Part IV. Information on Partner’s Section 250 Deduction With Respect to Foreign-Derived…

A domestic corporate partner should use this Part to calculate the partner’s FDII on Form 8993.

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

Section 1—Information To Determine Deduction Eligible Income (DEI) and Qualified Business Asset Investment (QBAI) on Form 8993

Lines 1 through 7. A partner must include the amount reported to it on line 1 in calculating the gross income on Form 8993, line 1. The partner must also include any amounts that it identifies from Schedule K-3, lines 3 through 7, that aren’t attributable to its DEI on Form 8993, Part I, lines 2a through 2h.

Line 3a. Income and gain from the sale or other disposition of intangible property under section 250(b)(3) (A)(i)(VII)(aa). The partnership has provided on this line the net amount of income and gain from the sale or other disposition of intangible property (as defined in section 367(d)(4)) before interest and R&E deductions, occurring after June 16, 2025, subject to exceptions as provided by the Secretary.

Line 3b. Income and gain from the sale or other disposition of certain other property under section 250(b) (3)(A)(i)(VII)(bb). The partnership has provided on this line the net amount of income and gain from the sale or other disposition of any other property of a type that is subject to depreciation, amortization, or depletion by the seller before interest and R&E deductions, occurring after June 16, 2025, subject to exceptions as provided by the Secretary.

Note: For purposes of lines 3a and 3b, sale or other disposition includes a deemed sale or other deemed disposition or a transaction subject to section 367(d). Sale or other disposition doesn’t include any lease or license.

Use information on Schedule K-3, Part IV, Section 1, lines 2a through 2c, and in Section 3 to determine the expenses properly allocable to DEI on Form 8993, Part I, line 5.

Example 6—partner’s reporting of DEI and QBAI. DC is a domestic corporation that owns a 50% interest in a domestic partnership, USP. USP manufactures and sells Product A and provides services solely to U.S. persons. The services give rise to domestic oil and gas extraction income (DOGEI) for purposes of section 250(b)(3)(A)(i)(V). USP has $200 in gross receipts from sales of Product A, $100 in cost of goods sold, 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 DEI. The net amount increases DC’s DEI, which increases its deemed intangible income (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.

USP has $100 in gross receipts from services, $50 in cost of services, and $25 in properly allocated and apportioned deductions (none of which are interest or R&E expenses). Because the performance of these services results in DOGEI, it doesn’t give rise to DEI, but rather 50% of the net amount of $25 ($100 – ($50 + $25) = $25) is reported on Schedule K-3, Part IV, Section 1, line 6, so that DC can treat this amount as an exclusion from its DEI. DC’s DEI is determined without this amount by subtracting the amount from DEI on Form 8993, Part I, line 2e.

USP owns two properties, Asset C which has an adjusted 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, 50% or $500 of the partnership’s adjusted basis in Asset C ($1,000) is reported to DC on Schedule K-3, Part IV, Section 1, line 8. This increases DC’s QBAI, and thereby increases DC’s deemed tangible income return (DTIR). The increase to DTIR decreases DC’s DII which in

turn decreases its section 250 deduction for FDII. DC uses the amount to determine its DTIR from partnerships on Form 8993, Part I, line 7b.

Note: Some of the amounts reported on these lines related to distributions by foreign corporations may be attributable to PTEP in annual PTEP accounts that a partner has with respect to a foreign corporation and are therefore excludable from the partner’s gross income. See sections 959(a) and (d).

Line 8. Partnership QBAI. A partner must include the amount reported to it on this line, in calculating the QBAI used to determine its DTIR on Form 8993, Part I, line 7b. However, for certain items determined by the partner that affect the amount of a partner’s adjusted bases included in its share of partnership specified tangible property, the partner must use and the partnership must provide information that separately distinguishes 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; see Regulations section 1.250(b)-2(g).

Section 2—Information To Determine Foreign-Derived Deduction Eligible Income (FDDEI) on Form 8993

Line 9. Gross receipts. A partner must include the amounts reported to it on this line, on Form 8993, Part II, line 9b. However, the partner must only include the portion of the amounts from columns (a) through (c) of Schedule K-3, Part IV, Section 2, line 9, that are attributable to its gross DEI on Form 8993, Part I, line 4.

Note: Don’t include any income and gain from the sale or other disposition (including pursuant to the deemed sale or other deemed disposition or a transaction subject to section 367(d)) of intangible property (as defined in section 367(d)(4)), and any other property of a type that is subject to depreciation, amortization, or depletion by the seller, occurring after June 16, 2025 (see the instructions for line 3a and line 3b, earlier).

Line 10. COGS. A partner must include the amounts reported to it on this line, on Form 8993, Part II, line 10b. However, the partner must only include the portion of the amount on columns (a) through (c) of Schedule K-3, Part IV, Section 2, line 10, that is attributable to its gross DEI on Form 8993, Part I, line 4.

Line 11. Allocable deductions. A partner must include the amounts reported to it on this line, on Form 8993, Part II, line 13.

Line 12. Other apportioned deductions. A partner must include the amounts reported to it on this line, on Form 8993, Part II, line 17. However, the partner must only include the portion of the amount on Schedule K-3, Part IV, Section 2, line 12, that is attributable to its gross DEI on Form 8993, Part I, line 4.

Section 3—Other Information for Preparation of Form 8993

Interest Expense and Interest Expense Apportionment Factors

This section reports the information that you need to allocate and apportion your interest expense for FDII purposes.

Lines 13A and 13B. Include these amounts on Form 8993, Part I, line 5, and/or Part II, line 14.

Partner's Instructions for Schedule K-3 (Form 1065) (2025) 11

Line 13C. Other interest expense. Add the interest expense to your other interest expense.

Exception. Certain corporate partners with a less-than-10% interest in a partnership shall directly allocate their distributive shares of the partnership’s interest expense to its distributive share of partnership gross income; see Regulations section 1.861-9(e)(4). After apportionment, if necessary, include the appropriate amount of interest expense on Form 8993, Part I, line 5, and/or Part II, line 14.

Line 14. Interest expense apportionment factors. Corporate partners will use this section to determine the interest expense reported on Form 8993, Part I, line 5; and Part II, line 14.

R&E Expenses and R&E Expenses Apportionment Factors

This section reports the information that you need to allocate and apportion your R&E expenses for FDII purposes. R&E expenses are allocated and apportioned by the partner. See Regulations section 1.861-17(f)(1).

Line 15. Gross receipts by SIC code. Add the amounts to the partner's other gross receipts by SIC code.

Line 16. R&E expenses by SIC code. Add the amounts to the partner’s other R&E expenses by SIC code.