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2023

Partnership Instructions for

Schedules K-2 and K-3 (Form

otherwise noted.

General Instructions ......................... 1

Purpose of Schedules K-2 and K-3 ........... 1

Who Must File .......................... 1

When and Where To File ................... 3

How To Complete Schedules K-2 and K-3 ...... 4

Specific Instructions ......................... 4

Schedule K-2, Identifying Information .......... 5

Schedule K-3, Identifying Information .......... 5

Respect to FDII ...................... 19

Part V. Distributions From Foreign

Corporations to Partnership .............. 23

Part VI. Information on Partners' Section

951(a)(1) and Section 951A Inclusions ...... 24

Part VII. Information to Complete Form 8621 .... 26

Part VIII. Partnership's Interest in Foreign

Corporation Income (Section 960) ......... 30

Part IX. Partners' Information for Base Erosion

and Anti-Abuse Tax (Section 59A) ......... 33

For the latest information about developments related to

Schedule K-2 (Form 1065) and Schedule K-3 (Form 1065), and

their instructions, such as legislation enacted after they were

published, go to

IRS.gov/Form1065.

Part I, box 7, reserved. Box 7 requiring attachment of Form

8858 has been reserved. Instead, box 13 now requires, in certain

instances, information that a partner (whether direct or indirect)

Part I, box 13. The new qualified intermediary agreement in

Rev. Proc. 2022-43 (the QIA), 2022-52 I.R.B. 570, applies

beginning January 1, 2023, including to qualified intermediaries

that are qualified derivatives dealers (QDDs) as defined under

the QIA. For more information, see the

Part II. Amounts may now be entered in lines 41 through 43,

columns (a) through (e), with respect to interest expense.

Part VIII. Part VIII includes two new columns: (i) the foreign

corporation's total net income, and (ii) the foreign corporation's

additional information a nonresident alien, foreign trust, or

foreign estate needs to complete Schedule P (Form 1040-NR) to

report information and calculate gain or loss on the transfer of an

interest in a partnership that directly or indirectly is engaged in

the conduct of a trade or business within the United States.

Domestic filing exception. A domestic filing exception that

allows an exception for filing and furnishing Schedules K-2 and

K-3 applies for 2023. See

used to report items of international tax relevance from the

operation of a partnership.

and is generally used to report to partners their shares of the

items reported on Schedule K-2. Partners must include the

information reported on Schedule K-3 on their tax or information

returns, if applicable.

Any partnership required to file Form 1065 that has items

relevant to the determination of the U.S. tax or certain

withholding tax or reporting obligations of its partners under the

international provisions of the Internal Revenue Code (the Code)

penalties that apply with respect to Form 1065 and Schedule K-1

apply with respect to Schedules K-2 and K-3, respectively. See

Penalties in the Instructions for Form 1065.

IRS guidance, a partnership isn't required to obtain information

from its direct or indirect partners to determine if it needs to file

each of these parts.

relevant portions of Schedules K-2 and K-3, as applicable. For

example, if the partnership doesn't own (within the meaning of

provisions are specifically identified on these schedules. To the

extent that an international provision is impacted and isn't

otherwise specifically identified, the partnership should check

box 13 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).

Note. A partnership that is, or has a branch that is, a QDD (a

QDD partnership) must file Form 1065 even if it wouldn’t be

required to file if it wasn’t a QDD partnership and must attach a

statement to its Form 1065 with certain required information as

foreign taxes paid or accrued may still need to report information

on Schedules K-2 and K-3. For example, if the partner claims a

credit for foreign taxes paid or accrued by the partner, the

partner may need certain information from the partnership to

complete Form 1116, Foreign Tax Credit; or Form 1118, Foreign

Tax Credit—Corporations. Also, a partnership that has only

domestic partners may still be required to complete Part IX when

the partnership makes certain deductible payments to foreign

related parties of its domestic partners. The information reported

in Part IX will assist any domestic corporate partner in

request for a tax year 2023 Schedule K-3 as well.

