resolved that includes information  
necessary for partners to complete both Schedule L (Form  
1118), Part V, and Schedule C (Form 1116), Part V.  
Line 3. Enter in U.S. dollars the change in foreign tax as a  
result of a foreign tax redetermination. See section 905(c) and  
Regulations sections 1.905-3 through -5. If the amount is less  
than the original foreign tax, report the change as a negative  
amount. If the amount is more than the original foreign tax, report  
the change as a positive amount.  
Note. Payment of additional foreign taxes that relate to an  
earlier tax year by a partnership that uses the cash method of  
accounting doesn’t result in a foreign tax redetermination. See  
Regulations section 1.905-3(a). Such amounts should be  
reported on line 1 as foreign taxes paid by the partnership in the  
current year. Report the U.S. tax year to which the foreign tax  
relates. This would be the U.S. tax year that includes the close of  
the foreign tax year to which the tax relates. Report the date on  
which the tax was paid. If there is more than one date tax is paid,  
enter one of the dates paid on the schedule itself and then attach  
to the Schedules K-2 and K-3 a statement including all of the  
information reported on the schedule with the other dates paid.  
If there is more than one redetermination in a year for different  
countries, report such redeterminations on separate lines. Enter  
the two-letter code from the list at IRS.gov/CountryCodes.  
Similarly, if there is more than one redetermination in a year for  
the same country, but the redeterminations are related to  
different years, report such redeterminations on separate lines.  
Exceptions. The instructions for Forms 1116 and 1118  
specify exceptions from the requirement to report gross income  
and gross receipts by foreign country or U.S. territory for RICs  
and section 863(b). Don’t enter “various” or “OC” for the country  
code.  
In addition, if the direct or indirect partners are corporations,  
attach a statement that includes the information on Schedule L  
(Form 1118), Parts I and II, as applicable, for each foreign tax  
redetermination. If the direct or indirect partners are individuals,  
estates, or trusts, attach a statement that includes the  
information on Schedule C (Form 1116), Parts I and II, as  
applicable, for each foreign tax redetermination. If the indirect  
partners are unknown, attach a statement that includes both the  
information on Schedule L (Form 1118), Parts I and II, as  
applicable; and Schedule C (Form 1116), Parts I and II, as  
applicable.  
Contested taxes. In general, a contested foreign income tax  
liability doesn’t accrue until the contest is resolved and the  
amount of the liability has been finally determined. In addition, a  
contested foreign income tax liability isn’t a reasonable  
approximation of the final foreign income tax liability and so isn’t  
considered an amount of tax paid for purposes of section 901  
until the contest is resolved. So, a partnership generally doesn’t  
take into account a contested liability as a creditable foreign tax  
expenditure until the contest is resolved and the liability has  
been paid. See Regulations section 1.905-1(f)(1). However, to  
the extent that a partnership has remitted a contested foreign  
income tax liability to a foreign country, partners may elect to  
claim a provisional foreign tax credit for its distributive share of  
such contested foreign income tax liability. See Regulations  
section 1.905-1(f)(2).  
Section 5. Other Tax Information  
This information is relevant to partners computing a foreign tax  
credit.  
Column (b). Don’t report any amounts in this column.  
Column (f). As of the date of these instructions, this column  
will only include the section 901(j) category and the countries  
relevant to that category. See the Instructions for Form 1118 for  
the potential countries to be listed with the section 901(j)  
category of income. No credit is allowed for taxes paid or  
accrued to a country described in section 901(j). However, a  
deduction is generally allowed for a tax described in section  
901(j).  
Line 1. For partnerships other than publicly traded partnerships  
(PTPs), report the total of all partners’ shares of the net positive  
income adjustments resulting from all section 743(b) basis  
adjustments. Net positive income adjustments from all section  
743(b) basis adjustments means the excess of all section 743(b)  
adjustments allocated to the partner that increase the partner's  
taxable income over all section 743(b) adjustments that  
decrease the partner's taxable income. Attach to the Schedules  
K-2 and K-3 a statement showing each section 743(b) basis  
adjustment making up the total and identify the assets to which it  
relates and the separate category and source of the income  
generated by the assets. Make sure to include the class of gross  
income or deduction, for example, sales income, interest  
income, or depreciation deduction. You may group these section  
743(b) basis adjustments by asset category or description in  
cases where multiple assets are affected if the assets generate  
the same separate category and source of income. The section  
743(b) positive income adjustments should be included as  
relevant in other parts of the Schedule K-2. For example, the  
section 743(b) income adjustments should be reflected as part  
of the total depreciation reported on Part II, Section 2.  
Line 2. For partnerships other than PTPs, report the total of all  
partners' shares of the net negative income adjustment resulting  
from all section 743(b) basis adjustments. Net negative income  
adjustments from all section 743(b) basis adjustments means  
the excess sum of all section 743(b) adjustments allocated to the  
partner that decrease the partner’s taxable income over all  
section 743(b) adjustments that increase the partner’s taxable  
income. Attach to the Schedules K-2 and K-3 a statement  
showing each section 743(b) basis adjustment making up the  
total and identify the assets to which it relates and the separate  
category and source of the income generated by the assets.  
Make sure to include the class of gross income or deduction, for  
example, sales income, interest income, or depreciation  
deduction. You may group these section 743(b) basis  
For partnerships that are contesting a foreign income tax  
liability with a foreign country, but have remitted all or a portion of  
such contested liability, report information about the contested  
tax on line 3, and check the “Contested tax” box. In addition,  
attach a statement and include information necessary for  
partners to complete Form 7204 and Schedule L (Form 1118)  
(for direct or indirect corporate partners), or Schedule C (Form  
1116) (for direct or indirect individual, trust, or estate partners),  
including a description of the contest and a description of the  
adjustments by asset category or description in cases where  
multiple assets are affected if the assets generate the same  
separate category and source of income. The section 743(b)  
negative income adjustments should be included as relevant in  
other parts of the Schedule K-2. For example, the section 743(b)  
income adjustments should be reflected as part of the total  
depreciation reported on Part II, Section 2.  
13  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
 
the underlying item of income, gain, deduction, and loss of the  
partnership.  
Schedules K-2 and K-3, Part IV (Information on  
Partners’ Section 250 Deduction With Respect  
to Foreign-Derived Intangible Income (FDII))  
Section 1. Information To Determine Deduction  
Eligible Income (DEI) and Qualified Business  
Asset Investment (QBAI) on Form 8993  
Note. This information is relevant to partners that figure a  
section 250 deduction for FDII on Form 8993. This part is  
relevant for a direct domestic corporate partner (other than  
REITs, RICs, and S corporations) or a partner which is a  
partnership that has a direct or indirect domestic corporate  
partner (other than REITs, RICs, and S corporations) that  
determines the domestic corporate partner's FDII. If there is  
insufficient information, a partner must presume the indirect  
partner is a domestic corporate partner or a partnership that has  
a direct or indirect domestic corporate partner and the partner  
must complete the Schedules K-2 and K-3, Part IV, accordingly.  
These schedules are required to be completed if the foreign  
partnership has direct or indirect domestic corporate partners,  
though the partnership doesn’t have foreign-derived gross  
receipts. Even if a partnership has no foreign activities, and so  
has no FDDEI as reported in Section 2 of this part, still report the  
information required by Sections 1 and 3 of this part so that any  
domestic corporate partner can correctly determine its section  
250 deduction. For example, a domestic corporate partner would  
still need information about the partnership’s qualified business  
asset investment (see the instructions for Section I, line 8, of this  
part) in such a case to determine its deemed tangible income  
return and deemed intangible income. See section 250(b)(2).  
Line 1. Net income (loss). This amount may equal Form 8865,  
Schedule M-1, line 9, Income (loss).  
Line 2a. DEI gross receipts. Enter all gross receipts from  
whatever source derived except for amounts included on lines 3  
through 7.  
Line 2b. DEI cost of goods sold. Enter the amount of cost of  
goods sold attributable to the amount on line 2a.  
Line 2c. DEI properly allocated and apportioned deduc-  
tions. Enter the amount of deductions (including taxes) properly  
allocable to the amount on line 2a. See Regulations section  
1.250(b)-1(d)(2) for more details. Deductions properly allocable  
to gross DEI are determined without regard to sections 163(j),  
170(b)(2), 172, 246(b), and 250.  
Lines 3 through 7 are exclusions from DEI used to determine  
the partner’s DEI.  
Line 4. CFC dividends. Enter the amount of any dividend  
received from a CFC for which the partner is a U.S. shareholder  
as defined under section 951(b).  
Section 250 allows a domestic corporation a deduction for its  
FDII, and a direct or indirect domestic corporate partner must  
take into account certain activities of a partnership in computing  
the domestic corporation's FDII. For the treatment of a domestic  
corporation that is a partner in a partnership, see Regulations  
sections 1.250(b)-1(e), 1.250(b)-2(g), and 1.250(b)-3(e). These  
instructions generally indicate how to complete Part IV (of both  
Schedules K-2 and K-3). However, Schedule K-2 includes the  
total of all partners’ amounts and Schedule K-3 includes each  
partner’s share.  
Enter each amount and total amounts in U.S. dollars.  
Determine and report the partner's share of each item of the  
partnership contained on this form in accordance with the  
partner's distributive share of the underlying item of income,  
gain, deduction, and loss of the partnership. Report these  
amounts based on the best information available about how its  
partners might use this information to determine their FDII  
deduction. Certain information may be reported differently to  
each partner depending on federal income tax determinations  
that the partner makes. Each partner must then calculate its FDII  
deduction using Form 8993 including the information reported on  
Schedule K-3, Part IV. A partner must obtain any further  
necessary information from the partnership to correctly  
determine its FDII deduction.  
Note. The amount by which distributions are attributable to  
PTEP in annual PTEP accounts of a direct or indirect partner  
isn’t taken into account for purposes of determining the CFC  
dividends to be entered on line 4.  
