Section 2. Base Erosion Payments and Base

Erosion Tax Benefits

Column (b). Base erosion payments. For purposes of determining whether a payment or accrual by a partnership is a

base erosion payment, any amount paid or accrued by the partnership is treated as paid or accrued by each partner based on the partner’s distributive share of the item of deduction for that amount. A partner that is an applicable taxpayer has a base erosion payment for any amount paid or accrued by the partnership to a foreign person (as defined in Regulations section 1.59A-1(b)(10)) that is a related party to the partner (as defined in Regulations section 1.59A-1(b)(12)) for which a deduction is allowable under chapter 1 and for certain other items on lines 13 and 15. See Regulations section 1.59A-3 and the Instructions for Form 8991 for more information on the definition of a base erosion payment.

Column (c). Base erosion tax benefits. A partner’s distributive share of any deduction or reduction in gross receipts attributable to a base erosion payment is the partner’s base erosion tax benefit. A partner’s base erosion tax benefits are determined separately for each asset, payment, or accrual, as applicable, and aren’t netted with other items. A partner’s base erosion tax benefit may be more than the partner’s base erosion payment (for example, in the case of special allocations made by the partnership). See the Instructions for Form 8991 and Regulations section 1.59A-7(d) for further information concerning a partner’s base erosion tax benefits.

General. For line 8, columns (b) and (c); line 9, columns (b) and (c); line 10a, columns (b) and (c); line 11, columns (b) and (c); line 12, columns (b) and (c); line 13, columns (b) and (c); line 14a, columns (b) and (c); line 15, columns (b) and (c); and line 16, columns (b) and (c), don’t include amounts that a partner doesn’t take into account pursuant to the exception for certain small partners. See Regulations section 1.59A-7(d)(2) and Exception for small partners, earlier. For Schedule K-2, Part VIII, report the total allocated to all partners, and for Schedule K-3, Part VIII, report the amount allocated to each individual partner.

Line 7. Cost sharing transaction payments.

Column (a). Enter the amount paid or accrued as cost sharing transaction payments as defined in Regulations section 1.482-7(b)(1)(i) by the partnership for the tax year. Column (b). Enter the amount paid or accrued as cost sharing transaction payments as defined in Regulations section 1.482-7(b)(1)(i) to all foreign persons that are related parties of any of the partners.

Column (c). Enter the amount of the partners’ base erosion tax benefits attributable to amounts paid or accrued as cost sharing transaction payments as defined in Regulations section 1.482-7(b)(1)(i) to all foreign persons that are related parties of any of the partners.

Line 8. Purchase or creation of property rights for intangi- bles (patents, trademarks, etc.).

Column (a). Enter the amount paid or accrued by the partnership in connection with the acquisition or creation of intangible property rights (patents, copyrights, trademarks, trade secrets, etc.) that is subject to the allowance for depreciation (or amortization in lieu of depreciation) for the tax year.

Column (b). Enter the amount paid or accrued to all foreign persons that are related parties of any of the partners in connection with the acquisition or creation of intangible property rights (patents, copyrights, trademarks, trade secrets, etc.) that is subject to the allowance for depreciation (or amortization in lieu of depreciation).

Column (c). Enter the amount of the partners’ base erosion tax benefits attributable to deductions allowed under chapter 1 for the tax year for depreciation (or amortization in lieu of depreciation) for intangible property rights acquired in the current year or prior years from all foreign persons that are related parties of any of the partners.

Line 9. Rents, royalties, and license fees.

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

Column (a). Enter the amount paid or accrued by the partnership for the tax year for the use or right to use tangible or intangible property resulting in rents, royalties, and/or license fees.

Column (b). Enter the amount paid or accrued to all foreign persons that are related parties of any of the partners for the use or right to use tangible or intangible property resulting in rents, royalties, and/or license fees.

Column (c). Enter the amount of the partners’ base erosion tax benefits attributable to amounts paid or accrued to all foreign persons that are related parties of any of the partners for the use or right to use tangible or intangible property that results in rents, royalties, and/or license fees.

Column (a). Enter the amount paid or accrued by the partnership for the tax year for the purchase of tangible personal property.

Column (c). Enter the amount of base erosion tax benefits attributable to amounts paid or accrued to any foreign persons that are related parties of any of the partners for the purchase of tangible property.

Line 13. Premiums and/or other considerations paid or ac- crued for reinsurance as covered by sections 59A(d)(3) and 59A(c)(2)(A)(iii).