Note. If a partnership receives a request from a partner for

Schedule K-3 information after the 1-month date for tax year

2023 and hasn't received a request from any other partner for

Schedule K-3 information on or before the 1-month date, the

domestic filing exception is met and the partnership isn't required

to file the tax year 2023 Schedules K-2 and K-3 or furnish the tax

year 2023 Schedule K-3 to the non-requesting partners.

However, the partnership is required to provide the tax year 2023

Schedule K-3, completed with the requested information, to the

partner is still a partner in tax year 2023.

don't satisfy criterion 4. If the partnership received a request

from a partner for Schedule K-3 information on or before the

1-month date and therefore the partnership doesn't satisfy

criterion 4, the partnership is required to file Schedules K-2 and

K-3 and furnish Schedule K-3 to the requesting partner.

Schedules K-2 and K-3 are required to be completed only with

respect to the parts and sections relevant to the requesting

partner. For example, if a partner requests the information

the filed Schedule K-3 to the requesting partner. The partnership

doesn't need to complete, attach, file, or furnish any other parts

or sections of Schedules K-2 and K-3 to the IRS, the requesting

partner, or any other partner. The partnership should keep

records of the information requested by the partner. See

Example 3, later.

Schedule K-3 information both on or before the 1-month date

and after the 1-month date, the partnership is required to file

Schedules K-2 and K-3 as described in the prior paragraph only

Schedule K-3 not required. A married couple, U.S. citizens,

each own a 50% interest in USP, a domestic partnership. USP

and the married couple have a tax year end of December 31.

USP invests in a regulated investment company (RIC). With

respect to tax year 2023, USP receives Form 1099 from the RIC

reporting $100 of creditable foreign taxes paid or accrued on

passive category foreign source income. USP doesn't have any

foreign activity other than that from the RIC. The married couple

receive notification from USP on an attachment to Schedule K-1

are the same as in Example 2, except that each spouse owns a

40% interest in USP, and A, a U.S. citizen, owns a 20% interest

in USP. A requests Schedule K-3 from USP for tax year 2023 and

USP receives this request on February 1, 2024. After requesting

an extension, USP files Form 1065 on August 31, 2024. USP

doesn't qualify for the

domestic filing exception because A

requested the Schedule K-3 by the 1-month date (July 31,

2024). As such, USP must complete and file the parts and

sections of Schedules K-2 and K-3 that are relevant to A. With

issuance still required. The facts are the same as in

Example 3, except that USP receives the request from A on

August 20, 2024. USP qualifies for the

because A requested Schedule K-3 after the 1-month date. USP

isn't required to file the tax year 2023 Schedules K-2 and K-3 or

furnish Schedule K-3 to the married couple. However, USP is

required to provide Schedule K-3, completed with the requested

information, to A on September 20, 2024, the later of the date on

which USP files Form 1065 or 1 month from August 20, 2024.

filing Schedules K-2 and K-3.

Attach Schedules K-2 and K-3 to the partnership’s Form 1065

and file both by the due date (including extensions) for that

return.

according to the timeline for providing Schedule K-1. See the

Instructions for Form 1065.

requirements and amendments or adjustments to Schedules K-2

If a computer-generated Schedule K-2 or Schedule K-3

conforms to and doesn't deviate from the official form and

schedules, it may be filed with the IRS.

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/pub/irs–pdf/p1167. For purposes of

Schedules K-2 and K-3, the procedures relevant to Form 1065

and Schedule K-1 (Form 1065) should be conformed with, to the

extent possible.

Reporting currency. Report all amounts in U.S. dollars except

Trusts. Similarly, references to Form 1120, U.S. Corporation

Income Tax Return, are intended, if applicable, to apply to other

forms in the 1120 series. References to forms which have been

replaced are intended, if applicable, to include the replacement

forms.