Line 5. Financial services income. Enter the amount of net  
financial services income (as defined in section 904(d)(2)(D))  
before interest and R&E deductions.  
Line 6. Domestic oil and gas extraction income. Enter the  
amount of net domestic oil and gas extraction income before  
interest and R&E deductions. The term “domestic oil and gas  
extraction income” means income described in section 907(c)(1)  
determined by substituting “within the United States” for “outside  
the United States.”  
Line 7. Foreign branch income. Enter the amount of net  
foreign branch income before interest and R&E deductions (as  
defined in section 904(d)(2)(J)). Report all income that would be  
foreign branch income of its partners as if all partners were U.S.  
persons.  
Line 8. Partnership QBAI. Enter the amount, if any, of the  
partnership QBAI.  
A domestic corporation’s QBAI is its share of the average of  
the aggregate adjusted bases, determined as of the close of  
each quarter of the tax year, in certain specified tangible  
property. See Regulations section 1.250(b)-2(b). The adjusted  
basis is determined by using the alternative depreciation system  
under section 168(g) and allocating depreciation deductions for  
such property ratably to each day during the period in the tax  
year to which such depreciation relates. See Regulations section  
1.250(b)-2(e). The specified tangible property is that which is  
used in the trade or business of the corporation in the production  
of gross income included in the domestic corporation’s gross  
DEI and is of a type for which a deduction is allowable under  
section 167. See Regulations section 1.250(b)-2(b). If a  
domestic corporation holds an interest in one or more  
Special rules for determining foreign use apply to transactions  
that involve property or services provided to related parties (see  
section 250(b)(5)(C) and Regulations section 1.250(b)-6).  
For special substantiation requirements under the  
regulations, see sections 1.250(b)-3(f), 1.250(b)-4(d)(3), and  
1.250(b)-5(e)(4). In all other cases, a taxpayer claiming a  
deduction under section 250 will still be required to substantiate  
that it is entitled to the deduction even if it isn’t subject to the  
specific substantiation requirements contained in the  
regulations. See section 6001 and Regulations section  
1.6001-1(a). So, the partner must be able to satisfy the general  
or special substantiation requirements to be eligible for the  
deduction.  
partnerships during a tax year (including indirectly through one  
or more partnerships that are partners in a lower-tier  
As described above, determine the partner's share of each  
partnership), the QBAI of the domestic corporation for the tax  
year is increased by the sum of the domestic corporation’s  
partnership QBAI for each partnership for the tax year. See  
item below in accordance with the partner's distributive share of  
14  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
   
Regulations section 1.250(b)-2(g)(1). Partnership QBAI is the  
sum of the domestic corporation’s proportionate share of the  
partnership’s adjusted basis in the property and the domestic  
corporation’s partner specific QBAI basis in the property for the  
partnership tax year that ends with or within the tax year. See  
Regulations section 1.250(b)-2(g)(2). Partnership specified  
tangible property means, for a domestic corporation, tangible  
property that is used in the trade or business of the partnership,  
of a type for which a deduction is allowable under section 167  
and used in the production of gross income included in the  
domestic corporation’s gross DEI. See Regulations section  
1.250(b)-2(g)(5).  
If the portion of partnership specified tangible property cannot  
be determined (for example, if it isn’t known if property gives rise  
to the production of gross income in one of the excluded  
categories from DEI that is determined by the partner, which  
would cause such property to not be classified as partnership  
specified tangible property), then in reporting the amount of a  
partner's share of the partnership QBAI, separately state any  
information so a direct or indirect domestic corporate partner can  
distinguish between the amount of the adjusted bases in a  
partnership's tangible property that the domestic corporation  
would include in its adjusted bases in the partnership specified  
tangible property and the amount of the adjusted bases in the  
partnership's tangible property that the domestic corporation  
would not include in its adjusted bases in the partnership  
specified tangible property.  
used to figure the amount of gross FDDEI as defined in  
Regulations section 1.250(b)-1(c)(16) for gross FDDEI.  
Each place where general property is listed refers to amounts  
connected to the sale, lease, exchange, or other disposition of  
general property to a foreign person and is for a foreign use as  
defined in Regulations sections 1.250(b)-3 and 1.250(b)-4(d).  
The term “general property” means any property other than  
intangible property; a security (as defined in section 475(c)(2));  
an interest in a partnership, trust, or estate; or a commodity  
described in section 475(e)(2)(A) that isn’t a physical commodity  
or a commodity described in sections 475(e)(2)(B) through (D).  
See Regulations section 1.250(b)-3(b)(10).  
Each place where intangible property is listed refers to  
amounts connected to the sale, license, exchange, or other  
disposition of intangible property to a foreign person and is for a  
foreign use as defined in Regulations sections 1.250(b)-3 and  
1.250(b)-4(d)(2).  
Each place where services are listed refers to amounts  
connected to services that, as established to the satisfaction of  
the Secretary, are provided to any person, or for property,  
located outside the United States as defined in Regulations  
section 1.250(b)-5.  
If tangible property was used in the production of DEI and in  
the production of income that is non-DEI, then it is considered  
dual-use property and treated as specified tangible property in  
the same proportion that the amount of the gross income  
included in DEI produced for the property bears to the total  
amount of gross income produced for the property. See  
Example 2 of Regulations section 1.250(b)-2(g)(8) for guidance  
on how to calculate the partner adjusted basis. If specified  
tangible property is only partially depreciable, then only the  
depreciable portion is QBAI. See Regulations section  
If a transaction includes both a sales component and a  
service component, the transaction is classified as either a sale  
or as a service according to the overall predominant character of  
the transaction. See Regulations section 1.250(b)-3(d).  
For purposes of determining a domestic corporation’s  
deductions that are properly allocable to gross FDDEI, the  
corporation’s deductions are allocated and apportioned to gross  
FDDEI under the rules of Regulations sections 1.861-8 through  
1.861-14T and 1.861-17 by treating section 250(b) as an  
operative section described in Regulations section 1.861-8(f).  
See Regulations section 1.250(b)-1(d)(2).  
1.250(b)-2(b).  
Example 5. Specified tangible property. X and Y are both  
domestic corporations which are partners in FP, a partnership  
that holds three types of assets—A, B, and C. All types of assets  
are tangible property used in the trade or business of FP and for  
which a deduction is allowable under section 167. The  
production of income from A assets is DEI for X and Y. Thus, the  
A assets are partnership specified tangible property for X and Y,  
and FP includes a proportionate amount of the adjusted bases of  
all A assets in calculating each partner’s partnership QBAI. The  
production of income from B assets is DEI for X. However, for Y,  
the production of income from B assets is non-DEI. Thus, the B  
assets are partnership specified tangible property for X only, and  
FP includes a proportionate amount of the adjusted bases of all  
B assets only in calculating X’s partnership QBAI. The C assets  
are dual-use property because the production of only part of the  
income from the C assets is DEI for X and Y. Thus, the C assets  
are partnership specified tangible property for both X and Y, but  
FP includes a proportionate amount of the adjusted bases of all  
C assets in calculating each partner’s partnership QBAI only in  
the proportion that the amount of the gross income included in  
DEI produced for the C assets bears to the total amount of gross  
income produced for the C assets.  
Line 9. Gross receipts. Enter the amount, if any, of the  
partnership's foreign-derived gross receipts separately for  
aggregate sales of general property, aggregate sales of  
intangible property, and aggregate services. Foreign-derived  
gross receipts mean gross receipts that are used to figure gross  
FDDEI as defined in Regulations section 1.250(b)-1(c)(16).  
Line 10. COGS. Enter the amount of cost of goods sold  
attributable to the amount(s) on line 9.  
For purposes of this form, when figuring FDDEI, cost of goods  
sold includes the cost of goods sold to customers, and the  
adjusted basis of non-inventory property sold or otherwise  
disposed of in a trade or business.  
In making that determination, attribute costs of goods sold to  
gross receipts using a reasonable method in accordance with  
Regulations section 1.250(b)-1(d)(1).  
Cost of goods sold must be attributed to gross receipts for  
gross DEI or gross FDDEI regardless of whether certain costs  
included in cost of goods sold can be associated with activities  
undertaken in an earlier tax year (including a year before the  
effective date of section 250).  
Section 2. Information To Determine  
Foreign-Derived Deduction Eligible Income  
(FDDEI) on Form 8993  
Line 11. Allocable deductions. Enter the amount of the  
allocable deductions. See Regulations section 1.250(b)-1(d)(2)  
for more details. Enter the amounts of interest and R&E  
expenses on lines 13 and 16, respectively. Deductions are  
determined without regard to sections 163(j),170(b)(2), 172,  
246(b), and 250.  
Foreign-derived gross receipts means, for a partnership, gross  
receipts of the partnership for the partnership's tax year that are  
15  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
     
Column (a). General property. Enter the amount of the  
deductions that are allocated and apportioned to gross FDDEI  
from all sales of general property.  
Line 14A. Enter the amount of the average of the  
beginning-of-year and end-of-year inside bases in the  
partnership's total assets. See Regulations section 1.861-9(g)(2)  
(i)(A).  
Column (b). Intangible property. Enter the amount of the  
deductions that are allocated and apportioned to gross FDDEI  
from all sales of intangible property.  
Line 14B. Enter the amount of the average of the  
beginning-of-year and end-of-year inside bases adjustments  
under sections 734(b) and 743(b).  
Column (c). Services. Enter the amount of the deductions that  
are allocated and apportioned to gross FDDEI from all services.  
Lines 14C and 14D. Enter the amount of the reductions in the  
partnership's asset values to reflect the partnership's directly  
allocable interest under Regulations section 1.861-10(e) and  
Temporary Regulations section 1.861-10T. See also Temporary  
Regulations section 1.861-9T(e)(1).  
Line 12. Other apportioned deductions. Enter all other  
apportioned deductions that relate to gross FDDEI that are not  
otherwise included on lines 11, 13, and 16. If a deduction  
doesn’t bear a definite relationship to a class of gross income  
constituting less than all of gross income, it shall ordinarily be  
treated as definitely related and allocable to all of the taxpayer's  
gross income, including gross DEI and gross FDDEI, except  
where otherwise directed in the regulations.  