Column (b). Enter the amount paid or accrued to all foreign persons that are related parties of any of the partners for the purchase of tangible personal property.

Line 10a. Compensation/consideration paid for services NOT excepted by section 59A(d)(5).

Column (a). Enter the amount paid or accrued by the partnership for the tax year as compensation or consideration for services, excluding any amount that qualifies for the services cost method exception in section 59A(d)(5).

Column (a). Enter the amount paid or accrued by the partnership for the tax year for reinsurance.

Column (b). Enter the amount paid or accrued to all foreign persons that are related parties of any of the partners as compensation or consideration for services, excluding any amount that qualifies for the services cost method exception in section 59A(d)(5).

Column (c). Enter the amount of the partners’ base erosion tax benefits attributable to premiums or other consideration as described in section 59A(c)(2)(A)(iii) paid or accrued to any foreign person that is a related party of any of the partners for reinsurance.

Column (c). Enter the amount of the partners’ base erosion tax benefits attributable to amounts paid or accrued to all foreign persons that are related parties of any of the partners representing compensation or consideration paid for services, excluding amounts qualifying for the services cost method exception in section 59A(d)(5).

Line 10b. Compensation/consideration paid for services excepted by section 59A(d)(5).

Column (a). Enter the amounts paid or accrued by the partnership to any foreign person that is a related party of any of the partners for services qualifying for the services cost method exception in section 59A(d)(5).

Column (b). Enter the amount of any premiums or other consideration paid or accrued to all foreign persons that are related parties of any of the partners for reinsurance taken into account under section 803(a)(1)(B) (relating to return premiums and premiums or other consideration arising out of indemnity reinsurance that reduces life insurance gross income) or section 832(b)(4)(A) (relating to amounts deducted from gross premiums written on insurance contracts for return premiums and premiums paid for reinsurance).

Column (a). Enter the amount paid or accrued by the partnership for the tax year attributable to derivative contracts as defined in section 59A(h)(4).

Column (b). Enter the amount paid or accrued to all foreign persons that are related parties of any of the partners for derivative contracts that aren’t eligible for the qualified derivative payment exception under section 59A(h) and Regulations section 1.59A-6. Don’t include any amount paid that is a qualified derivative payment on line 14a, column (b).

Line 10b. Compensation/consideration paid for services excepted by section 59A(d)(5).

Line 14a. Nonqualified derivative payments.

Line 11. Interest expense.

Column (a). Enter the amount of interest paid or accrued by the partnership for the tax year (excluding interest paid or accrued in a prior year treated as paid or accrued in the current year under section 163(j) or similar provisions).

Column (b). Enter the amount of interest expense paid or accrued to all foreign persons that are related parties of any of the partners (excluding interest paid or accrued in a prior year treated as paid or accrued in the current year under section 163(j) or similar provisions). Column (c). Enter the amount of the partners’ base erosion tax benefits attributable to interest expense paid or accrued by the partnership that is allowed as a deduction in the current tax year. If the partner is a foreign person, include the individual lines from column (c) of Worksheet A on the applicable Schedule K-3.

Schedule K-3. When completing line 11 on the Schedule K-3, if the partner is a foreign person, enter the total from column (a) of Worksheet A on the partner’s Schedule K-3 in column (a) of line 11, enter the total from column (b) of Worksheet A on the Schedule K-3 in column (b) of line 11, and enter the total from column (c) of Worksheet A on the Schedule K-3 in column (c) of line 11.

Column (c). Enter the amount of base erosion tax benefits attributable to nonqualified derivative payments paid or accrued to any foreign person that is a related party of any of the partners.

Line 14b. Qualified derivative payments excepted by sec- tion 59A(h). Enter the total amount of qualified derivative payments paid or accrued by the partnership. Generally, a qualified derivative payment is any payment made by the taxpayer pursuant to a derivative contract, provided that the taxpayer recognizes gain or loss on the derivative contract as if it were sold for its FMV on the last business day of the tax year; treats the gain or loss as ordinary; and treats the character of all other items of income, deduction, gain, or loss for a payment pursuant to the derivative as ordinary. A payment isn’t a qualified derivative payment if the payment would be treated as a base erosion payment if it weren’t made pursuant to a derivative (such as interest, royalty, or services income). For a contract with both derivative and nonderivative components, a payment isn’t a qualified derivative payment if it’s properly allocable to the nonderivative component.