Part I of Schedule K-2 (and Part I of Schedule K-3). Used

to report international tax items not reported elsewhere on

Schedule K-2 or 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 FDII

deduction for purposes of 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. Additionally, it’s

used to report income adjustments under section 743(b) by

source and separate category. Partners will use the information

to figure and claim a foreign tax credit on Form 1116 or 1118.

applicable part.

Schedules K-2 and K-3. Don't complete, file, or attach to Form

1065 or Schedule K-3 the inapplicable parts.

Items A and B. Items A and B should be the same as reported

on Schedule K-1, Part I, items A and B.

Items C and D. Items C and D should be the same as reported

on Schedule K-1, Part II, items E and F.

Item E. Item E should correspond to Schedule K-2, item C.

attachments with respect to boxes 1 through 5 and 10 to claim

and figure a foreign tax credit on Form 1116 or 1118.

attachments with respect to box 6 to prepare their tax returns

(Forms 1040, 1120, 1040-NR, and 1120-F, as applicable) by

Certain partners will use the information reported in

attachments with respect to boxes 8 and 9 to identify any

international tax information reporting forms or other international

tax forms that may impact the partners’ tax returns.

indicate whether any of the following international tax items are

applicable in the tax year. If applicable, attach statements, as

described below, to Schedule K-2. If applicable, the partnership

must also complete Schedule K-3, Part I, and include with

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

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

with respect to such income; see section 865(e)(1).

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

sales of stock property by country. Otherwise, don't combine

sales of property. If the gain is capital, enter “long-term” or

“short-term” in column (b). Enter the two-letter code from the list

at

"OC" for the country code. If the property sale is taxed by more

Table 1. Information on Personal Property Sold (For use with Schedules K-2 and K-3 (Form 1065), Part I,

box 1)

Gas Taxes, to Schedules K-2 and K-3 (with the partner’s

distributive share). The partnership doesn’t need to complete

Schedule I (Form 1118), Part I, column 12; Part II, lines 2 through

4; or Part III, lines 1 and 3. The partnership must 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.

isn't attaching Schedule I (Form 1118) as a form required to be

filed by the partnership for purposes of the partnership

determining creditable taxes because a partnership can't claim a

foreign tax credit.

There is a foreign tax credit splitting event with respect to foreign

taxes of a payor if in connection with a splitter arrangement, as

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).

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. A partnership may not be able to determine

partnership owns a reverse hybrid and the foreign country

assesses tax on the partnership for income earned by the

reverse hybrid, the partnership should report such taxes as

potentially suspended taxes.

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 with respect to an entity that took into account

related income from the arrangement.

connection with the splitter arrangement.

accrued.

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.

The separate category and source of income to which the

taxes are assigned if determinable by the partnership.

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 if determinable by the partnership.

K-3 with Worksheet 1 or Worksheet 2, or both, completed. The

partner will use this information to determine whether its passive

income is high-taxed passive income.

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 section

1.904-4(c)(3), except that the portion, if any, of the share of

partner is disallowed a deduction under section 267A for the

amount.

Corporations; or Form 8865, Return of U.S. Persons With

Respect to Certain Foreign Partnerships, the filer isn't required to

complete and attach those forms. However, the filer must still

attach to Form 1065 any required statements to qualify for the

exception to filing Form 5471 or Form 8865.

Box 8. Form 5471 information. Check box 8 and attach

Form(s) 5471 to Form 1065 and Schedule K-1 (Form 1065) if

either of the following apply.

on Form 5471 to prepare its tax return. For example, the

partnership wouldn't need to attach Form 5471 to Schedules K-3

for certain tax-exempt partners. A pass-through entity partner

that receives Form 5471 with Schedule K-1 or Schedule K-3

must provide the relevant portions of Form 5471 to its partner

unless the pass-through entity knows or has reason to know that

its direct partner (and any indirect partners) doesn't need the

information on the Form 5471 to prepare its tax return.

such as Schedule Q, the partnership needs only to attach that

Schedule K-1 or Schedule K-3 issued to the partnership.

attachment to Schedule K-3 that Form(s) 8621 is attached to

Schedule K-2. The partnership doesn’t need to attach Form

8621 to Schedule K-1 or K-3.