Line 14E. Enter the amount of the average value of assets  
excluded from the apportionment formula. See section 864(e)  
(3).  
Lines 15 and 16. R&E expenses apportionment factors.  
These lines require information that a partner will use to allocate  
and apportion its R&E expense for FDII purposes. Lines 15 and  
16 aren’t required to be completed unless either (a) the  
partnership incurs R&E expense; or (b) the partner is expected  
to license, sell, or transfer its intangible property to the  
Section 3. Other Information for Preparation of  
Form 8993  
Line 13. Interest deduction. The term “interest” refers to the  
gross amount of interest expense incurred by a partnership in a  
given year. Generally, interest expense includes any expense  
that is currently deductible under section 163 (including original  
issue discount), and interest equivalents. See Regulations  
section 1.861-9(b) for the definition of interest equivalents and  
Temporary Regulations section 1.861-9T(c) for section that  
disallow, suspend, or require the capitalization of interest  
deductions. Include excess business interest expense  
determined under section 163(j)(4) on this line. Under  
Regulations section 1.250(b)-1(d)(2)(ii), deductions are  
determined without regard to section 163(j).  
partnership (as provided in Regulations section 1.861-17(f)(3)).  
R&E expenses deducted, or amortized and deducted, under  
section 174 are definitely related to all gross intangible income  
reasonably connected with relevant broad product categories of  
the taxpayer and are allocable to all items of gross intangible  
income as a class related to such product categories. The  
product categories are generally determined by reference to the  
three-digit SIC code. R&E expenses are apportioned between  
the statutory and residual groupings based on an analysis of the  
taxpayer’s gross receipts from certain sales, leases, licenses,  
and services. See Regulations section 1.861-17. The exclusive  
apportionment rule in Regulations section 1.861-17(c) doesn’t  
apply for purposes of apportioning R&E to gross DEI and gross  
FDDEI.  
R&E expenses are allocated and apportioned by the partner.  
This requires the reporting to the partners of the gross receipts  
related to certain income within the statutory and residual  
groupings within a SIC code and the partner’s distributive share  
of the partnership’s R&E deductions, if any, connected with the  
SIC codes.  
Lines 13A and 13B. Interest expense specifically allocable  
under Regulations sections 1.861-10(e) and -10T. Apart  
from interest expense entered on line 13A, enter on line 13B  
interest expense that is directly allocable under Temporary  
Regulations section 1.861-10T to income from specific  
partnership property. Such interest expense is treated as directly  
allocable to income generated by such partnership property. See  
Temporary Regulations section 1.861-9T(e)(1).  
Line 13C. Enter all interest deductions not otherwise included  
on lines 13A and 13B.  
Line 15. R&E gross receipts by SIC code. Enter the gross  
receipts that resulted in gross income for each category, DEI,  
FDDEI, and then total gross receipts. Note that the Total column  
isn’t a sum of DEI and FDDEI but rather refers to all the  
partnership’s gross receipts. Such gross receipts include both  
the partnership's sales and certain other parties' sales. See  
Regulations section 1.861-17(d). Gross receipts from certain  
transactions of parties both controlled or uncontrolled by the  
partnership may be included on line 15. See, generally,  
Regulations section 1.861-17(d).  
Line 14. Interest expense apportionment factors. Report  
information that a partner will use to allocate and apportion its  
interest expense for FDII purposes.  
Interest deductions are apportioned to gross DEI and FDDEI  
based ordinarily on the tax book value of the taxpayer’s assets.  
See Regulations section 1.861-9T(g)(1)(i). A taxpayer can use  
either the tax book value or the alternative tax book value of its  
assets. See Regulations section 1.861-9(i). Under both  
methods, the partner uses the partnership's inside basis in its  
assets, including adjustments required under sections 734(b)  
and 743(b). See Regulations sections 1.861-9(e)(2) and -9(e)  
(3). When reporting the asset that is the basis of stock in  
nonaffiliated 10%-owned corporations, adjust such amount for  
E&P. See Regulations section 1.861-12(c)(2)(i)(A).  
Line 16. Enter the amount of R&E expense by SIC code.  
Schedules K-2 and K-3, Part V (Distributions From  
Foreign Corporations to Partnership)  
The total interest deductions for the members of the  
corporation's affiliated group are allocated and apportioned to  
the statutory and residual groupings under proposed, final, and  
Temporary Regulations sections 1.861-8 through 1.861-14.  
Note. The following information, in combination with other  
information known to the partners, including Schedule P (Form  
5471), is relevant for certain partners to exclude from gross  
income distributions to the extent that they are attributable to  
PTEP in their annual PTEP accounts and report foreign currency  
gain or loss for the PTEP on Forms 1040 and 1120. If eligible,  
partners use this information for purposes of a dividends  
received deduction under section 245A on Form 1120.  
Note. The Total column isn’t a sum of DEI and FDDEI but rather  
refers to the partnership’s specific line totals (that is, that would  
also include non-DEI).  
16  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
 
Use Part V of the Schedule K-2 to report the distributions  
made by foreign corporations to the partnership.  
Each row should relate to the partnership’s direct ownership  
of stock in the foreign corporation or direct ownership of the  
ownership interests in a pass-through entity that (directly or  
through other pass-through entities) owns (within the meaning of  
section 958) stock in the foreign corporation other than solely by  
reason of applying section 318(a)(3) (providing for downward  
attribution) as provided in section 958(b). For example, if a  
partnership (upper-tier partnership) directly owns 50% of the  
foreign corporation's stock and owns 50% of the foreign  
corporation's stock through another partnership (lower-tier  
partnership), then distributions by the foreign corporation to each  
of the upper-tier partnership and the lower-tier partnership are to  
be reported on separate rows on the upper-tier partnership's Part  
V (Form 8865). If the partnership owns stock of a foreign  
corporation through another partnership (lower-tier partnership)  
from which it receives a Part V of Schedule K-3 (Form 1065 or  
8865), the partnership must replicate each line of the Part V of  
Schedule K-3 (Form 1065 or 8865) on its Part V (Form 8865).  
Rows for distributions for a partnership's direct ownership of  
foreign corporation stock should be listed before rows for  
distributions for a partnership’s ownership of foreign corporation  
stock through a pass-through entity.  
If the partnership received a Schedule K-3 from another  
partnership with an attachment related to net investment income  
PTEP (NII PTEP), append Attachment 3 to Schedule K-2 and  
Attachment 4 to each Schedule K-3 in the following format,  
adding additional rows as necessary for each distribution by a  
foreign corporation. For more information about net investment  
income and net investment income tax relating to CFCs and  
qualified electing funds (QEFs), see Regulations section  
1.1411-10.  
Use Part V of the Schedule K-3 to report the partner's share  
of the amounts reported on Part V of the Schedule K-2.  
Exception. Part V of the Schedule K-2 isn’t required to be  
completed for distributions by a foreign corporation if the U.S.  
person filing Form 8865 knows that (a) none of the distributions  
by the foreign corporation are attributable to PTEP in annual  
PTEP accounts of any direct or indirect partner, and (b) none of  
the partnership’s direct or indirect partners are eligible to claim a  
deduction under section 245A for any distribution by the foreign  
corporation. Nevertheless, the filer may be required to append  
Attachment 3 to the Schedule K-2 (discussed below).  
Exception. Part V of the Schedule K-3 for a partner doesn’t  
need to be completed for distributions by a foreign corporation if  
the filer of Form 8865 knows that (a) none of the distributions by  
the foreign corporation are attributable to PTEP in annual PTEP  
accounts of the partner or any U.S. person that is treated as  
indirectly owning stock of the foreign corporation through the  
partner (“relevant indirect partners”), and (b) the partner and  
relevant indirect partners aren’t eligible to claim a deduction  
under section 245A for any distributions by the foreign  
corporation. Nevertheless, the filer may be required to append  
Attachment 4 to the Schedule K-3 for the partner (discussed  
below). If this exception is applicable for a foreign corporation,  
the sum of the amounts reported on Part V of the Schedules K-3  
for the foreign corporation may not equal the amounts reported  
on Part V of the Schedule K-2 for the foreign corporation.  
Rows A–O. Use rows A–O to report information for each  
distribution by a foreign corporation for its stock that the  
partnership (directly or through pass-through entities) owns  
(within the meaning of section 958) other than solely by reason  
of applying section 318(a)(3) (providing for downward attribution)  
as provided in section 958(b).  
Attachment 3 (Schedule K-2)  
(a) Name of  
distributing foreign  
corporation  
(b) EIN or reference  
(c) Date of  
distribution  
(d) Functional  
currency of  
distributing foreign  
corporation  
(e) Amount of NII  
PTEP in functional  
currency  
(f) Spot rate  
(functional currency  
to U.S. dollars)  
(g) Amount of NII  
PTEP in U.S. dollars  
ID number  
Attachment 4 (Schedule K-3)  
(a) Name of  
distributing foreign  
corporation  
(b) EIN or reference  
(c) Date of  
distribution  
(d) Functional  
currency of  
distributing foreign  
corporation  
(e) Partner’s share of  
NII PTEP in  
functional currency  
(f) Spot rate  
(functional currency  
to U.S. dollars)  
(g) Partner’s share of  
NII PTEP in U.S.  
dollars  
ID number  
Note. If additional rows are required, attach statements to  
ISO 4217 standard. These codes are available at iso.org/  
Schedules K-2 and K-3 that look like the current version of Part  
V.  
Note. Columns (e) and (f) are reported in functional currency.  
Column (b). Enter the EIN or reference ID number of the  
distributing foreign corporation. Do not enter “FOREIGNUS” or  
“APPLIED FOR.” For basic information about reference ID  
numbers (including the requirements as to the characters  
permitted), see the Instructions for Form 1118.  
