Part X. Foreign — 2025 Inst 1065 (Schedule K-3) (PDF)

Use this part if you’re a foreign person that earns ECI from U.S. and/or foreign sources and/or U.S. source FDAP income to determine if you have a U.S. tax obligation for the applicable tax year. You may be required to figure your U.S. income tax liability and file U.S. income tax returns and forms (for example, Form 1040-NR, Form 1120-F, and other applicable forms).

Section 1—Gross Income The partnership uses Part X to report your distributive share of income that is subject to tax in the United States. You must report items of income from your Part X on your tax return and accompanying schedules. Each line in this section of the schedule corresponds to a line on Form 1065, Schedule K, lines 1 through 11. For a more detailed description of the types of income listed on each line, see Income (Loss) under Part III in the Partner’s Instructions for Schedule K-1 (Form 1065).

Column (a). Total. This is your distributive share of the partnership’s gross income.

Column (b). Partner determination. If income is reported in column (b), it means that the partnership was unable to determine the income’s source. You must determine the source of income in column (b). The source of income is important in determining how to report income on your tax return. Each type of income has its own sourcing rules. For example, if you have capital gains listed in column (b), you must determine the source of such gain under section 865. For more information on sourcing rules for particular items of income, see Pub. 514 and section 865. Once you have determined the source of the income in column (b), use the statement the partnership attached to Schedule K-3 to report the income. If you determine the income is U.S. source, the statement attached to Schedule K-3 will advise reporting the income as either ECI, FDAP, or other. If you determine the income is foreign source, the statement will advise whether the income should be reported as ECI.

Columns (c) and (d). Effectively connected income. Nonresident aliens should complete Form 1040-NR using the following instructions.

Caution: Foreign corporations should report ECI on Schedule P (Form 1120-F), in accordance with its instructions.

Lines 1 through 5. Report amounts of ECI from lines 1 through 5 on Schedule E (Form 1040), Supplemental Income and Loss, and attach it to your tax return. See Income (Loss) under Part III in the Partner’s Instructions for Schedule K-1 (Form 1065) for more information on how to complete Schedule E.

Line 6. Interest income. Report amounts of ECI from line 6 on Form 1040-NR, line 2b.

Line 7. Dividends. Report amounts of ECI from line 7 on Form 1040-NR, line 3a or 3b.

Line 8. Dividend equivalents. If you’re a pass-through entity and provide Schedules K-3 to your partners, see the instructions for Part X, line 8, in the Partnership Instructions for Schedules K-2 and K-3 (Form 1065).

Line 9. Royalties and license fees. Report amounts of ECI from line 9 on Schedule E (Form 1040), line 4.

Caution: Although the partnership determined this income isn’t effectively connected to its trade or business, the income could be effectively connected to your U.S. trade or business. See Pub. 519, U.S. Tax Guide for Aliens, or the Instructions for Form 1120-F for more information on when U.S. source income is ECI.

Column (f). U.S. source non-ECI (other). If you’re engaged in any trade or business within the United States, report these amounts as ECI on your tax return as directed by the Instructions for Form 1040-NR or the Instructions for Form 1120-F. If you aren’t so engaged, you generally don’t need to report these amounts on your tax return. However, non-ECI transportation income subject to tax under section 887 is reported on Form 1120-F, Section I, line 9, as applicable. Nonresident individuals report the section 887 non-ECI transportation tax on Form 1040-NR, line 23c.

Section 2—Deductions, Losses, and Net Income In figuring a foreign corporation’s or nonresident alien’s ECI, deductions are allowed only if they are allocated and apportioned to income effectively connected with a U.S. trade or business; see sections 861(b), 873, and 882(c). To determine ECI, a foreign corporation and nonresident alien individual must allocate and apportion deductions and losses to gross income in the ECI statutory grouping and to gross income in the non-ECI residual grouping; see Regulations section 1.861-8(f)(1)(iv). For additional guidance for foreign corporations, see Schedule H (Form 1120-F), Deductions Allocated to Effectively Connected Income Under Regulations Section 1.861-8; and Schedule I (Form 1120-F), Interest Expense Allocation Under Regulations Section 1.882-5. For additional guidance for nonresident aliens, see the Instructions for Form 1040-NR. Schedule K-3, Part X, Section 2, also generally corresponds to the deductions separately reported on Form 1065, Schedule K.

Add the foreign corporation’s share of partnership expenses to the foreign corporation’s expenses and enter those expenses on Schedule H (Form 1120-F). The following instructions provide

Lines 10 through 14. Report amounts of ECI from lines 10 through 14 on Schedule D (Form 1040) or Form 4797, Sales of Business Property, attached to your tax return. Such amounts include, for example, gains from the disposition of a U.S. real property interest. See Income (Loss) under Part III in the Partner’s Instructions for Schedule K-1 (Form 1065), and the instructions for Form 1040-NR, line 7, for more information on how to report this income.

Line 11. Net long-term capital gain. Line 11 doesn’t include gains reported on lines 12, 13, and 14.

Line 14. Net section 1231 gain. Line 14 doesn’t include net section 1231 gain that is also unrecaptured section 1250 gain. Such gain is reported on line 13.

Note: Don’t report foreign source income listed in column (d) as ECI if you determine it’s subpart F income as defined under section 952(a).

