Part V. Distributions From Foreign Corporations to Partnership

Use Part V to determine your share of distributions by foreign corporations to the partnership (with your share being reported in this Part V) that are attributable to PTEP in your annual PTEP accounts with respect to the foreign corporations (which are excludable from your gross income) or non-previously taxed E&P, and the amount of foreign currency gain or loss on the PTEP that you’re required to recognize under section 986(c). The amount of foreign currency gain or loss on the PTEP that you’re required to recognize under section 986(c) is equal to the excess of the U.S. dollar amount of the PTEP over your U.S. dollar basis in the PTEP. If the distributed PTEP was maintained in a functional currency other than the U.S. dollar, the U.S. dollar amount of the distributed PTEP is determined by translating the distributed PTEP into U.S. dollars using the spot rate on the date that the PTEP was distributed; see section 989(b)(1). Your U.S. dollar basis in the distributed PTEP is generally equal to the U.S. dollar amount of E&P that you previously included in gross income; see sections 989(b)(1) and (3).

Also use Part V, in combination with other information known to you, to claim and figure a foreign tax credit on Form 1116 or 1118, and, if eligible, to claim and figure a dividends received deduction under section 245A on Form 1120 with respect to the distributions that are attributable to non-previously taxed E&P.

Include the U.S. dollar amount of E&P distributions from qualified foreign corporations in determining the amount of qualified dividends you report on Form 1040, line 3a, or the amount of dividends reported on Form 1120. A foreign corporation identified as a qualified foreign corporation in column (j) that is a PFIC (as defined in section 1297) as to you for the tax year of the foreign corporation in which the distribution was made, or the preceding tax year, isn’t a qualified foreign corporation, regardless of whether it’s indicated as such in column (j). See section 1(h)(11)(C)(iii)(I) and Notice 2004-70, 2004-44 I.R.B. 724.

Include the U.S. dollar amount of E&P distributions from a nonqualified foreign corporation in determining the amount of ordinary dividends you report on Form 1040, line 3b; or Form 1120.

However, don’t include the U.S. dollar amount of E&P distributions from a foreign corporation to the extent the distributions are attributable to PTEP in annual PTEP accounts that you have with respect to the foreign corporation, or attributable to E&P that are excludable from your gross income under section 1293(c), in determining the amount of dividends that you report on Form 1040, line 3a or 3b; or Form 1120. See Notice 2019-01, 2019-02 I.R.B. 275.

Include the amount of foreign currency gain or loss that you’re required to recognize under section 986(c) in determining the amount to report on Form 1120; or Schedule 1 (Form 1040), line 8.

Note: If the partnership is a domestic partnership, the partnership may have annual PTEP accounts under section 959 with respect to the foreign corporation or may have earnings with respect to the foreign corporation that, when distributed, can be excluded from the partnership’s income under section 1293(c) for amounts included in income by the partnership under section 951(a) or 1293(a), respectively. In such a case:

• If the distributing foreign corporation is a PFIC and isn’t a CFC with respect to which you or any other direct or indirect partner is a U.S. shareholder (as defined in section 951(b)), the partnership may exclude your share of any distribution from the foreign corporation in your Schedule K-3, Part V, to the extent such distribution constitutes a distribution excludable from the partnership’s gross income under section 1293(c);

• If the distributing foreign corporation is a CFC with respect to which the partnership has PTEP for amounts it included in income under section 951(a) (only to the extent such PTEP relates to tax years of the CFC beginning before January 25, 2022), the partnership may exclude your share of any distribution from the foreign corporation in your Schedule K-3, Part V, to the extent such distribution is attributable to PTEP under section 959; or

• If the distributing foreign corporation is both a CFC and a PFIC, and the partnership has no PTEP for amounts included in income under section 951(a) that can be excluded from the partnership’s gross income under section 959 when distributed, the partnership will report your share of the entire distribution in your Schedule K-3, Part V, and will provide you with information on any amounts that may be excluded from the partnership’s gross income under section 1293(c), if applicable.

If the partnership is a domestic partnership and received a distribution that is (a) attributable to PTEP in an annual PTEP account of the partnership, or (b) attributable to E&P that are excludable from the partnership’s gross income under section 1293(c), that is treated as a dividend for purposes of section 1411 (that is, for purposes of the net investment income tax (NIIT)) and, therefore, may be net investment income (NII) (such PTEP, NII PTEP), it’ll attach a statement to Schedule K-3 regarding your share of the partnership’s NII PTEP. If you’re an individual who is a U.S. citizen or resident, or a domestic trust or estate, use the U.S. dollar amounts of NII PTEP reported on the statement, and follow the Instructions for Form 8960 to figure and report your NII. Corporate partners aren’t subject to the NIIT; see Regulations sections 1.1411-1 through -10 for details. Note that your share of a distribution received by the partnership that is attributable to PTEP in your annual PTEP accounts, or attributable to E&P that are excludable from your gross income under section 1293(c), may also be treated as a dividend for purposes of section 1411 and, therefore, may be NII PTEP.

Note: Columns (e) and (f) are reported in the foreign corporation’s functional currency.

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