Form 8990. If the partnership has filed Form 8990, check

box 9 and provide on Schedule K-1 the information needed to

complete Form 8990, Schedule A, for foreign partners which are

required to report their distributive share of excess business

interest expense, excess taxable income, and excess business

interest income, if any, that is attributable to income effectively

connected with a U.S. trade or business. See the instructions for

Box 10. Partner loan transactions. Check box 10 and attach

a statement with the information in the applicable Table 2 or

Table 3 if the partnership knows or has reason to know that it (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).

Table 2. Downstream Loans

If there are any partners in the same affiliated group as the

lender, attach to each of the Schedules K-2 and K-3 a statement

to expand the columns in the table to include the information

requested in the first two columns for each such partner.

If there are any partners in the same affiliated group as the

borrower, attach to each of the Schedules K-2 and K-3 a

statement 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 the

indirect partners are domestic corporations (other than a RIC, a

real estate investment trust (REIT), or an S corporation). A

domestic corporate partner's interest in the reporting 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

reporting partnership owns an interest in a partnership that owns

a foreign branch or hybrid entity:

loss attributable to each direct and indirect foreign branch or

hybrid entity of the partnership, as determined under

Regulations section 1.1503(d)-5(c); and

corporation or a partnership, separately state the partner's

distributive share of the net income or loss of each direct and

indirect foreign branch or hybrid entity of the partnership.

section 1.1503(d)-6(e)(1)(iv)) or a transfer of an interest in a

separate unit (as described in Regulations section

1.1503(d)-6(e)(1)(v)) occurred during the tax year with respect to

a foreign branch or hybrid entity.

applied to the activities of the foreign branch or foreign

disregarded entity using a method that requires the partner,

rather than the partnership, to recognize section 987 gain or

loss.

the active conduct of a U.S. trade or business. USP’s business

generates only domestic source income. USP also has an

investment portfolio consisting of several less-than-10% stock

investments. USP has a bank loan. The proceeds of the bank

interest expense is that from its distributive share of the USP

business assets. Because all business income is domestic

source, the business assets are domestic assets and reported

on Schedules K-2 and K-3, Part III, Section 2, line 6b, column

(a). A’s $2,000 share of the interest expense is reported on

Schedule K-3, Part II, line 41, column (f). It is apportioned to U.S.

source income by the partner.

of stock held by the partnership in certain foreign corporations. In

determining its foreign tax credit limitation, a partner should

not have the 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.

rules to characterize the stock.

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). The partnership must attach a statement to

Schedules K-2 and K-3 with the following information for each

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.

Section 4—Foreign Taxes

Don't complete this Section 4 if the partnership doesn't pay or

accrue foreign taxes.

through 3, attach to the Schedules K-2 and K-3 a statement

reporting the following information.

section 986(a).

Column (a). Enter the code for the type of tax.

generate multiple alpha rows for the same country, one row for

each type of tax. For example, see below.

Column (b). Section 951A category income. 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. A partnership might not

be able to complete this column due to lack of information

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).

codes.

Code RBT PAS. If an applicable income tax treaty treats any

category income, and there is an election 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 there is an election to apply

the treaty, enter code RBT 951A.

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

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 4, line 1.

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.

Note. Check only one box “Paid” or “Accrued” depending on the

method of accounting the partnership takes into account foreign

taxes.

respect to RICs and section 863(b). These exceptions apply as

well to reporting of taxes in this section.

Line 2. Enter on line 2, as negative number, the sum of the

information required on) Forms 5471 and 8865 (section

6038(c)).

year with respect to splitter arrangements under section 909.

report taxes on dividends eligible for a deduction under section

245A and ineligible for credit under section 245A(d). Also,

may be partially or entirely disallowed. However, it is important to

track this amount as a tax on a distribution.

indicating the reason for the reduction.