Caution: Don’t report income listed in column (d) as ECI if it’s dividends, interest, or royalties paid by a foreign corporation in which you own or are considered to own (within the meaning of section 958) more than 50% of the total combined voting power of all classes of stock entitled to vote.

Column (e). U.S. source non-ECI (FDAP).

Nonresident aliens. Generally, amounts of U.S. source non-ECI from column (e) are entered on your Schedule NEC (Form 1040-NR).

Foreign corporations. Generally, amounts of U.S. source non-ECI from column (e) are reported on your Form 1120-F, Section I.

Partner's Instructions for Schedule K-3 (Form 1065) (2025) 19

specific instructions for reporting expenses on Form 1120-F. See the Instructions for Form 1040-NR to determine the appropriate placement of the nonresident alien partner’s share of the partnership’s expenses.

Column (b). Partner determination. Include the foreign corporation’s share of partnership expenses that must be apportioned to ECI by the foreign corporation on Schedule H (Form 1120-F), Part II. This includes R&E expenses and interest expense.

Columns (c) and (d). Partnership determination—ECI. Enter the foreign corporation’s share of partnership deductions definitely related and allocated to ECI in Schedule H (Form 1120-F), Part I.

Columns (e) through (g). Partnership determina- tion—non-ECI. Enter the foreign corporation’s share of partnership deductions definitely related and allocated to non-ECI in Schedule H (Form 1120-F), Part I.

Line 2. R&E expenses. Add the foreign corporation’s share of partnership R&E expenses to the foreign corporation’s other R&E expenses and apportion such R&E expenses to ECI. Enter the resultant amount on Schedule H (Form 1120-F), Part I and Part II. See Regulations section 1.861-17(f).

Line 7. Interest expense on U.S.-booked liabilities. A foreign corporate partner generally reports its share of interest expense on the partnership’s U.S.-booked liabilities, as described in Regulations section 1.882-5(d)(2)(vii), on Schedule P (Form 1120-F), Part II, line 8. Then, the total interest expense on U.S.-booked liabilities from Schedule P (Form 1120-F), line 8, (including the amount from column (b) of Schedule K-3, Part X, Section 2, line 7) will be entered in, column (b) of Schedule I (Form 1120-F), line 9.

Line 10. Section 59(e)(2) expenditures. R&E expenses aren’t included on this line. R&E expenses that are also section 59(e) (2) expenditures are included on line 2.

Line 12. Net long-term capital loss. Line 12 doesn’t include losses reported on line 13.

Line 16. Charitable contributions. Charitable contributions may be deducted whether or not they’re effectively connected with a U.S. trade or business. See sections 873(b)(2) and 882(c) (1)(B), and Regulations section 1.882-4(b) for more information.

Caution: If box 6 of Part I is checked, interest or royalty expenses may include amounts for which the partner isn’t allowed a deduction under section 267A. See the statement for box 6 of Part I attached to Schedule K-3.

Section 3—Allocation and Apportionment Methods for Deductions Section 3 provides information you may use to apportion deductions to ECI or non-ECI. See Regulations sections 1.861-8 through -20 and Temporary Regulations sections 1.861-8T and -9T. The ratios listed below generally correspond to the ratios in Schedule H (Form 1120-F), Part III.

Line 1a. Gross ECI. Add the amount reported on this line to other amounts you report on Schedule H (Form 1120-F), Part III, line 21a.

Line 1b. Worldwide gross income. Add the amount reported on this line to other amounts you report on Schedule H (Form 1120-F), Part III, line 21b.

Line 2a. Average U.S. assets (inside basis). If you use the ratio of the U.S. assets (inside basis) to the worldwide assets method to apportion expenses to ECI, check “Yes” on Schedule H (Form 1120-F), Part III, line 24, and attach a statement.

Line 3a. U.S.-booked liabilities of partnership. These amounts may be reported by the foreign partner on Schedule P (Form 1120-F), Part III, line 11; and in column (b) of Schedule I (Form 1120-F), line 8. As indicated in the instructions for Part X, Section 2, line 7, the interest expense on U.S.-booked liabilities as defined in Regulations section 1.882-5(d)(2)(vii) should generally be reported by the foreign partner on Schedule P (Form 1120-F), line 8; and in column (b) of Schedule I (Form 1120-F), line 9.

Line 3b. Directly allocated partnership indebtedness. These amounts may be reported by the foreign partner on Schedule P (Form 1120-F), Part III, line 10a. The interest expense on indebtedness described in Regulations section 1.882-5(a)(1)(ii)(B) should generally be reported by the foreign partner on Schedule P (Form 1120-F), Part II, line 7; and Schedule I (Form 1120-F), line 22.

Line 4a. Personnel of U.S. trade or business. Add the amount reported on this line to other amounts you report on Schedule H (Form 1120-F), Part III, line 23a.

Line 4b. Worldwide personnel. Add the amount reported on this line to other amounts you report on Schedule H (Form 1120-F), Part III, line 23b.

Line 5. Gross receipts from sales or services by SIC code. If you have R&E expenses, use the appropriate information from this line.

Lines 7 and 8. Other allocation and apportionment key. Check “Yes” on Schedule H (Form 1120-F), Part III, line 24 or 25, if you used another apportionment method based on amounts entered on lines 7 and 8. Attach a statement to Form 1120-F.

Section 4—Reserved for Future Use