Column (e). This represents the partnership's share of the  
amount distributed in functional currency. See Schedule R (Form  
5471), column (c).  
Column (f). This represents the partnership's share of the  
amount of E&P distributed in functional currency. See  
Column (c). Enter the year, month, and day on which the  
Schedule R (Form 5471), column (d). The total of the amounts  
reported in column (f) for a distributing foreign corporation  
should equal the partnership’s share of the total of the amounts  
reported on line 9, column (f), of Schedules J (Form 5471) on a  
distribution was made using the format YYYYMMDD.  
Column (d). Enter the applicable three-character alphabet  
code for the foreign corporation’s functional currency using the  
17  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
   
separate category of income basis filed for the distributing  
foreign corporation, as reported on line 9, column (f), of the  
Schedule J (Form 5471) with code “TOTALentered on line a that  
is filed for the distributing foreign corporation. If a Schedule J  
(Form 5471) with code “TOTALentered on line a isn’t filed for  
the distributing foreign corporation, then the total of the amounts  
reported in column (f) for a distributing foreign corporation  
should equal the partnership's share of the amount reported on  
line 9, column (f), of the Schedule J (Form 5471) filed for the  
distributing foreign corporation.  
section 951(a)(1)(B) inclusion for the CFC, or figure section  
951A inclusions by taking into account GILTI items (defined  
below) of the CFC. If the filer doesn’t complete Part VI of  
Schedule K-3 for a partner for a CFC, the sum of each partner’s  
share of the CFC’s subpart F income, section 951(a)(1)(B)  
inclusion for the CFC, and share of the CFC’s GILTI items  
(defined below) reported on all Schedules K-3 may not equal the  
aggregate share of subpart F income of the CFC, the aggregate  
section 951(a)(1)(B) inclusion for the CFC, and the aggregate  
share of the CFC’s GILTI items (defined below), respectively,  
reported on the Schedule K-2.  
Column (g). Enter the exchange rate on the date of distribution  
used to translate the amount of the distribution in functional  
currency to U.S. dollars. See section 989(b)(1). Report the  
exchange rate using the "divide-by convention" specified under  
Reporting exchange rates on Form 5471 in the Instructions for  
Form 5471.  
Use Schedule K-2, Part VI, to report the information on the  
partnership’s share of the amounts its partners will need to figure  
their subpart F income inclusions, section 951(a)(1)(B)  
inclusions, and GILTI inclusions, for CFCs owned (within the  
meaning of section 958) by the partnership. Use Schedule K-3,  
Part VI, to report the partner’s share of the amounts needed to  
determine its subpart F income inclusions, section 951(a)(1)(B)  
inclusions, and GILTI inclusion, for CFCs owned (within the  
meaning of section 958) by the partnership.  
Column (h). Enter the amount of the distribution in U.S. dollars.  
Translate column (e) using the spot rate reported in column (g).  
Column (i). Enter the amount of E&P distributed in U.S. dollars.  
Translate column (f) using the spot rate reported in column (g).  
The U.S. person completing Form 8865 must complete Part  
VI of Schedules K-2 and K-3 by assuming that each partner in  
the partnership is a U.S. shareholder of the CFC and is required  
to include in gross income its share of the CFC's subpart F  
income, its section 951(a)(1)(B) inclusion, and its GILTI.  
Column (j). If the distributing foreign corporation is a qualified  
foreign corporation, determined without regard to section 1(h)  
(11)(C)(iii)(I), check the box. See section 1(h)(11)(C).  
Schedules K-2 and K-3, Part VI (Information on  
Partners' Section 951(a)(1) and Section 951A  
Inclusions)  
A partner's GILTI is calculated based upon its share of the  
following amounts for each CFC for which it is a U.S.  
shareholder: tested income, tested loss, QBAI, tested loss QBAI  
amount, tested interest income, and tested interest expense  
(collectively, GILTI items) (a CFC's subpart F income and GILTI  
items, CFC items).  
Note. This information is relevant to partners completing Form  
8992 and Forms 1040 and 1120 for income inclusions under  
section 951(a) (subpart F inclusions), section 951(a)(1)(B)  
inclusions, and section 951A inclusions.  
A partner's share of a CFC's subpart F income, amounts used  
to determine its section 956 amount for a CFC, and a CFC's  
GILTI items may not be limited to the partner's share of such  
income, amounts, or items through its ownership in the  
partnership. However, for purposes of completing Part VI of  
Schedules K-2 and K-3, use only the partner's share of a CFC's  
subpart F income, amounts used to determine its section 956  
amount for a CFC, and a CFC's GILTI items through the partner's  
ownership in the partnership.  
Schedules K-2 and K-3, Part VI, must be completed for a  
CFC if the partnership owns (within the meaning of section 958)  
stock of the CFC, unless the partnership owns stock of the CFC  
solely by reason of applying section 318(a)(3) (providing for  
downward attribution) as provided in section 958(b).  
Generally, a foreign corporation is a CFC if more than 50% of  
either the total combined voting power of all classes of stock  
entitled to vote or the total value of the stock of the corporation is  
owned (within the meaning of section 958(a)) or is considered as  
owned by applying the rules of section 958(b) by U.S.  
A partner's share through its ownership in the partnership of  
subpart F income and GILTI items is generally anticipated to be  
calculated by multiplying the percentage in column (d) by the  
amount of subpart F income or GILTI item, respectively. For  
example, in general, a partner's share through its ownership  
interest in the partnership of tested income in column (i) is  
anticipated to be calculated by multiplying the percentage in  
column (d) by the amount of tested income in column (g). If the  
partner’s share through its ownership in the partnership of  
subpart F income or GILTI items isn’t calculated by multiplying  
the percentage in column (d) by the amount of subpart F income  
or GILTI items, respectively (for example, because of special  
allocations), then, instead of entering a percentage in column (d)  
for that CFC, attach a statement to the Schedules K-2 and K-3  
explaining the partner’s share through its ownership in the  
partnership of the CFC’s subpart F and GILTI items.  
shareholders. For this purpose, a U.S. shareholder is a U.S.  
person (as defined in section 957(c)) who owns (within the  
meaning of section 958(a)), or is considered as owning by  
applying the rules of ownership of section 958(b), 10% or more  
of the total combined voting power of all classes of stock entitled  
to vote, or 10% or more of the total value of shares of all classes  
of stock of such foreign corporation.  
Exception. Part VI of Schedule K-2 doesn’t need to be  
completed for a CFC if the partnership doesn’t have a direct or  
indirect partner (through pass-through entities only) that is a U.S.  
shareholder of the CFC required to include in gross income a  
subpart F income inclusion and/or section 951(a)(1)(B) inclusion  
for the CFC, or calculate section 951A inclusions by taking into  
account GILTI items (defined below) of the CFC.  
Exception. Part VI of Schedule K-3 for a partner doesn’t need  
to be completed for a CFC if the filer of Form 8865 knows that (a)  
the partner isn’t a U.S. shareholder of the CFC required to  
include in gross income a subpart F income inclusion and/or  
section 951(a)(1)(B) inclusion for the CFC, or figure section  
951A inclusions by taking into account GILTI items (defined  
below) of the CFC; and (b) no U.S. person that indirectly owns  
(through pass-through entities only) an interest in the CFC  
through the partner is a U.S. shareholder of the CFC required to  
include in gross income a subpart F income inclusion and/or  
Line a. Complete a separate Part VI for each applicable  
separate category of income. However, all GILTI items must be  
reported on only one Part VI. If GILTI items include passive  
category income, report all GILTI items on the Part VI completed  
for passive category income; otherwise, report all GILTI items on  
the Part VI completed for general category income. Enter the  
appropriate code on line a.  
Note. The other reporting requirements for reporting income by  
separate category don’t change by reason of reporting GILTI  
18  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
 
items that include general category income on a Part VI  
completed for passive category income.  
a CFC's earnings invested in U.S. property, see Worksheet B in  
the Instructions for Form 5471.  
Column (g). Enter the CFC's tested income, if any, from line 6  
Codes for Categories of Income  
of Schedule I-1 (Form 5471) for each CFC.  
Column (h). Enter the CFC's tested loss, if any, from line 6 of  
Schedule I-1 (Form 5471) for each CFC. The loss amounts  
should be shown as negative numbers.  
Code  
Category of Income  
PAS  
901j  
GEN  
Passive Category Income  
Section 901(j) Income  
Column (i). Enter the aggregate share of the tested income  
listed in column (g) for each CFC with tested income.  
General Category Income  
Column (j). Enter the aggregate share of the tested loss listed  
in column (h) for each CFC with tested loss. The loss amounts  
should be shown as negative numbers.  
Line b. If any portion of a CFC item is U.S. source, complete a  
separate Part VI for U.S.-source CFC items, and check the box  
on line b on such separate Part VI.  
Column (k). If the CFC has a tested loss in column (h), enter  
zero. If the CFC has tested income in column (g), enter the  
aggregate share of QBAI. A CFC's QBAI is reported on  
Schedule I-1 (Form 5471), line 8.  
Line 1. Use lines A through K to report information for CFCs  
owned (within the meaning of section 958) by the partnership,  
and for which Part VI of Schedules K-2 and K-3 must be  
completed. If the partnership owns a CFC through another  
partnership (lower-tier partnership) from which it receives a  
Schedule K-3 (Form 1065 or 8865), Part VI, replicate each line of  
the Schedule K-3 (Form 1065 or 8865), Part VI, that is related to  
the CFC on Schedule K-2 (Form 8865), Part VI. For example, if a  
partnership directly owns 50% of the CFC's stock and owns 50%  
of the CFC's stock through a lower-tier partnership, the CFC  
should be listed on two lines with one line related to the  
partnership's direct ownership and the other line related to the  
partnership's ownership through the lower-tier partnership. Lines  
related to a partnership's direct ownership of CFCs should be  
listed before lines related to a partnership's non-direct ownership  
of CFCs. If additional lines are required, attach to the Schedules  
K-2 and K-3 a schedule that looks like the current version of Part  
VI.  
