Part I. Partner’s — 2025 Inst 1065 (Schedule K-3) (PDF)

This part reports your information for international tax items not reported elsewhere on Schedule K-3.

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(a). If the partnership sells nondepreciable personal property (other than inventory and certain intangible property), you, the partner, are treated as the seller. Therefore, you’ll need to determine the source of the gain reported in column (f) of Part II, line 1. In general, if you’re a U.S. citizen or resident alien individual, the gain is U.S. source. However, as outlined in section 865(g), 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 if an income tax of at least 10% is imposed by and paid to a foreign country regarding such sale; see section 865(g)(2). See also sections 865(e)(1) and 865(h) for other sourcing provisions for which the information provided in box 1 may be helpful. See section 865 for exceptions to the general sourcing rule.

If the partnership checked box 1 in Part I, use the information attached to Schedule K-3 to determine if a foreign country imposed a tax of at least 10% or more on the gain from each sale. If so, and you have a tax home in a foreign country, such gain is foreign source income and reported on Form 1116. For more information, see the instructions for column (f) of Part II, later.

Box 2. Foreign oil and gas taxes. A separate foreign tax credit limitation is applied to foreign oil and gas taxes. See section

2 Partner's Instructions for Schedule K-3 (Form 1065) (2025)

907(a) and Regulations section 1.907(a)-1 for details. If the partnership had such taxes, it checked box 2 and attached a partially completed Schedule I (Form 1118), Reduction of Foreign Oil and Gas Taxes, to Schedule K-3. If you’re a corporation, use the partially completed Schedule I to complete your Schedule I (Form 1118). If you’re an individual, estate, or trust, see Form 1116, Part III, line 12, and the associated instructions for the applicable reduction for individuals.

Box 3. Splitter arrangements. Foreign income taxes with respect to 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 with respect to foreign income taxes of a payor if in connection with a splitter arrangement, as defined in Regulations section 1.909-2(b), the 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).

If the partnership checked box 3 in Part I, it attached a statement that separately identifies any arrangement, along with your share of the taxes paid or accrued in connection with the arrangement in which the partnership participates that would qualify as a splitter arrangement under section 909. The box should be checked only if the partnership knows or has reason to know an entity that took into account related income from the arrangement is a covered person with respect to one or more partners. For example, you’re a payor of a foreign income tax if you take into account the foreign income taxes paid or accrued by the partnership under section 702(a)(6). If the partnership wholly owns a reverse hybrid (as defined in Regulations section 1.909-2(b)(1)(iv)) and you own 10% or more (determined by vote or value) of the interest in the partnership, the reverse hybrid is a covered person with respect to you. You can’t credit the foreign income taxes paid or accrued by the partnership with respect to the reverse hybrid until you or the partnership takes into account the related income of the reverse hybrid. Until then, the taxes are suspended. The partnership reported your share of the potentially suspended taxes as a result of the application of section 909 on Part III, Section 4, line 2E. If you’re a corporation, complete Form 1118, Schedule G, line E, for taxes suspended under section 909. If you’re an individual, estate, or trust, include on Form 1116, Part III, line 12, taxes suspended under section 909. If you’re required to complete Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, for a CFC, include in column (d) of Schedule E (Form 5471), Schedule E-1, line 3b, taxes suspended under section 909.

If the partnership checked box 3, and the statement indicates that the partnership took into account the related income from the splitter arrangement, the taxes are partially or fully unsuspended depending on the amount of related income taken into account. Even though the taxes are unsuspended, in certain cases you might not be eligible to claim a credit for those taxes, for example, when the related income is taken into account as part of a dividend for which you’re eligible for a section 245A deduction. To the extent you’re eligible to claim a credit for unsuspended taxes, these amounts may be claimed on Form 1116 or 1118, as applicable. If you’re required to complete Form 5471, for a CFC, report the unsuspended taxes in column (d) of Schedule E (Form 5471), Schedule E-1, line 3a.

In some cases, you may take into account related income directly that allows you to partially or fully unsuspend taxes, for

example, by way of a subpart F or GILTI inclusion with respect to related income.

Caution: There might be a splitter arrangement with respect to the partner even if the partnership didn’t identify one, given that the partnership didn’t have the information available to the partner. Therefore, you must identify such arrangement even if box 3 isn’t checked.

Box 4. Foreign tax translation. If the partnership checked box 4, it’ll attach a statement described in the instructions for Part III, Section 4.

Box 5. High-taxed income. If the partnership checked box 5, you must determine if the passive income reported to you by the partnership is treated as income in another separate category. The partnership should have attached Worksheets 1 and/or 2, from the Partnership Instructions for Schedules K-2 and K-3 (Form 1065). Under section 904(d)(2)(B)(iii), 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. You must group your distributive shares of passive income from a partnership according to the rules in Regulations section 1.904-4(c)(3). However, under Regulations 1.904-4(c)(5)(ii), the portion, if any, of the distributive share of income attributable to income earned by a domestic partnership through a foreign qualified business unit (QBU) is separately grouped under the rules of Regulations section 1.904-4(c)(4).

