Who Must File

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) 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 1065 without all required information or for furnishing Schedules K-3 to partners without all required information. The penalties that apply to Form 1065 and Schedule K-1 apply to Schedules K-2 and K-3, respectively. See Penalties in the Instructions for Form 1065.

Except as otherwise required by statute, regulations, or other 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.

A partnership is only required to complete and file the relevant portions of Schedules K-2 and K-3, as applicable. For example, if the partnership doesn’t own (within the meaning of section 958) stock of a foreign corporation other than solely by reason of applying section 318(a)(3) (providing for downward attribution) as provided in section 958(b), it isn’t required to complete Schedules K-2 and K-3, Parts V, VI, VII, and VIII.

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, 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 “QDD partnership” is a partnership that is, or has one or more branches that are, a qualified derivatives dealer, as defined under the qualified intermediary agreement in Rev. Proc. 2022-43 (QIA), 2022-52 I.R.B. 570 (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 complete Schedules K-2 and K-3, Part XII. If the QDD partnership is filing Form 1065 solely because it’s a QDD partnership and wouldn’t otherwise be

Instructions for Schedule K-2 (Form 1065) and Schedule K-3 (Form 1065) (2025) Catalog Number 74375Q Dec 9, 2025 Department of the Treasury Internal Revenue Service www.irs.gov

required to file Form 1065, then the QDD partnership isn’t required to complete Schedules K-2 and K-3 other than Schedule K-2, Parts B and XII, and Schedule K-3, Parts A through D and XII.

A partnership with no foreign source income, no assets generating foreign source income, no foreign partners, and no 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 determining the amount of base erosion payments made through the partnership, and in determining if the partners are subject to the base erosion and anti-abuse tax (BEAT). Further, if the domestic partnership with no foreign activity or foreign partners has direct or indirect domestic corporate partners, Part IV (concerning foreign-derived intangible income (FDII)) must be completed. A domestic or foreign publicly traded partnership (PTP) as defined in section 7704(b) with no foreign activity or foreign partners may need to complete Part XI. A QDD partnership must complete Part XII if it has foreign partners or is directly or indirectly owned by foreign persons (unless there is no ownership by foreign persons other than through domestic corporations), even if it has no foreign activity. See each part for applicability.

Example 1—Part IX required to determine base erosion payments. Foreign corporation wholly owns DC, a domestic corporation, and a foreign corporation (foreign subsidiary). DC satisfies the gross receipts test; see Regulations section 1.59A-2(d). In Year 1, DC owns a 50% interest in a domestic partnership, USP. An unrelated domestic corporation owns the remaining 50% interest in USP. DC’s investment in USP doesn’t qualify for the small partner exception defined in Regulations section 1.59A-7(d)(2).

In Year 1, USP pays the foreign subsidiary $100 for services. The services aren’t eligible for the services cost method exception; see Regulations section 1.59A-3(b)(3)(i). DC’s distributive share of the $100 payment to the foreign subsidiary is $50.

For purposes of determining whether a payment or accrual by a partnership is a base erosion payment, any amount paid or accrued by USP is treated as paid or accrued by each partner based on the partner’s distributive share of the item of deduction with respect to that amount; see Regulations section 1.59A-7(d) (2). Therefore, DC is treated as having paid $50 to the foreign subsidiary.

DC must complete Form 8991, Tax on Base Erosion Payments of Taxpayers With Substantial Gross Receipts, to compute its base erosion minimum tax amount (if any); therefore, USP must complete the relevant portions of Schedules K-2 and K-3, Part IX.

Domestic Filing Exception (Exception to Filing Schedules K-2 and K-3)

A domestic partnership (as defined under sections 7701(a)(2) and (4)) doesn’t need to (a) complete and file Schedules K-2 and K-3, or (b) furnish to a partner Schedule K-3 (except when requested by a partner after the 1-month date (defined in criterion number 4, below)) if each of the following four criteria are met with respect to the partnership’s 2025 tax year and the partnership isn’t a QDD partnership.

1. No or limited foreign activity. During the domestic partnership’s 2025 tax year, the domestic partnership either has no foreign activity (as defined below), or, if it does have foreign activity, such foreign activity is limited to (a) passive category foreign income (determined without regard to the high-taxed income exception under section 904(d)(2)(B)(iii)); (b) upon which not more than $300 of foreign income taxes allowable as a credit under section 901 are treated as paid or accrued by the partnership; and (c) such income and taxes are shown on a payee statement (as defined in section 6724(d)(2)) that is furnished or treated as furnished to the partnership.