Column (l). If the CFC has tested income in column (g), enter  
zero. If the CFC has a tested loss in column (h), enter as a  
negative number the aggregate share of the CFC's tested loss  
QBAI amount. See Regulations section 1.951A-4(b)(1)(iv). A  
CFC's tested loss QBAI amount is reported on Schedule I-1  
(Form 5471), line 9c, which must be translated to U.S. dollars.  
Column (m). Enter the aggregate share of the CFC's tested  
interest income. A CFC's tested interest income is reported of  
Schedule I-1 (Form 5471), line 10c.  
Column (n). Enter the aggregate share of the CFC's tested  
interest expense. A CFC's tested interest expense is reported on  
Schedule I-1 (Form 5471), line 9d.  
Schedules K-2 and K-3, Part VII (Information  
Regarding Passive Foreign Investment  
Companies)  
Column (a). Enter the name of each CFC for which Part VI  
must be completed.  
Column (b). Enter the EIN or reference ID number of the CFC.  
Do not enter “FOREIGNUS” or “APPLIED FOR.” For basic  
information about reference ID numbers (including the  
requirements as to the characters permitted), see the  
Instructions for Form 1118.  
Note. This information is relevant to partners completing Form  
8621 and/or that determine income inclusions for the PFICs  
reported on Schedule K-2, Part VII, and Schedule K-3, Part VII.  
Except as otherwise provided, Schedules K-2 and K-3, Part  
VII, must be filed for every partnership that owns PFIC stock  
directly or indirectly. However, the following exceptions apply.  
Column (c). Enter the end of the CFC’s tax year using the  
format YYYYMMDD.  
The U.S. person filing the Form 8865 isn’t required to  
Column (d). Enter the partners' share of CFC items through the  
partners' ownership in the partnership (aggregate share). See  
Regulations sections 1.951-1(b), 1.951-1(e), and 1.951A-1(d)(1)  
for rules on determining the partners' share.  
complete Schedules K-2 and K-3, Part VII, for a foreign  
corporation if the U.S. person knows that all of the foreign  
partnership’s direct and indirect partners that are U.S. persons  
(including itself) are either (a) not subject to the PFIC rules for  
the corporation under section 1297(d) because they are subject  
to the subpart F rules for the corporation, (b) tax-exempt entities  
that aren’t subject to the PFIC rules for the corporation under  
Regulations section 1.1291-1(e), or (c) pass-through entities  
with no indirect U.S. taxable partners.  
Column (e). Enter the aggregate share of the amount of the  
CFC's subpart F income, if any. Note that an amount determined  
under section 956(a) isn’t considered subpart F income. For  
guidance on computing a CFC's subpart F income and the  
partners' share of a CFC's subpart F income, see Worksheet A in  
the Instructions for Form 5471.  
The U.S. person filing the Form 8865 isn’t required to  
complete Schedules K-2 and K-3, Part VII, for a foreign  
corporation if the U.S. person knows that the foreign corporation  
is treated as a qualifying insurance corporation (QIC) (as defined  
in section 1297(f)(1)) that isn’t treated as a PFIC by reason of  
section 1298(b)(1).  
Column (f). Enter the amount determined under section 956 for  
the partners that relates to the partners' ownership in the  
partnership, as described in these instructions for column (f)  
(aggregate section 951(a)(1)(B) inclusion). In determining the  
section 956 amount, use only the partners' share through their  
ownership in the partnership of:  
The U.S. person filing the Form 8865 isn’t required to  
complete Schedules K-2 and K-3, Part VII, for a PFIC the stock  
of which has been marked to market as described in Regulations  
section 1.1291-1(c)(4). Instead, the U.S. person filing the Form  
8865 should report the partnership’s mark-to-market (MTM) gain  
or loss on Form 8865, Schedule K, (if required) and report the  
partners’ shares of those amounts on Part III of Schedule K-1  
(Form 8865) (if required). Note, however, there may be instances  
in which the U.S. person filing the Form 8865 will need additional  
information for the PFIC the stock of which has been marked to  
The average of the amounts of U.S. property held (directly or  
indirectly) by the CFC as of the close of each quarter of the  
CFC’s tax year, and  
The applicable earnings of the CFC.  
Don’t reduce the amount reported in column (f) for any reduction  
to the partners' section 956 amount under Regulations section  
1.956-1(a)(2). For guidance on computing the partners' share of  
19  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
 
market as described in Regulations section 1.1291-1(c)(4) to  
meet its tax obligations, such as when the section 1291 rules  
apply to the U.S. person filing the Form 8865 because the stock  
wasn’t marked to market in the first year of its holding period. In  
such instances, the U.S. person filing the Form 8865 may use  
Part VII to report the needed information.  
Codes for Classes of PFIC Shares  
Code  
Class of PFIC Shares  
COM  
PRE  
OTH  
VAR  
Common or Ordinary Shares  
Preferred Shares  
Use Schedule K-2, Part VII, to report certain information for  
any PFIC owned, directly or indirectly, by the partnership for  
which reporting is required, including PFICs for which no QEF or  
section 1296 MTM election has been made and unpedigreed  
QEFs (section 1291 funds), and PFICs for which pedigreed QEF,  
section 1296 MTM, or other elections have been, or may be,  
made.  
Other Equity Interest  
Multiple Classes of Shares or Equity  
Interests  
Column (g). If the partnership acquired any PFIC shares  
during its tax year, provide the date(s) of acquisition of those  
shares using the format YYYYMMDD. If the partnership acquired  
no shares in a particular PFIC during its tax year, leave this  
column blank for that PFIC.  
The U.S. person filing the Form 8865 must also use  
Schedule K-2, Part VII, to report information for any PFIC for  
which the U.S. person is making an MTM election under section  
1296 in the current tax year if the current tax year isn’t the first  
year of the U.S. person’s holding period in the stock (“non-initial  
section 1296 MTM election”). See section 1296(j)(1)(A) and  
Regulations section 1.1296-1(i) for more information.  
Reminder. If the partnership acquired shares in a PFIC on  
multiple dates during the tax year, append a completed  
Attachment 5 to Schedule K-2, Part VII, and its corresponding  
Schedules K-3, Part VII, providing those dates.  
Attachment 5  
Use Schedule K-3, Part VII, to report the partner's share,  
through its ownership in the partnership, of the amounts reported  
on Schedule K-2, Part VII.  
Additional Information for Section 1  
General Information  
Annual Information  
Complete only one line on both Sections 1 and 2 for each  
PFIC for which reporting on Schedules K-2 and K-3, Part VII, is  
required. Each line completed for a PFIC in Section 1 should  
correspond to the same line on Section 2. If there is no  
(a)  
Name of PFIC  
(b)  
(g)  
EIN or reference ID  
number  
Dates PFIC shares  
acquired during tax year  
(if applicable)  
information to report for a PFIC in Section 2, columns (c) through  
(o), only complete the name and EIN of the PFIC in Section 2,  
columns (a) and (b), and leave columns (c) through (o) blank for  
that PFIC. For additional information on determining indirect  
ownership of PFICs, see Regulations section 1.1291-1(b)(8).  
The partnership may have additional required information for  
a PFIC for certain columns (for example, scenarios where the  
partnership may have multiple different events for the PFIC in the  
same tax year, such as multiple dates of acquisitions of, or  
distributions for, the PFIC stock). In that case, complete  
Schedules K-2, and K-3, Part VII, with the first of those entries for  
a PFIC and attach a statement including the remaining entries  
for each of those PFIC to Schedule K-2, Part VII, and its  
corresponding Schedules K-3, Part VII, with Attachments 5  
and/or 6 completed.  
Column (h). Enter the total number of all classes of shares of  
the PFIC the partnership owned at the end of its tax year.  
Column (i). Enter the total value of all shares in the PFIC held  
by the partnership at the end of the tax year. If the PFIC shares  
are not publicly traded, it is possible to rely upon periodic  
account statements provided at least annually to determine the  
value of a PFIC unless there is actual knowledge or reason to  
know based on readily accessible information that the  
statements do not reflect a reasonable estimate of the PFIC's  
value and the information provides a more reasonable estimate  
of the PFIC's value.  
If the partnership has additional PFICs for which to report  
information that don’t fit on single Schedules K-2 and K-3, Part  
VII, attach additional Parts VII of Schedules K-2 and K-3, as  
needed.  
Section 1. General Information  
Note. A partner may need additional information not required to  
be reported on this Schedule K-2, Part VII, (or the partner’s  
Schedule K-3, Part VII) from the partnership for the value of the  
PFIC shares as of a particular date to aid the partner in making  
certain elections under Regulations section 1.1291-10,  
1.1297-3, or 1.1298-3.  
Columns (a) through (c). Enter the name, U.S. EIN or  
reference ID number, and address of each PFIC held directly or  
indirectly by the partnership during its tax year. Do not enter  
“FOREIGNUS” or “APPLIED FOR.”  
For basic information about reference ID numbers (including  
the requirements as to the characters permitted), see the  
Instructions for Form 8621.  
Column (j). Check the box if the foreign corporation has  
indicated that it has documented eligibility to be treated as a  
QIC. See section 1297(f) and Regulations section 1.1297-4 for  
additional information on QICs.  
Columns (d) and (e). Enter the beginning and end of the  
PFIC's tax year using the format YYYYMMDD.  
Column (f). Enter each class of shares in the PFIC owned by  
Column (k). Check the box if the PFIC has indicated that its  
shares are "marketable stock" as defined in section 1296(e) and  
Regulations section 1.1296-2.  
the partnership using the following codes.  
Column (l). Check the box if the PFIC also constitutes a CFC  
within the meaning of section 957 (PFIC/CFC).  