Use Schedule K-3 and your taxes on your other passive income (that is, passive income that isn’t attributable to your distributive share of the partnership’s income as reported on Schedule K-3) to determine if you need to assign passive income and the associated taxes to another separate category of income. You must allocate and apportion your expenses to this passive income to determine if the income is treated as income in another separate category. This includes both your distributive share of partnership expenses and expense incurred by you directly. If you’re a corporation, see the Instructions for Form 1118 for how to report your income and taxes reclassified under the high-taxed income rule. If you’re an individual, estate, or trust, see the Instructions for Form 1116 for how to report your income and taxes reclassified under the high-taxed income rule.

Box 6. Section 267A disallowed deduction. If the partnership checked box 6 in Part I and attached a statement titled “Section 267A Disallowed Deduction,” prepare your tax return by taking into account that you aren’t allowed a deduction for any of the amounts listed in that statement. Thus, for example, don’t claim as a deduction any amount reported on Schedule K-3, Part II, Section 2, lines 41 through 43, or Part X, Section 2, line 9, to the extent listed in the statement as an amount for which a deduction is disallowed under section 267A. In addition, you may be required to report the amount of your disallowed deductions under section 267A. See, for example, Form 1120, Schedule K, question 21; and Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, Additional Information, item EE.

Caution: Box 6 and the accompanying statement describe only interest or royalty paid or accrued by the partnership for which the partnership knows, or has reason to know, that you’re disallowed a deduction under section 267A. In certain cases, the partnership may not know, or have reason to know, that you’re disallowed a deduction for interest or royalty paid or accrued by the partnership. See the instructions for Form 1065, Schedule B, question 22, for additional information.

For your share of any interest or royalty paid or accrued by the partnership, you must apply section 267A and determine whether a deduction is disallowed, regardless of whether box 6 is checked or whether the amount is listed on the accompanying statement.

Partner's Instructions for Schedule K-3 (Form 1065) (2025) 3

Boxes 8 and 9. Form 5471 information and other forms. If applicable, the partnership will attach the relevant portions of Form 5471; Form 5713, International Boycott Report; and other relevant international tax forms. If the partnership has filed Form 8990, Limitation on Business Interest Expense Under Section 163(j), the partnership will also provide on Schedule K-1 the information needed to complete Form 8990, Schedule A, for foreign partners which are required to report their distributive shares of excess business interest expense, excess taxable income, and excess business interest income, if any, that are attributable to ECI.

Box 9 will be checked if the partnership attached Form 8858, Form 8621, or both to its Form 1065. If you need information from these forms, request it from the partnership.

Box 10. Partner loan transactions. If this box is checked, the partnership identified upstream or downstream partnership loan transactions. See Regulations sections 1.861-9(e)(8) and (9) for purposes of determining special rules regarding interest expense allocation and apportionment if you have such loan transactions with the partnership.

Caution: There might be a partner loan transaction even if the partnership didn’t identify one, given that the partnership didn’t have the information available to the partner.

Box 11. Dual consolidated loss. If the partnership checked box 11 and you’re a domestic corporation (other than a regulated investment company (RIC), a real estate investment trust (REIT), or an S corporation), the dual consolidated loss (DCL) rules pursuant to Regulations sections 1.1503(d)-1 through -8 may apply to your share of certain partnership items. In order to comply with the DCL rules, take into account the information provided in the attachment to this schedule (for example, your share of the income or DCL attributable to the partnership’s foreign branch or interest in a hybrid entity).

Box 12. Form 8865 information. If the partnership transferred property to a foreign partnership that would subject one or more of its domestic partners to reporting under section 6038B and Regulations section 1.6038B-2(a)(2) but didn’t file Schedule O (Form 8865), Transfer of Property to a Foreign Partnership, containing all the information required under Regulations section 1.6038B-2, with respect to the transfer, the partnership must provide the necessary information for each partner to fulfill its reporting requirements under Regulations section 1.6038B-2. The partnership should have attached the relevant information to Schedule K-3, as applicable to the partner.

Box 13. Other international items. If the partnership has transactions, income, deductions, payments, or anything else that implicates the international tax provisions of the Code and such items aren’t otherwise reported on this part or other parts of Schedule K-3, the partnership reported that information on a statement and checked box 13.

If you’re a CFC partner (or in the case of a pass-through entity partner, you have a CFC partner), the partnership attached information to Schedule K-3 so that the U.S. shareholder may complete Form 5471. For example, if you’re a CFC partner in the partnership, the U.S. shareholder of the CFC will need to report the information reported on your Schedule K-3, Parts II and III, on Form 5471, in particular, Schedule E (Form 5471). If you’re a controlled foreign partnership (CFP) partner (or in the case of a pass-through entity partner, you have a CFP partner), the partnership attached information to Schedule K-3 so that the U.S. partner in the CFP may complete Form 8865.