Complete Worksheet A for all partnership-related items and complete a Worksheet A for each foreign partner’s share of the amounts reported on the partnership Worksheet A and attach a statement containing the partner’s share of the information on Worksheet A to the Schedule K-3.

Line 12. Payments for the purchase of tangible personal property.

Column (b). Enter the amount paid or accrued to certain expatriated entities that results in a reduction of the gross receipts of the partnership. This amount includes payments to a

Line 15. Payments reducing gross receipts made to surro- gate foreign corporation.

Column (a). Enter the amount paid or accrued by the partnership for the tax year to certain expatriated entities described in section 59A(d)(4)(C)(i).

Inst. for Schedules K-2 and K-3 (Form 8865) (2025) 25

surrogate foreign corporation that is a related party to the partner, but only if the entity first became a surrogate foreign corporation after November 9, 2017. The amount also includes payments to a foreign person that is a member of the same expanded affiliated group, as defined in section 7874(c)(1), as the surrogate foreign corporation. A surrogate foreign corporation is defined in section 7874(a)(2)(B) but doesn’t include a foreign corporation that is treated as a domestic corporation under section 7874(b).

Column (c). Enter the base erosion tax benefits attributable to amounts paid or accrued to certain expatriated entities described in column (b) resulting in a reduction of gross receipts of the partnership.

Line 16. Other payments—specify.

Column (a). Enter the amount paid or accrued for the tax year by the partnership that hasn’t been included on lines 8 through 15 above.

Column (b). Enter the amount paid or accrued to any foreign person that is a related party of any of the partners that is a base erosion payment that hasn’t otherwise been included on lines 8 through 15 above.

Column (c). Enter the amount of the partners’ base erosion tax benefits related to other specified base erosion payments not listed in any of the categories on lines 8 through 15 above.

Attachment. For amounts reported on line 16, attach a statement to both Schedules K-2 and K-3 (for distributive share) describing the type and amount of other payments, using the same column headings as specified in this schedule: “Total base erosion payment,” “Total base erosion tax benefit.” For each type of payment, the attachment must identify the relationship of a partner to the foreign related party consistent with the categories and instructions for columns (b) and (c) of this schedule.

imposed by section 871, 881, or 884(f), with respect to which tax has been withheld under section 1441 or 1442 at the 30% statutory withholding tax rate or subject to tax un- der section 1.884-4(a)(2)(ii) at the 30% statutory rate. Enter the aggregate amount of the partners’ base erosion tax benefits, reported on lines 8 through 16, on which either (1) tax is imposed under section 871(a) or section 881, and with respect to which tax has been deducted and withheld under section 1441 or 1442 at the 30% statutory withholding tax rate; or (2) tax is imposed under section 884(f) at the 30% statutory rate and the tax is reported and paid under Regulations section 1.884-4(a)(2) (iv).

Line 18, column (c)—Portion of base erosion tax benefits reported on lines 6 through 16, on which tax is imposed by section 871 or 881, with respect to which tax has been withheld under section 1441 or 1442 at a reduced with- holding rate pursuant to an income tax treaty. Multiply the amount of the base erosion tax benefit by a fraction equal to the rate of tax imposed under the treaty over the 30% (0.30) statutory rate. The partnership is required to provide the information on Worksheet B for all partnership-related items and attach a statement containing the information on Worksheet B to Schedule K-3 for each partner’s share of the amounts reported on the partnership Worksheet B.

Complete Worksheet B to determine the portion of the base erosion tax benefits, reported on lines 8 through 16, on which, pursuant to a U.S. income tax treaty, either (1) tax is imposed under section 871(a) or section 881 at a reduced rate, and with respect to which tax has been deducted and withheld under section 1441 or 1442 at a reduced withholding tax rate; or (2) tax is imposed under section 884(f) at a reduced rate and the tax is reported and paid (at the reduced rate) under Regulations section 1.884-4(a)(2)(iv). Keep a copy of the completed Worksheet B for the partnership’s records.

Line 17, column (c)—Base erosion tax benefits related to payments reported on lines 6 through 16, on which tax is

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

Worksheet A—Interest Paid or Accrued by the Partnership

Worksheet B—Section 2, Line 18, Column (c)

Section 2, Line 18

Inst. for Schedules K-2 and K-3 (Form 8865) (2025) 27

Index

A

Example 4. Part II, Section 4: multiple

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