20  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
     
Note. Certain partners may need additional information not  
required to be reported on this Schedule K-2, Part VII, (or the  
partner’s Schedule K-3, Part VII) from the QEF for its  
computation of its net capital gain (as defined in Regulations  
section 1.1293-1(a)(2)) to make certain computations under  
section 1061 or the regulations thereunder. The U.S. person  
preparing the Form 8865 may request, or the foreign partnership  
for which the Form 8865 is filed may aid the U.S. person filing the  
Form 8865 in obtaining, such information from the QEF, though  
the QEF isn’t required to provide such information. See section  
1061 and Regulations sections 1.1061-4 and 1.1061-6 for more  
information.  
Reminder. If the U.S. person filing the Form 8865 knows that all  
of the partnership's direct and indirect partners that are U.S.  
persons (including itself) aren’t subject to the PFIC rules for a  
PFIC/CFC under section 1297(d) because they are subject to  
the subpart F rules for the corporation, it’s not required to  
complete Schedules K-2 and K-3, Part VII, for the PFIC/CFC.  
Note. If the PFIC is a PFIC/CFC, a partner may need certain  
additional information for the PFIC/CFC’s E&P not required to be  
reported on this Schedule K-2, Part VII, (or the partner’s  
Schedule K-3, Part VII) from the partnership to aid the partner in  
making certain elections under Regulations section 1.1291-9,  
1.1297-3, or 1.1298-3.  
Section 1296 MTM Information  
Column (m). Complete column (m) in the following manner.  
Columns (e) and (f). Enter the fair market value of the PFIC  
stock at the beginning and end of the partnership’s tax year in  
columns (e) and (f), respectively. If any shares of the PFIC were  
acquired during the tax year for which the Form 8865 is being  
filed, the fair market value in column (e) should reflect the fair  
market value of those shares as of the date of acquisition. This  
information must be provided unless the U.S. person filing the  
Form 8865 hasn’t made, or doesn’t intend to make, a section  
1296 MTM election for the PFIC, including a non-initial section  
1296 MTM election.  
IF...  
THEN...  
• this is the first year of the  
check the box.  
partnership's holding period in stock  
of the foreign corporation, and  
• the foreign corporation is a PFIC  
under the income test or asset test of  
section 1297(a)  
• the foreign corporation was a PFIC  
in a prior tax year of the partnership's  
holding period, and  
check the box.  
Reminder. The U.S. person filing the Form 8865 isn’t required  
to complete Schedules K-2 and K-3, Part VII, for a PFIC the  
stock of which has been marked to market as described in  
Regulations section 1.1291-1(c)(4), though it may use Part VII to  
provide the partners with additional information to meet their tax  
obligations for the PFIC in certain instances, such as when the  
section 1291 rules apply because the stock wasn’t marked to  
market the first year of the shareholder’s holding period.  
• the foreign corporation isn’t a  
"former PFIC" within the meaning of  
Regulations section 1.1291-9(j)(2)(iv)  
• the foreign corporation was a PFIC  
in a prior tax year of the partnership's  
holding period, and  
• the foreign corporation is a "former  
PFIC" within the meaning of  
Regulations section 1.1291-9(j)(2)(iv)  
don’t check the box.  
Section 1291 and Other Information  
Note. Generally, the information in columns (g) through (o) is to  
assist shareholders of section 1291 funds in satisfying any  
information reporting obligations and in computing income  
inclusions for section 1291 funds. However, this information may  
be relevant to PFICs for which a QEF election (pedigreed or  
unpedigreed), section 1296 MTM election (including a non-initial  
section 1296 MTM election), or other election has been made by  
a partner or other indirect PFIC shareholder. Accordingly,  
complete columns (g) through (o) for each PFIC for which  
reporting on Schedule K-2, Part VII, and Schedule K-3, Part VII,  
is required. However, note the instructions for column (k)  
regarding reporting distributions from PFICs for which the U.S.  
person filing the Form 8865 has made a pedigreed QEF election  
or section 1296 MTM election (other than a non-initial section  
1296 MTM election).  
Note. If the foreign corporation is a “former PFIC” within the  
meaning of Regulations section 1.1291-9(j)(2)(iv), a partner may  
need additional information not required to be reported on this  
Schedule K-2, Part VII, (or the partner’s Schedule K-3, Part VII)  
from the partnership for the PFIC to aid the partner in making  
certain elections under Regulations section 1.1298-3.  
Section 2. Additional Information on PFIC or QEF  
General Information  
Columns (a) and (b). Enter the name and U.S. EIN (or  
reference ID number) of each PFIC held directly or indirectly by  
the partnership during its tax year. Don’t enter “FOREIGNUS” or  
“APPLIED FOR.”  
Reminder. If the partnership has additional required information  
for a PFIC for any of columns (g) through (j) or (l) through (m) (for  
example, multiple distributions for the PFIC stock), the U.S.  
person filing the Form 8865 must complete those columns with  
the first of those entries and attach a statement including the  
remaining entries to Schedule K-2, Part VII, and its  
QEF Information  
Columns (c) and (d). Enter the partnership's share of the total  
ordinary earnings and net capital gain (as defined in Regulations  
section 1.1293-1(a)(2)) of 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 statement  
that provides information to assist in determining these amounts.  
See Regulations section 1.1295-1(g) for additional information  
on annual PFIC statements.  
Provide the information received in an annual information  
statement for the PFIC, unless the U.S. person filing the Form  
8865 hasn’t made, or doesn’t intend to make, a QEF election for  
the PFIC.  
corresponding Schedules K-3, Part VII, with the information  
contained in Attachment 6.  
Column (g). Enter the date(s) on which the partnership initially  
acquired each block of stock in the PFIC using the format  
YYYYMMDD.  
Column (h). Enter the amount of each distribution of cash  
and/or the fair market value of any other property distributed to  
the partnership by the PFIC during the tax year, if any.  
21  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
   
Note. Deemed distributions by QEFs don’t need to be reported  
on this Schedule K-2, Part VII (or the partner’s Schedule K-3,  
Part VII). However, partners which have made, or intend to make,  
an election under section 1294, and which are deemed to have  
received a distribution from the QEF, may require this information  
to complete any computations under section 1294 (including for  
Form 8621, if required). See section 1294(f) and Regulations  
section 1.1294-1T for additional information.  
“base erosion percentage test.” Partnerships aren’t subject to the  
BEAT; however, corporate partners of a partnership that are  
applicable taxpayers under Regulations section 1.59A-2 may be  
subject to the BEAT. Except for purposes of determining a  
partner's base erosion tax benefits under Regulations section  
1.59A-7(d)(1), and whether a taxpayer is a registered securities  
dealer, BEAT determinations are made by the partner. See  
Regulations section 1.59A-7 for further information regarding the  
application of section 59A to partnerships and the Instructions  
for Form 8991 for additional information on whether a corporate  
partner is an applicable taxpayer subject to the BEAT.  
Column (i). Enter the date(s) of distribution of the amounts  
entered in column (h) using the format YYYYMMDD.  
Column (j). Enter the total creditable foreign taxes attributable  
to a distribution from the PFIC. See section 1291(g) and the  
instructions for Form 8621, Part V, line 16d, for additional  
information on creditable foreign taxes attributable to PFIC  
distributions, including apportioning creditable foreign taxes to  
the portion of a distribution which constitutes an excess  
distribution and certain rules related to creditable foreign taxes  
on a disposition of PFIC stock.  
To complete Schedules K-2 and K-3, Part VIII, the foreign  
related parties of each partner must be identified, subject to the  
exception for small partners. It’s expected that the partners will  
collaborate to identify the foreign related parties of each partner.  
A foreign related party of the partner is a foreign person that is:  
Any 25% owner of the applicable taxpayer (as defined in  
Regulations section 1.59A-1(b)(17)(ii)(A)),  
Any person who is related (within the meaning of section  
267(b) or 707(b)(1)) to the applicable taxpayer or any 25%  
owner of the applicable taxpayer, or  
Column (k). Enter the total amount of distributions the  
partnership received from the PFIC in the 3 preceding tax years,  
or, if shorter, the total amount of distributions the partnership  
received during its holding period of the PFIC stock. However,  
don’t enter any amount in this column for a PFIC for which the  
U.S. person filing the Form 8865 has made a pedigreed QEF  
election or section 1296 MTM election (other than a non-initial  
section 1296 MTM election).  
Any other person who is related to the applicable taxpayer  
within the meaning of Regulations section 1.59A-1(b)(17)(i)(C).  
Exception for small partners. Part VIII of Schedule K-3  
isn’t required to be prepared for small partners meeting the  
following 3 requirements.  
1. The partner's interest in the partnership represents less  
than 10% of the capital and profits of the partnership at all times  
during the tax year.  
2. The partner is allocated less than 10% of each  
partnership item of income, gain, loss, deduction, and credit for  
the tax year.  
3. The partner's interest in the partnership has a fair market  
value of less than $25 million on the last day of the partner's tax  
year, determined using a reasonable method.  
Column (l). Enter the date(s) on which the partnership  
disposed of any block of stock in the PFIC during the  
partnership's tax year, if any, using the format YYYYMMDD.  
Column (m). If the partnership disposed of any block of stock  
in the PFIC during the partnership's tax year, enter the amount  
realized by the partnership on each disposition.  
Column (n). If the partnership disposed of any block of stock in  
the PFIC during the partnership's tax year, enter the  
partnership's tax basis in the shares of the PFIC on the date of  
disposition.  
Schedule K-3. Enter the partner's share, through its  
ownership in the partnership, of the partnership's tax basis in the  
PFIC shares. The partner's share of the basis in the PFIC shares  
should include any applicable adjustments specific to the  
partner, such as section 743(b) adjustments or adjustments  
made under the PFIC regime. See sections 1293(d) and  
1296(b), and Regulations sections 1.1297-3 and 1.1298-3 for  
adjustments made under the PFIC regime.  
See Regulations section 1.59A-7(d)(2) for further information  
regarding the application of the exception for small partners.  
Exception for certain other partners. Don’t complete  
Schedule K-3, Part Vlll, for a partner that is an individual.  
