Section 1. Information To Determine Deduction

Eligible Income (DEI) and Qualified Business Asset Investment (QBAI) on Form 8993

Line 1. Net income (loss). This amount may equal Form 8865, Schedule M-1, line 9, Income (loss).

Line 2a. DEI gross receipts. Enter all gross receipts from whatever source derived except for amounts included on lines 3 through 7.

Line 2b. DEI cost of goods sold. Enter the amount of cost of goods sold attributable to the amount on line 2a.

Line 2c. DEI properly allocated and apportioned deduc- tions. Enter the amount of deductions (including taxes) properly allocable to the amount on line 2a. See Regulations section 1.250(b)-1(d)(2) for more details. Deductions properly allocable to gross DEI are determined without regard to sections 163(j), 170(b)(2), 172, 246(b), and 250. Lines 3 through 7 are exclusions from DEI used to determine the partner’s DEI.

Line 3a. Income and gain from the sale or other disposition of intangible property under section 250(b)(3) (A)(i)(Vll)(aa). Enter 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.

Line 3b. Income and gain from the sale or other disposition of certain other property under section 250(b) (3)(A)(i)(Vll)(bb). Enter 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.

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. See Notice 2025-78 for further guidance.

Line 4. CFC dividends. Enter the amount of any dividend received from a CFC for which the partner is a U.S. shareholder as defined under section 951(b).

Note: The amount by which distributions are attributable to PTEP in annual PTEP accounts of a direct or indirect partner isn’t taken into account for purposes of determining the CFC dividends to be entered on line 4. See Notice 2025-78 for further guidance.

Line 5. Financial services income. Enter the amount of net financial services income (as defined in section 904(d)(2)(D)) before interest and R&E deductions.

Line 6. Domestic oil and gas extraction income. Enter the amount of net domestic oil and gas extraction income before interest and R&E deductions. The term “domestic oil and gas extraction income” means income described in section 907(c)(1) determined by substituting “within the United States” for “outside the United States.”

Line 7. Foreign branch income. Enter the amount of net foreign branch income before interest and R&E deductions (as defined in section 904(d)(2)(J)). Report all income that would be foreign branch income of its partners as if all partners were U.S. persons.

Line 8. Partnership QBAI. Enter the amount, if any, of the partnership QBAI.

A domestic corporation’s QBAI is its share of the average of the aggregate adjusted bases, determined as of the close of each quarter of the tax year, in certain specified tangible property. See Regulations section 1.250(b)-2(b). The adjusted basis is determined by using the alternative depreciation system under section 168(g) and allocating depreciation deductions for such property ratably to each day during the period in the tax year to which such depreciation relates. See Regulations section 1.250(b)-2(e). The specified tangible property is that which is used in the trade or business of the corporation in the production of gross income included in the domestic corporation’s gross DEI and is of a type for which a deduction is allowable under section 167. See Regulations section 1.250(b)-2(b). If a domestic corporation holds an interest in one or more partnerships during a tax year (including indirectly through one or more partnerships that are partners in a lower-tier partnership), the QBAI of the domestic corporation for the tax year is increased by the sum of the domestic corporation’s partnership QBAI for each partnership for the tax year. See Regulations section 1.250(b)-2(g)(1). Partnership QBAI is the sum of the domestic corporation’s proportionate share of the partnership’s adjusted basis in the property and the domestic corporation’s partner specific QBAI basis in the property for the partnership tax year that ends with or within the tax year. See Regulations section 1.250(b)-2(g)(2). Partnership specified tangible property means, for a domestic corporation, tangible property that is used in the trade or business of the partnership, of a type for which a deduction is allowable under section 167 and used in the production of gross income included in the domestic corporation’s gross DEI. See Regulations section 1.250(b)-2(g)(5). If the portion of partnership specified tangible property cannot be determined (for example, if it isn’t known if property gives rise to the production of gross income in one of the excluded categories from DEI that is determined by the partner, which would cause such property to not be classified as partnership specified tangible property), then in reporting the amount of a partner’s share of the partnership QBAI, separately state any information so a direct or indirect domestic corporate partner can distinguish 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.

If tangible property was used in the production of DEI and in the production of income that is non-DEI, then it is considered dual-use property and treated as specified tangible property in the same proportion that the amount of the gross income included in DEI produced for the property bears to the total amount of gross income produced for the property. See Example 2 of Regulations section 1.250(b)-2(g)(8) for guidance on how to calculate the partner adjusted basis. If specified

Inst. for Schedules K-2 and K-3 (Form 8865) (2025) 15

tangible property is only partially depreciable, then only the depreciable portion is QBAI. See Regulations section 1.250(b)-2(b). Example 5. Specified tangible property. X and Y are both domestic corporations which are partners in FP, a partnership that holds three types of assets—A, B, and C. All types of assets are tangible property used in the trade or business of FP and for which a deduction is allowable under section 167. The production of income from A assets is DEI for X and Y. Thus, the A assets are partnership specified tangible property for X and Y, and FP includes a proportionate amount of the adjusted bases of all A assets in calculating each partner’s partnership QBAI. The production of income from B assets is DEI for X. However, for Y, the production of income from B assets is non-DEI. Thus, the B assets are partnership specified tangible property for X only, and FP includes a proportionate amount of the adjusted bases of all B assets only in calculating X’s partnership QBAI. The C assets are dual-use property because the production of only part of the income from the C assets is DEI for X and Y. Thus, the C assets are partnership specified tangible property for both X and Y, but FP includes a proportionate amount of the adjusted bases of all C assets in calculating each partner’s partnership QBAI only in the proportion that the amount of the gross income included in DEI produced for the C assets bears to the total amount of gross income produced for the C assets.