Section 5. Other Tax Information

This information is relevant to partners computing a foreign tax credit.

Column (f). As of the date of these instructions, this column will only include the section 901(j) category and the countries relevant to that category. See the Instructions for Form 1118 for the potential countries to be listed with the section 901(j) category of income. No credit is allowed for taxes paid or accrued to a country described in section 901(j). However, a deduction is generally allowed for a tax described in section 901(j).

Line 1. For partnerships other than publicly traded partnerships (PTPs), report the total of all partners’ shares of the net positive income adjustments resulting from all section 743(b) basis adjustments. Net positive income adjustments from all section 743(b) basis adjustments means the excess of all section 743(b) adjustments allocated to the partner that increase the partner’s taxable income over all section 743(b) adjustments that decrease the partner’s taxable income. Attach to the Schedules K-2 and K-3 a statement showing each section 743(b) basis adjustment making up the total and identify the assets to which it relates, and the separate category and source of the income generated by the assets. Make sure to include the class of gross income or deduction, for example, sales income, interest income, or depreciation deduction. You may group these section 743(b) basis adjustments by asset category or description in cases where multiple assets are affected if the assets generate the same separate category and source of income. The section 743(b) positive income adjustments should be included as relevant in other parts of the Schedule K-2. For example, the section 743(b) income adjustments should be reflected as part of the total depreciation reported in Part II, Section 2.

Line 2. For partnerships other than PTPs, report the total of all partners’ shares of the net negative income adjustment resulting from all section 743(b) basis adjustments. Net negative income adjustments from all section 743(b) basis adjustments means the excess sum of all section 743(b) adjustments allocated to the partner that decrease the partner’s taxable income over all section 743(b) adjustments that increase the partner’s taxable income. Attach to the Schedules K-2 and K-3 a statement showing each section 743(b) basis adjustment making up the

total and identify the assets to which it relates, and the separate category and source of the income generated by the assets. Make sure to include the class of gross income or deduction, for example, sales income, interest income, or depreciation deduction. You may group these section 743(b) basis adjustments by asset category or description in cases where multiple assets are affected if the assets generate the same separate category and source of income. The section 743(b) negative income adjustments should be included as relevant in other parts of the Schedule K-2. For example, the section 743(b) income adjustments should be reflected as part of the total depreciation reported in Part II, Section 2.

Schedules K-2 and K-3, Part IV (Information on Partners’ Section 250 Deduction With Respect to Foreign-Derived Intangible Income (FDII))

Note: This information is relevant to partners that figure a section 250 deduction for FDII on Form 8993. This part is relevant for a direct domestic corporate partner (other than REITs, RICs, and S corporations) or a partner which is a partnership that has a direct or indirect domestic corporate partner (other than REITs, RICs, and S corporations) that determines the domestic corporate partner’s FDII. If there is insufficient information, a partner must presume the indirect partner is a domestic corporate partner or a partnership that has a direct or indirect domestic corporate partner and the partner must complete the Schedules K-2 and K-3, Part IV, accordingly. These schedules are required to be completed if the foreign partnership has direct or indirect domestic corporate partners, though the partnership doesn’t have foreign-derived gross receipts. Even if a partnership has no foreign activities, and so has no FDDEI as reported in Section 2 of this part, still report the information required by Sections 1 and 3 of this part so that any domestic corporate partner can correctly determine its section 250 deduction. For example, a domestic corporate partner would still need information about the partnership’s qualified business asset investment (see the instructions for Section 1, line 8, of this part) in such a case to determine its deemed tangible income return and deemed intangible income. See section 250(b)(2).

Section 250 allows a domestic corporation a deduction for its FDII, and a direct or indirect domestic corporate partner must take into account certain activities of a partnership in computing the domestic corporation’s FDII. For the treatment of a domestic corporation that is a partner in a partnership, see Regulations sections 1.250(b)-1(e), 1.250(b)-2(g), and 1.250(b)-3(e). These instructions generally indicate how to complete Part IV (of both Schedules K-2 and K-3). However, Schedule K-2 includes the total of all partners’ amounts and Schedule K-3 includes each partner’s share.

Enter each amount and total amounts in U.S. dollars. Determine and report the partner’s share of each item of the partnership contained on this form in accordance with the partner’s distributive share of the underlying item of income, gain, deduction, and loss of the partnership. Report these amounts based on the best information available about how its partners might use this information to determine their FDII deduction. Certain information may be reported differently to each partner depending on federal income tax determinations that the partner makes. Each partner must then calculate its FDII deduction using Form 8993 including the information reported on Schedule K-3, Part IV. A partner must obtain any further necessary information from the partnership to correctly determine its FDII deduction.

Special rules for determining foreign use apply to transactions that involve property or services provided to related parties (see section 250(b)(5)(C) and Regulations section 1.250(b)-6).

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

For special substantiation requirements under the regulations, see sections 1.250(b)-3(f), 1.250(b)-4(d)(3), and 1.250(b)-5(e)(4). In all other cases, a taxpayer claiming a deduction under section 250 will still be required to substantiate that it is entitled to the deduction even if it isn’t subject to the specific substantiation requirements contained in the regulations. See section 6001 and Regulations section 1.6001-1(a). So, the partner must be able to satisfy the general or special substantiation requirements to be eligible for the deduction.

As described above, determine the partner’s share of each item below in accordance with the partner’s distributive share of the underlying item of income, gain, deduction, and loss of the partnership.