Don’t complete Schedule K-3, Part VIII, for a partner that is an  
S corporation.  
Complete Section 1, lines 1–4, of Schedule K-3, Part VIII, for  
partners that are RICs and REITs but don’t complete Section 2  
for these partners.  
Column (o). Enter the partnership's gain or loss on the  
disposition of PFIC shares. This equals column (m) minus  
column (n).  
Section 1. Applicable Taxpayer  
Lines 1a through 4a. Enter the partnership's total gross  
receipts for the current year and each of the 3 preceding tax  
years. The determination of the partnership's gross receipts is  
made in accordance with Regulations section 1.448-1T(f)(2)(iv).  
Schedules K-2 and K-3, Part VIII (Partners’  
Information for Base Erosion and Anti-Abuse  
Tax (Section 59A))  
Lines 1b through 4b. Complete lines 1b through 4b if the  
partnership has a foreign partner or there is reason to know it  
has a foreign partner through a partner that is a pass-through  
entity. Enter the partnership’s total gross receipts on income  
effectively connected with a U.S. trade or business (ECI) for the  
current year and each of the 3 preceding tax years which the  
foreign partner(s) would take into account as income that is ECI.  
If the foreign partner(s) is subject to tax on a net basis pursuant  
to an applicable income tax treaty of the United States, enter the  
gross receipts that would be attributable to transactions taken  
into account in determining its net taxable income.  
Note. This information is relevant for partners completing Form  
8991.  
This Part VIII of Schedules K-2 and K-3 must be completed  
for corporate partners who are determining if they are subject to  
the BEAT, and to figure their BEAT, if any. This information  
includes the partner's share of the partnership's gross receipts,  
the partner's amount of base erosion payments made through  
the partnership, and the partner's base erosion tax benefits. The  
BEAT is generally levied on certain large corporations that have  
deductions and certain other items paid or accrued to foreign  
related parties (a base erosion payment) that are 3% of their  
total deductions or higher (2% in the case of certain banks or  
registered securities dealers), a determination referred to as the  
Lines 1c through 4c. Complete lines 1c through 4c if the  
partnership has a foreign partner or has reason to know it has a  
foreign partner through a partner that is a pass-through entity.  
22  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
   
Enter the total non-ECI gross receipts as the difference between  
column (a) and column (b).  
is subject to the allowance for depreciation (or amortization in  
lieu of depreciation).  
Schedule K-3. For purposes of section 59A, each partner in  
a partnership includes on its Schedule K-3, Part VIII, the share of  
partnership gross receipts in proportion to the partner's  
distributive share (as determined under sections 704(b) and (c))  
of items of gross income that were taken into account by the  
partnership under section 703 or 704(c) (such as remedial or  
curative items under Regulations sections 1.704-3(c) or (d)).  
Column (c). Enter the amount of the partners' base erosion  
tax benefits attributable to deductions allowed under chapter 1  
for the tax year for depreciation (or amortization in lieu of  
depreciation) for intangible property rights acquired in the current  
year or prior years from all foreign persons that are related  
parties of any of the partners.  
Line 9. Rents, royalties, and license fees.  
Line 5. Amounts included in the denominator of the base  
erosion percentage as described in Regulations section  
1.59A-2(e)(3). Enter the amount of deductions and other items  
allocated to the partners from the partnership that will be  
included in the denominator of the partners' base erosion  
percentage. For a description of deductions that aren’t included  
in the denominator, see Regulations section 1.59-2(e)(3)(ii).  
Column (a). Enter the amount paid or accrued by the  
partnership for the tax year for the use or right to use tangible or  
intangible property resulting in rents, royalties, and/or license  
fees.  
Column (b). Enter the amount paid or accrued to all foreign  
persons that are related parties of any of the partners for the use  
or right to use tangible or intangible property resulting in rents,  
royalties, and/or license fees.  
Column (c). Enter the amount of the partners' base erosion  
tax benefits attributable to amounts paid or accrued to all foreign  
persons that are related parties of any of the partners for the use  
or right to use tangible or intangible property that results in rents,  
royalties, and/or license fees.  
Section 2. Base Erosion Payments and Base  
Erosion Tax Benefits  
Column (b). Base erosion payments. For purposes of  
determining whether a payment or accrual by a partnership is a  
base erosion payment, any amount paid or accrued by the  
partnership is treated as paid or accrued by each partner based  
on the partner's distributive share of the item of deduction for  
that amount. A partner that is an applicable taxpayer has a base  
erosion payment for any amount paid or accrued by the  
partnership to a foreign person (as defined in Regulations  
section 1.59A-1(b)(10)) that is a related party to the partner (as  
defined in Regulations section 1.59A-1(b)(12)) for which a  
deduction is allowable under chapter 1 and for certain other  
items on lines 13 and 15. See Regulations section 1.59A-3 and  
the Instructions for Form 8991 for more information on the  
definition of a base erosion payment.  
Line 10a. Compensation/consideration paid for services  
NOT excepted by section 59A(d)(5).  
Column (a). Enter the amount paid or accrued by the  
partnership for the tax year as compensation or consideration for  
services, excluding any amount that qualifies for the services  
cost method exception in section 59A(d)(5).  
Column (b). Enter the amount paid or accrued to all foreign  
persons that are related parties of any of the partners as  
compensation or consideration for services, excluding any  
amount that qualifies for the services cost method exception in  
section 59A(d)(5).  
Column (c). Enter the amount of the partners' base erosion  
tax benefits attributable to amounts paid or accrued to all foreign  
persons that are related parties of any of the partners  
representing compensation or consideration paid for services,  
excluding amounts qualifying for the services cost method  
exception in section 59A(d)(5).  
Column (c). Base erosion tax benefits. A partner's  
distributive share of any deduction or reduction in gross receipts  
attributable to a base erosion payment is the partner's base  
erosion tax benefit. A partner's base erosion tax benefits are  
determined separately for each asset, payment, or accrual, as  
applicable, and aren’t netted with other items. A partner's base  
erosion tax benefit may be more than the partner's base erosion  
payment (for example, in the case of special allocations made by  
the partnership). See the Instructions for Form 8991 and  
Regulations section 1.59A-7(d) for further information  
Line 10b. Compensation/consideration paid for services  
excepted by section 59A(d)(5).  
Column (a). Enter the amounts paid or accrued by the  
partnership to any foreign person that is a related party of any of  
the partners for services qualifying for the services cost method  
exception in section 59A(d)(5).  
concerning a partner's base erosion tax benefits.  
General. For line 8, columns (b) and (c); line 9, columns (b)  
and (c); line 10a, columns (b) and (c); line 11, columns (b) and  
(c); line 12, columns (b) and (c); line 13, columns (b) and (c);  
line 14a, columns (b) and (c); line 15, columns (b) and (c); and  
line 16, columns (b) and (c), don’t include amounts that a partner  
doesn’t take into account pursuant to the exception for certain  
small partners. See Regulations section 1.59A-7(d)(2) and  
Exception for small partners, earlier. For Schedule K-2, Part VIII,  
report the total allocated to all partners, and for Schedule K-3,  
Part VIII, report the amount allocated to each individual partner.  
Line 11. Interest expense.  
Column (a). Enter the amount of interest paid or accrued by  
the partnership for the tax year (excluding interest paid or  
accrued in a prior year treated as paid or accrued in the current  
year under section 163(j) or similar provisions).  
Column (b). Enter the amount of interest expense paid or  
accrued to all foreign persons that are related parties of any of  
the partners (excluding interest paid or accrued in a prior year  
treated as paid or accrued in the current year under section  
163(j) or similar provisions).  
Line 8. Purchase or creation of property rights for intangi-  
bles (patents, trademarks, etc.).  
Column (a). Enter the amount paid or accrued by the  
partnership in connection with the acquisition or creation of  
intangible property rights (patents, copyrights, trademarks, trade  
secrets, etc.) that is subject to the allowance for depreciation (or  
amortization in lieu of depreciation) for the tax year.  
Column (b). Enter the amount paid or accrued to all foreign  
persons that are related parties of any of the partners in  
connection with the acquisition or creation of intangible property  
rights (patents, copyrights, trademarks, trade secrets, etc.) that  
Column (c). Enter the amount of the partners' base erosion  
tax benefits attributable to interest expense paid or accrued by  
the partnership that is allowed as a deduction in the current tax  
year. If the partner is a foreign person, include the individual lines  
from column (c) of Worksheet A on the applicable Schedule K-3.  
Schedule K-3. When completing line 11 on the  
Schedule K-3, if the partner is a foreign person, enter the total  
from column (a) of Worksheet A on the partner's Schedule K-3 in  
column (a) of line 11, enter the total from column (b) of  
Worksheet A on the Schedule K-3 in column (b) of line 11, and  
23  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
   
enter the total from column (c) of Worksheet A on the  
Schedule K-3 in column (c) of line 11.  
payment isn’t a qualified derivative payment if it’s properly  
allocable to the nonderivative component.  
Complete Worksheet A for all partnership-related items and  
complete a Worksheet A for each foreign partner's share of the  
amounts reported on the partnership Worksheet A and attach a  
statement containing the partner’s share of the information in  
Worksheet A to the Schedule K-3.  
Line 15. Payments reducing gross receipts made to surro-  
gate foreign corporation.  
Column (a). Enter the amount paid or accrued by the  
partnership for the tax year to certain expatriated entities  
described in section 59A(d)(4)(C)(i).  
Column (b). Enter the amount paid or accrued to certain  
expatriated entities that results in a reduction of the gross  
receipts of the partnership. This amount includes payments to a  
surrogate foreign corporation that is a related party to the  
partner, but only if the entity first became a surrogate foreign  
corporation after November 9, 2017. The amount also includes  
payments to a foreign person that is a member of the same  
expanded affiliated group, as defined in section 7874(c)(1), as  
the surrogate foreign corporation. A surrogate foreign  
corporation is defined in section 7874(a)(2)(B) but doesn’t  
include a foreign corporation that is treated as a domestic  
corporation under section 7874(b).  