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

Schedules K-2 and K-3 a statement including all of the

information reported on the schedule with the other dates paid.

specify exceptions from the requirement to report gross income

and gross receipts by foreign country or U.S. territory with

respect to RICs and section 863(b). Don't enter “various” or “OC”

for the country code.

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

include the class of gross income or deduction, for example,

sales income, interest income, or depreciation deduction. The

partnership 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) negative income

adjustments should be included as relevant in other parts of

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.

8993.

direct domestic corporate partner (other than REITs, RICs, and S

corporations) or to a partner which is a partnership that has a

direct or indirect domestic corporate partner (other than REITs,

RICs, and S corporations) needed to determine the domestic

corporate partner's FDII. A partnership that doesn't have or

receive sufficient information or notice regarding a partner must

presume the partner is a domestic corporate partner or a

partnership that has a direct or indirect domestic corporate

still report the information required by Sections 1 and 3 of this

part so that any direct or indirect 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 (QBAI)

(see the instructions for line 8 of this part) in such a case to

determine its deemed tangible income return and deemed

intangible income (DII); see section 250(b)(2).

FDII, and a direct or indirect domestic corporate partner must

Schedule K-2 includes the total of all partners’ amounts and

Schedule K-3 includes each partner’s share.

partnership should 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. The

partnership should report these amounts based on the best

information available to it about how its partners might use this

information to determine their FDII deduction. The partnership

partner, the partnership must provide) any further necessary

information from the partnership to correctly determine its FDII

deduction.

that involve property or services provided to related parties; see

section 250(b)(5)(C) and Regulations section 1.250(b)-6.

regulations, see Regulations sections 1.250(b)-3(f),

1.250(b)-4(d)(3), and 1.250(b)-5(e)(4). In all other cases, a

contained in the regulations; see section 6001 and Regulations

section 1.6001-1(a). Therefore, the partner must be able to

satisfy the general or special substantiation requirements to be

eligible for the deduction. To the extent the partner doesn't have

receipts from sales of Product A, $100 in COGS, and $50 in

properly allocated and apportioned deductions (none of which

are interest or R&E expenses). USP reports these amounts on

Schedule K-2, Part IV, Section 1, lines 2a through 2c,

respectively, and 50% of these amounts on the same section

and lines of the Schedule K-3 that USP issues to DC, because

this information is necessary for DC to compute its deduction

eligible income (DEI). The net amount increases DC’s DEI,

which increases its DII and in turn increases its section 250

deduction for FDII. DC uses these amounts to calculate its gross

DEI on Form 8993, Part I, line 4.

services, and $25 in properly allocated and apportioned

deductions (none of which are interest or R&E expenses).

subtracting the amount from DEI on Form 8993, Part I, line 2e.

basis of $1,000, and Asset D which has an adjusted basis of

$1,200. Asset C is used in the production of Product A and Asset

D is used in providing the DOGEI services. Because sales of

Product A give rise to DEI, USP should report the partnership’s

adjusted basis in Asset C ($1,000) on Schedule K-2, Part IV,

Section 1, line 8 (and $500 is reported to DC on the same

section/line of Schedule K-3). This increases DC’s QBAI, and

thereby increases DC’s deemed tangible income return (DTIR).

therefore no FDDEI to report on Part IV, Section 2. Even though

the partnership has no interest or R&E deductions, in many

cases, the partnership would still have to complete Part IV,

Section 3.

Section 1—Information To Determine Deduction

Eligible Income (DEI) and Qualified Business

Asset Investment (QBAI) on Form 8993

Line 1. Net income (loss). This amount may equal line 1 of

Analysis of Net Income (Loss) on Form 1065, page 5.

allocable to gross DEI, without interest and R&E expense. See

Regulations section 1.250(b)-1(d)(2) for more details. Enter the

amounts of interest and R&E expenses on Section 3, lines 13

and 16, respectively. Deductions properly allocable to gross DEI

are determined without regard to sections 163(j), 170(b)(2), 172,

246(b), and 250.

the partner’s DEI.