Foreign activity. For purposes of the domestic filing exception, foreign activity means any of the following: (a) foreign income taxes paid or accrued (as defined in section 901 and the regulations thereunder); (b) foreign source income or loss (as determined in sections 861 through 865, and section 904(h), and the regulations thereunder); (c) ownership interest in a foreign partnership (as defined in sections 7701(a)(2) and (5)); (d) ownership interest in a foreign corporation (as defined in sections 7701(a)(3) and (5)); (e) ownership of a foreign branch (as defined in Regulations section 1.904-4(f)(3)(vii)); or (f) ownership interest in a foreign entity that is treated as disregarded as an entity separate from its owner (as defined in Regulations section 301.7701-3).

2. U.S. citizen/resident alien partners. During tax year 2025, all the direct partners in the domestic partnership are (a) individuals that are U.S. citizens; (b) individuals that are resident aliens (as defined in section 7701(b)(1)(A) and the regulations thereunder); (c) domestic decedents’ estates (that is, decedents’ estates that aren’t foreign estates as defined in section 7701(a) (31)(A)), with solely U.S. citizen and/or resident alien individual beneficiaries; (d) domestic grantor trusts (that is, trusts described under sections 671 through 678) that aren’t foreign trusts as defined in section 7701(a)(31)(B) and that have solely U.S. citizen and/or resident alien individual grantors and solely U.S. citizen and/or resident alien individual beneficiaries; (e) domestic non-grantor trusts (that is, trusts subject to tax under section 641) that aren’t foreign trusts as defined in section 7701(a)(31)(B) with solely U.S. citizen and/or resident alien individual beneficiaries; (f) S corporations; (g) single-member limited liability companies (LLCs), where the LLC’s sole member is one of the persons in subparagraphs (a) through (f), and the LLC is disregarded as an entity separate from its owner (as defined in Regulations section 301.7701-3); or (h) domestic partnerships with direct partners who are any of the individuals or entities listed in (a) through (g).

3. Partner notification. With respect to a partnership that satisfies criteria 1 and 2, partners receive a notification from the partnership at the latest when the partnership furnishes the Schedule K-1 to the partner. The notice can be provided as an attachment to Schedule K-1. The notification must state that partners won’t receive Schedule K-3 from the partnership unless the partners request the schedule.

4. No 2025 Schedule K-3 requests by the 1-month date. The partnership doesn’t receive a request from any partner for Schedule K-3 information on or before the 1-month date. The 1-month date is 1 month before the date the partnership files Form 1065. For tax year 2025 calendar year partnerships, the latest 1-month date is August 17, 2026, if the partnership files an extension. A partner must request that the partnership provide subsequent year Schedule K-3 information specifically or must request such information on an annual basis.

Note: For partnerships that satisfy criteria 1 through 4, but receive a request after the 1-month date. If a partnership receives a request from a partner for Schedule K-3 information after the 1-month date for tax year 2025 and hasn’t received a request from any other partner for Schedule K-3 information on

2 Partnership Instructions for Schedules K-2 and K-3 (Form 1065) (2025)

or before the 1-month date, the domestic filing exception is met and the partnership isn’t required to file the tax year 2025 Schedules K-2 and K-3 or furnish the tax year 2025 Schedule K-3 to the non-requesting partners. However, the partnership is required to provide the tax year 2025 Schedule K-3, completed with the requested information, no later than 1 month from the date on which the partnership receives the request from the partner.

Note: For partnerships that satisfy criteria 1 through 3, but 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 for the parts and sections relevant to the requesting partner. For example, if a partner requests the information reported on Part III, Section 2, the partnership is required to complete and file Schedule K-2, Part III, Section 2, for the partnership’s total assets and Schedule K-3, Part III, Section 2, for the requesting partner’s distributive share of the assets. On the date that the partnership files Schedules K-2 and K-3, the partnership must provide a copy of 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.

If a partnership receives requests from partners for 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 for the partner requests received on or before the 1-month date. For requests received after the 1-month date, the partnership is required to provide Schedule K-3, completed with that partner’s requested information, no later than 1 month from the date on which the partnership receives the request from the partner. See Examples 3 and 4, later.