Line 12. Payments for the purchase of tangible personal  
property.  
Column (a). Enter the amount paid or accrued by the  
partnership for the tax year for the purchase of tangible personal  
property.  
Column (b). Enter the amount paid or accrued to all foreign  
persons that are related parties of any of the partners for the  
purchase of tangible personal property.  
Column (c). Enter the amount of base erosion tax benefits  
attributable to amounts paid or accrued to any foreign persons  
that are related parties of any of the partners for the purchase of  
tangible property.  
Column (c). Enter the base erosion tax benefits attributable  
to amounts paid or accrued to certain expatriated entities  
described in column (b) resulting in a reduction of gross receipts  
of the partnership.  
Line 13. Premiums and/or other considerations paid or ac-  
crued for reinsurance as covered by section 59A(d)(3) and  
section 59A(c)(2)(A)(iii).  
Column (a). Enter the amount paid or accrued by the  
partnership for the tax year for reinsurance.  
Line 16. Other payments—specify.  
Column (a). Enter the amount paid or accrued for the tax  
year by the partnership that hasn’t been included on lines 8  
through 15 above.  
Column (b). Enter the amount of any premiums or other  
consideration paid or accrued to all foreign persons that are  
related parties of any of the partners for reinsurance taken into  
account under section 803(a)(1)(B) (relating to return premiums  
and premiums or other consideration arising out of indemnity  
reinsurance that reduces life insurance gross income) or section  
832(b)(4)(A) (relating to amounts deducted from gross premiums  
written on insurance contracts for return premiums and  
premiums paid for reinsurance).  
Column (c). Enter the amount of the partners' base erosion  
tax benefits attributable to premiums or other consideration as  
described in section 59A(c)(2)(A)(iii) paid or accrued to any  
foreign person that is a related party of any of the partners for  
reinsurance.  
Column (b). Enter the amount paid or accrued to any foreign  
person that is a related party of any of the partners that is a base  
erosion payment that hasn’t otherwise been included on lines 8  
through 15 above.  
Column (c). Enter the amount of the partners' base erosion  
tax benefits related to other specified base erosion payments not  
listed in any of the categories on lines 8 through 15 above.  
Attachment. For amounts reported on line 16, attach a  
statement to both Schedules K-2 and K-3 (for distributive share)  
describing the type and amount of other payments, using the  
same column headings as specified in this schedule: “Total Base  
Erosion Payment,Total Base Erosion Tax Benefit.” For each  
type of payment, the attachment must identify the relationship of  
a partner to the foreign related party consistent with the  
categories and instructions for columns (b) and (c) of this  
schedule.  
Line 14a. Nonqualified derivative payments.  
Column (a). Enter the amount paid or accrued by the  
partnership for the tax year attributable to derivative contracts as  
defined in section 59A(h)(4).  
Column (b). Enter the amount paid or accrued to all foreign  
persons that are related parties of any of the partners for  
derivative contracts that are not eligible for the qualified  
derivative payment exception under section 59A(h) and  
Regulations section 1.59A-6. Don’t include any amount paid that  
is a qualified derivative payment on line 14a, column (b).  
Column (c). Enter the amount of base erosion tax benefits  
attributable to nonqualified derivative payments paid or accrued  
to any foreign person that is a related party of any of the  
partners.  
Line 17, column (c). Base erosion tax benefits related to  
payments reported on lines 6 through 16, on which tax is  
imposed by section 871 or 881, with respect to which tax  
has been withheld under section 1441 or 1442 at 30%  
(0.30) statutory withholding tax rate. Enter the aggregate  
amount of the partners' base erosion tax benefits, reported on  
lines 8 through 16, on which tax is imposed under section 871 or  
881 and for which tax has been deducted and withheld under  
section 1441 or 1442 at a 30% statutory withholding tax rate.  
Line 18, column (c). Portion of base erosion tax benefits re-  
ported on lines 6 through 16, on which tax is imposed by  
section 871 or 881, with respect to which tax has been  
withheld under section 1441 or 1442 at a reduced with-  
holding rate pursuant to an income tax treaty. Multiply the  
ratio of percentage withheld divided by 30% (0.30) times base  
erosion tax benefit. Complete Worksheet B for all  
Line 14b. Qualified derivative payments excepted by sec-  
tion 59A(h). Enter the total amount of qualified derivative  
payments paid or accrued by the partnership. Generally, a  
qualified derivative payment is any payment made by the  
taxpayer pursuant to a derivative contract, provided that the  
taxpayer recognizes gain or loss on the derivative contract as if it  
were sold for its fair market value on the last business day of the  
tax year; treats the gain or loss as ordinary; and treats the  
character of all other items of income, deduction, gain, or loss for  
a payment pursuant to the derivative as ordinary. A payment isn’t  
a qualified derivative payment if the payment would be treated as  
a base erosion payment if it weren’t made pursuant to a  
partnership-related items and attach a Worksheet B to the  
Schedule K-3 for each partner's share of the amounts reported  
on the partnership Worksheet B.  
Complete Worksheet B to determine the portion of the base  
erosion tax benefits, reported on lines 8 through 16, on which tax  
is imposed under section 871 or 881 and for which tax has been  
deducted and withheld at a reduced withholding tax rate (but not  
exempt from tax) pursuant to a U.S. income tax treaty. Keep a  
derivative (such as interest, royalty, or services income). For a  
contract with both derivative and nonderivative components, a  
24  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
Worksheet A—Interest Paid or Accrued by the Partnership  
(a)  
(b)  
(c)  
Total Interest Paid or Accrued in the Interest Paid or Accrued to Foreign Interest Expense Paid or Accrued to  
Current Year  
Related Parties of the Foreign  
Partner in the Current Year  
Foreign Related Parties of the  
Foreign Partner That Is 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 erosion  
payment  
Amount of base erosion tax Treaty-reduced withholding Divide column C by 30%  
benefit rate (0.30) (round to 4 decimal  
places)  
Multiply column B by  
column D  
%
%
%
%
%
%
Add the amounts in column E and enter the total on line 18, column (c)  
copy of the completed Worksheet B for the partnership’s  
records.  
25  
Inst. for Schedules K-2 and K-3 (Form 8865) (2023)  
   
Index  
A
Attachment 1 4  
Attachment 2 4  
Attachment 3 17  
Attachment 4 17  
Attachment 5 20  
Foreign-Derived Intangible Income  
(FDII) Deduction apportionment  
factors 11  
Parts of Sch. K-2, in general 2  
Parts of Schedules K-2 and K-3, in  
general 2  
Form 8621, Information to  
PFIC, QEF general information 20  
Complete 19  
Purchase or creation of property  
Future Developments 1  
rights for intangibles 23  
G
R
General Instructions 1  
Gross income 7  
R&E expenses 9  
Rental income 8  
B
Base Erosion and Anti-Abuse Tax 22  
Base Erosion Payments and Base  
H
S
Erosion Tax Benefits 23  
High-taxed income 4  
Schedule K-2, Identifying  
Box 1. Gain on personal property  
Information 2  
sale. 3  
I
Schedule K-3, Identifying  
Information 3  
C
Income resourced by treaty 7  
Interest expense 9  
Section 1291 and Other  
Capital gains and losses 8  
Charitable contributions 9  
Codes for Classes of PFIC Shares 20  
Codes for Types of Tax 11  
Collectibles (28%) gain 8  
Collectibles loss 9  
Information 21  
Interest expense apportionment  
Section 1296 MTM Information 21  
Section 250 deduction re FDII 14  
Section 267A disallowed deduction 5  
Section 901(j) income 7  
factors 10  
N
Net long-term capital gain 8  
Net long-term capital loss 9  
Net section 1231 gain 8  
Section 951(a)(1) and Section 951A  
Computer-Generated Schedules K-2  
Inclusions 18  
and K-3 2  
Section 951A category income 7  
Section 986(c) gain and loss 8  
Section 987 gain and loss 8  
Section 988 gain and loss 8  
Specific Instructions 2  
Country code 7  
Currency 2  
O
Ordinary dividends and qualified  
D
dividends 8  
Other deductions 9  
DEI and QBAI on Form 8993 14  
Splitter arrangements 3  
Other income 9  
Distributions from foreign  
Stewardship Expenses 10  
corporations to partnership 16  
Other interest expense 9  
Other international items 6  
Other Tax Information 13  
Downstream loans 5  
T
Dual consolidated loss 6  
Table 1. Information on Personal  
Property Sold 3  
E
EIN 2  
P
Taxes assigned to section 951A  
category 12  
Part III. Other Information for  
Preparation of Form 1116 or  
1118 9  
Total deductions 9  
Example 1 4  
Example 2 8  
Example 3 12  
Example 5 15  
Total gross income 9  
Part IV. Information on Partners’  
Section 250 Deduction With  
Respect to Foreign-Derived  
Intangible Income (FDII) 14  
U
Unrecaptured section 1250 gain 8  
Upstream Loans 6  
F
Part VI. Information on Partners'  
Section 951(a)(1) and Section  
951A Inclusions) 18  
Foreign branch category income 7  
Foreign oil and gas taxes 3  
Foreign tax translation 4  
W
Part VII. Information To Complete  
What’s New 1  
Where to File 1  
Who Must File 1  
Form 8621 19  
Foreign taxes not creditable but  
Part VIII. Partners' Information for  
Base Erosion and Anti-Abuse Tax  
(Section 59A) 22  
deductible 9  
Foreign taxes paid or accrued to  
Worksheet A, Interest Paid or Accrued  
sanctioned countries 12  
by the Partnership 25  
Partner determination 7  
Foreign taxes related to PTEP  
Worksheet B, Sec. 2, Line 18, Column  
Partner’s section 250 deduction re  
resourced by treaty 12  
(c) 25  
FDII 14  
Foreign-derived DEI on Form 8993 15  
Foreign-derived gross receipts 15  
Partnership determination 6  
26