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Level 1

I want to ask is the income from schedule K1 considered to be effectively connected or not effectively connected with US Trade/Business ?

Hi, I received 1065 K1 form and I'm a none-resident, I want to ask is the income from schedule K1 considered to be  effectively connected or not effectively connected with US Trade/Business. This is my only income from US and according to the Exceptions:

 You do not need to file

Form 1040NR if you meet (1), (2), (3),

or (4) below.

4. You were a partner in a U.S.

partnership that was not engaged in a

trade or business in the United States

during 2018 and your Schedule K-1

(Form 1065) includes only income

from U.S. sources reportable on

Schedule NEC, lines 1 through 12.

I'm confused if I meet this, anyone can help to answer this question? Thanks a lot.

1 Best answer

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Level 11

I want to ask is the income from schedule K1 considered to be effectively connected or not effectively connected with US Trade/Business ?

First, I'm not an expert in this matter.  I did a very fast (thus might miss details) reading of some of the pertinent background info.

First, you didn't state what kind of partnership this is, or what the partnership does.  Having said that, it appears to me that if on Sch K-1 (F1065), if there are entries in lines 1-4 of the K-1, there is probably a US trade or business.

Generally, the other lines on Sch K-1 are for separately stated items that relate more to investment income/expenses that more relate to SCH NEC.

Generally, unless this is an investment type partnership, for which there is probably not any ordinary income or rental income, there is more than likely trade or business income.  But here again, what does the partnership do?  Does it conduct activities outside of the US?

What might complicate this a little bit more, is that US partnerships that have foreign partners, might/should have withheld taxes on the foreign partners.  Does your Sch K-1 indicate that any taxes were withheld? 

I suggest you do some more reading for the instructions for F1040NR


https://www.irs.gov/instructions/i1040nr

Pub 535 as it is referenced in the instructions

https://www.irs.gov/pub/irs-pdf/p535.pdf

1040NR

https://www.irs.gov/instructions/i1040nre

https://www.irs.gov/pub/irs-pdf/f1040nr.pdf

Instructions for Sch K-1 (1065)

https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf







2 Replies
Level 11

I want to ask is the income from schedule K1 considered to be effectively connected or not effectively connected with US Trade/Business ?

First, I'm not an expert in this matter.  I did a very fast (thus might miss details) reading of some of the pertinent background info.

First, you didn't state what kind of partnership this is, or what the partnership does.  Having said that, it appears to me that if on Sch K-1 (F1065), if there are entries in lines 1-4 of the K-1, there is probably a US trade or business.

Generally, the other lines on Sch K-1 are for separately stated items that relate more to investment income/expenses that more relate to SCH NEC.

Generally, unless this is an investment type partnership, for which there is probably not any ordinary income or rental income, there is more than likely trade or business income.  But here again, what does the partnership do?  Does it conduct activities outside of the US?

What might complicate this a little bit more, is that US partnerships that have foreign partners, might/should have withheld taxes on the foreign partners.  Does your Sch K-1 indicate that any taxes were withheld? 

I suggest you do some more reading for the instructions for F1040NR


https://www.irs.gov/instructions/i1040nr

Pub 535 as it is referenced in the instructions

https://www.irs.gov/pub/irs-pdf/p535.pdf

1040NR

https://www.irs.gov/instructions/i1040nre

https://www.irs.gov/pub/irs-pdf/f1040nr.pdf

Instructions for Sch K-1 (1065)

https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf







Level 1

I want to ask is the income from schedule K1 considered to be effectively connected or not effectively connected with US Trade/Business ?

Thanks for you replying, sorry I should have provided more info, in box G, it's checking Limited partner or other LLC, and in box H it checked Domestic partner, with type of partner is Individual. And yes I'm an foreigner here, but it didn't withhold my tax for 2018 so I have to file the tax by myself. I've paid the tax through IRS online system while I'm confused when I'm filing 1040NR tax report. In 1065S, I have Line1 Ordinary business income(loss) to be -6, and line5 interest income to be 82. All other lines are 0 so I'm not sure if the interest income should be considered to be NEC or ECI, and what kind of tax rate should I choose if it's NEC? What about the -6 income, should I fill it in the ECI part? I've read the i1040NR but it's hard for me to figure out how to distinguish the ECI and NEC for my income.