Part XIII. Foreign Partner’s Distributive Share of Deemed Sale Items on Transfer of…

Use this part to determine the information you must report about the effectively connected gain or loss arising from the transfer of an interest in a partnership.

In general. Section 864(c)(8) requires a foreign partner that directly or indirectly transfers part or all of an interest in a partnership engaged in the conduct of a trade or business in the United States to include in income the effectively connected gain or loss from the transfer. A partnership distribution is considered a transfer when it results in recognition of gain or loss. See Regulations section 1.731-1(a).

Information regarding the transfer of an interest in a partnership engaged in the conduct of a trade or business in the United States must be provided to the partnership no later than 30 days after the transfer by any of the following transferors: (a) a foreign person; (b) a domestic partnership that has a foreign person as a direct partner; or (c) a domestic partnership that has actual knowledge that a foreign person holds, through one or more partnerships, an interest in the domestic partnership.

To determine the amount of gain or loss described in section 864(c)(8), generally, a foreign transferor must first determine its gain or loss on the transfer of a partnership interest (outside gain or loss). For this purpose, outside gain or loss is determined

under all relevant provisions of the Code and the regulations thereunder. A foreign transferor may recognize capital gain or loss (outside capital gain or loss) and ordinary gain or loss (outside ordinary gain or loss) on the transfer of its partnership interest and must separately apply section 864(c)(8) with respect to its capital gain or loss and its ordinary gain or loss. Part XIII, line 1, provides the information for the partner to determine its outside ordinary gain or outside ordinary loss. The partner then applies Regulations section 1.751-1(a)(2) to determine its outside capital gain or loss.

Line instructions. The foreign transferor must compare the outside gain or loss amounts with the relevant aggregate deemed sale effectively connected gain or loss provided on Part XIII, lines 2 and 3. The foreign transferor only includes in income the lower of the outside amount and the deemed sale effectively connected amount. This determination is made separately with respect to capital gain or loss and ordinary gain or loss. For example, a foreign transferor would compare its outside ordinary gain to its aggregate deemed sale effectively connected ordinary gain, treating the former as effectively connected gain only to the extent it doesn’t exceed the latter. Similarly, the foreign transferor would compare its outside capital gain to its aggregate deemed sale effectively connected capital gain, treating the former as effectively connected gain only to the extent it doesn’t exceed the latter.

Amounts entered on lines 4 and 5 are subsets of the amount entered on line 3 and don’t apply to a foreign transferor that is a corporation.

Unless there is an amount only entered on line 7, use this information as follows.

• If you’re a nonresident alien individual, foreign trust, or foreign estate, complete Schedule P (Form 1040-NR).

• If you’re a foreign corporation, complete Schedule P (Form 1120-F), Parts IV and V.

• If you’re a foreign partnership, complete Form 4797 and Form 8949, Sales and Other Dispositions of Capital Assets, as needed.

• If this is an installment sale, see Form 6252.

If an amount is only entered on line 7, use it to determine gain or loss from the transfer of the partnership interest when completing Form 8949.

Partner's Instructions for Schedule K-3 (Form 1065) (2025) 21