Example 2—domestic filing exception met; issuance of 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 2025, 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 that they won’t receive Schedule K-3 unless they request it. The married couple don’t request Schedule K-3 from USP for tax year 2025. USP qualifies for the domestic filing exception, and, as such, USP doesn’t need to complete Schedules K-2 and K-3.

Example 3—domestic filing exception not met. The facts are the same as in Example 2, except that each spouse owns a 40% interest in USP, and Kirby, a U.S. citizen, owns a 20% interest in USP. Kirby requests Schedule K-3 from USP for tax year 2025 and USP receives this request on February 1, 2026. After requesting an extension, USP files Form 1065 on August 31, 2026. USP doesn’t qualify for the domestic filing exception because Kirby requested the Schedule K-3 by the 1-month date (July 31, 2026). As such, USP must complete and file the parts and sections of Schedules K-2 and K-3 that are relevant to Kirby. Regarding Schedules K-2 and K-3, USP doesn’t need to complete, attach, or file any parts or sections relevant to the married couple. USP must provide a copy of the filed Schedule K-3 to Kirby on the date that USP files its Form 1065. USP doesn’t need to furnish Schedule K-3 to the married couple.

Example 4—domestic filing exception met; Schedule K-3 issuance still required. The facts are the same as in Example 3, except that USP receives the request from Kirby on August 20, 2026. USP qualifies for the domestic filing exception because Kirby requested Schedule K-3 after the 1-month date. USP isn’t required to file the tax year 2025 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 Kirby on September 20, 2026, no later than 1 month from August 20, 2026.

Note: If a partnership doesn’t meet the domestic filing exception, it may meet the Form 1116 exemption exception to filing Schedules K-2 and K-3.

Small Partnership Filing Exception

Form 1065, Schedule B, question 4, excepts a partnership from completing Schedules L, M-1, and M-2; item F on page 1 of Form 1065; or item L on Schedule K-1, if the partnership meets the following four conditions.

1. The partnership’s total receipts for the tax year were less than $250,000.

2. The partnership’s total assets at the end of the tax year were less than $1 million.

3. Schedules K-1 are filed with the return and furnished to the partners on or before the due date (including extensions) for the partnership return.

4. The partnership isn’t filing and isn’t required to file Schedule M-3.

A partnership is excepted from completing Schedules K-2 and K-3 if the partnership meets all four conditions of question 4 of Schedule B.

The partners must receive notification from the partnership at the latest when the partnership furnishes Schedules K-1 to the partners. The notice can be provided as an attachment to Schedules K-1. The notification must state that partners won’t receive Schedules K-3 from the partnership unless the partners request the schedule.

If a partnership receives a request from any partner for Schedule K-3 information on or before the 1-month date, the partnership is required to file the tax year 2025 Schedules K-2 and K-3 and furnish the tax year 2025 Schedule K-3 to the requesting partner(s). The 1-month date is 1 month before the date the partnership files Form 1065. For tax year 2025 calendar year partnerships, the latest 1-month date is August 17, 2026, if the partnership files an extension.

If a partnership receives a request from a partner for Schedule K-3 information after the 1-month date for tax year 2025 and hasn’t received a request from any other partner for Schedule K-3 information on or before the 1-month date, the partnership isn’t required to file the tax year 2025 Schedules K-2 and K-3 or furnish the tax year 2025 Schedule K-3 to the non-requesting partners. However, the partnership is required to provide the tax year 2025 Schedule K-3, completed with the requested information, no later than 1 month from the date on which the partnership receives the request from the partner.

Schedules K-2 and K-3 are required to be completed only for the parts and sections relevant to the requesting partner. For example, if a partner requests the information reported on Part III, Section 2, the partnership is required to complete and file Schedule K-2, Part III, Section 2, for the partnership’s total assets and Schedule K-3, Part III, Section 2, for the requesting

Partnership Instructions for Schedules K-2 and K-3 (Form 1065) (2025) 3

partner’s distributive share of the assets. On the date that the partnership files Schedules K-2 and K-3, the partnership must provide a copy of 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.

If a partnership receives requests from partners for 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 for the partner requests received on or before the 1-month date. For requests received after the 1-month date, the partnership is required to provide Schedule K-3 no later than 1 month from the date on which the partnership receives the request from the partner.

A partner must request Schedule K-3 information for each year, unless the partner specifically requests to receive Schedule K-3 information for the 2025 tax year and all subsequent years (or if the partner specifically requested in a prior year to receive Schedule K-3 for each subsequent year).