Line 3. Section 951(a) inclusions. Enter any amounts

included in the partnership’s gross income under section 951(a)

foreign corporation that begin before January 25, 2022, if,

pursuant to Regulations section 1.958-1(d)(4)(i), it applies

Regulations sections 1.958-1(d)(1) through (3) to such tax years,

which treats a domestic partnership as not owning stock of a

foreign corporation within the meaning of section 958(a) for

purposes of section 951, and for purposes of any other provision

that applies by reference to section 951.

Note. Partners will determine whether any amount included in

the gross income of such corporate partner is GILTI under

section 951A (or the section 78 gross-up with respect to this

each day during the period in the tax year to which such

depreciation relates. See Regulations section 1.250(b)-2(e).

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 with respect to X and

Y. Thus, the C assets are partnership specified tangible property

of the gross income included in DEI produced with respect to the

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).

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

included in COGS can be associated with activities undertaken

in an earlier tax year (including a year before the effective date of

section 250).

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 Section 3, lines 13 and 16, respectively.

Deductions are determined without regard to sections

163(j),170(b)(2), 172, 246(b), and 250.

Column (a). General property. Enter the amount of the

from all sales of intangible property.

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.

Section 3—Other Information for Preparation of

Form 8993

Line 13. Interest deductions. The term “interest” refers to the

gross amount of interest expense incurred by a taxpayer in a

deductions. Include excess business interest expense (EBIE)

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).

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

use to allocate and apportion its interest expense for FDII

purposes.

ordinarily based on the tax book value of the taxpayer’s assets;

the partner whose interest in the partnership is 10% or more

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 statutory and residual groupings under proposed, final, and

partnership shall directly allocate its distributive share of the

partnership’s interest expense to its distributive share of

partnership gross income. See Regulations section 1.861-9(e)

(4).

Line 14A. Total average value of assets. 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

sets. Enter the amount of the average of the beginning-of-year

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).

Enter the amount of the average value of assets excluded from

the apportionment formula. See section 864(e)(3).

These lines require the partnership to report information that a

partner will use to allocate and apportion its R&E expense for

FDII purposes. A partnership isn't required to complete lines 15

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.

Note. Certain partners will use the following information, in

combination with other information known to the partners,

including Schedule P (Form 5471), to exclude from gross income

distributions to the extent that they're attributable to PTEP in their

annual PTEP accounts and report foreign currency gain or loss

with respect to the PTEP on Forms 1040 and 1120. If eligible,

partners will also use this information to figure and claim a

completed with respect to distributions by a foreign corporation if

the partnership 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 with respect to any distribution by

the foreign corporation. Nevertheless, the partnership may be

required to append Worksheet 3 to Schedule K-2 (discussed

below).

Exception. Schedule K-3, Part V, for a partner doesn't need

partner and relevant indirect partners aren't eligible to claim a

deduction under section 245A with respect to any distributions

by the foreign corporation. Nevertheless, the partnership may be

required to append Worksheet 4 to Schedule K-3 for the partner

(discussed below). If this exception is applicable with respect to

a foreign corporation, the sum of the amounts reported on

Schedules K-3, Part V, with respect to the foreign corporation

may not equal the amounts reported on Schedule K-2, Part V,

with respect to the foreign corporation.

Rows A through O. Use rows A through O to report information

(providing for downward attribution) as provided in section

958(b). 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

attribution) as provided in section 958(b). For example, if a

951(a)(1)(B) inclusions with respect to a foreign corporation for a

tax year of the foreign corporation, the subpart F income

inclusions and section 951(a)(1)(B) inclusions with respect to the

foreign corporation for such tax year that are reported in

subpart F income inclusions and section 951(a)(1)(B) inclusions

and is a U.S. shareholder of the foreign corporation during such

tax year, then any subpart F income inclusions and section

951(a)(1)(B) inclusions with respect to the foreign corporation for

such tax year are inclusions of the partnership, which are