Form 1065 • Schedules K-1 / K-2 / K-3 • Section 1446 Withholding • Forms 8804 / 8805 / 8813 • Form 1040-NR
If you’re a non-U.S. owner of a U.S. multi-member LLC (taxed as a partnership) and you run the business from abroad, this guide explains when you owe U.S. tax versus when you only have U.S. filing and reporting obligations—plus how 1065, K-1, K-2/K-3, and 1446 withholding (8804/8805) actually work.
Who this applies to
This FAQ is for situations like these:
- A U.S. LLC with 2+ members (default tax status = partnership)
- Some or all owners are nonresident aliens (NRAs)
- Work is performed outside the U.S. (consulting, marketing, software, agency services, etc.)
- Clients might be in the U.S., but the service delivery happens abroad
- The LLC may have a U.S. bank account, registered agent, or mailing address
- Sometimes one partner is a U.S. citizen/resident (family member “silent investor” scenarios)
The big idea
A partnership return often serves two jobs:
1. Tell the IRS what happened (income, expenses, partners, allocations).
2. Determine if any of that income is U.S.-taxable to foreign partners (and whether withholding applies).
Even when the partnership’s business activity is outside the U.S., Form 1065 can still be required, and international schedules may also be required.
FAQ
1) We live outside the U.S. Do we still have to file a partnership return (Form 1065)?
Often, yes. A multi-member LLC taxed as a partnership generally files Form 1065 to report the partnership’s activity and issue Schedules K-1 to partners.
Important: Filing a return is not the same as owing U.S. tax. Many foreign-managed service businesses file 1065 even when U.S. tax ends up being $0.
2) If our clients are in the U.S., does that automatically create U.S. tax?
No—not automatically.
For service businesses, the main driver is usually where the services are performed (where people actually do the work), and whether the partnership has a U.S. trade or business through activities in the United States.
Common U.S.-tax “risk triggers” to watch for:
- Partners/employees/contractors physically performing services in the U.S.
- A real U.S. office or fixed place of business
- A dependent agent in the U.S. with authority to bind the business
- A “silent” U.S. partner who is actually doing meaningful work in the U.S.
Not usually decisive by itself:
- Having a U.S. client
- Having a U.S. bank account
- Being formed in a U.S. state
- Having a registered agent or virtual mailbox
3) “We didn’t distribute money to the U.S. partner, so we’re safe.” True?
Not necessarily.
Partnership taxation is generally based on allocated profit, not whether cash was distributed. And for section 1446 withholding, the IRS rules focus on effectively connected taxable income (ECTI) allocable to foreign partners—not on distributions.
4) What are K-1, K-2, and K-3, and why do foreign owners keep hearing about them?
- Schedule K-1: each partner’s share of income, deductions, credits, etc.
- Schedule K-2 / K-3: the partnership’s international reporting framework (country sourcing, foreign tax items, international allocations, and partner-level international details)
If your partnership has cross-border facts (foreign owners, foreign operations, foreign-source items, etc.), K-2/K-3 can become relevant.
5) Do we report worldwide income on Form 1065?
In many real-world filings, yes—the partnership return is used to present the full story, and then classify and allocate items properly (including international sourcing/allocations through the right schedules).
Key point: Showing revenue on 1065 does not automatically mean that revenue is U.S.-taxable.
6) What is “ECI” and “ECTI,” and why does it matter for foreign partners?
- ECI (effectively connected income) is the concept that determines whether foreign persons are being taxed on U.S. business income.
- ECTI (effectively connected taxable income) is the “taxable income” base used for section 1446 withholding at the partnership level.
If there is ECTI allocable to foreign partners, the partnership generally has a withholding and reporting system to follow.
7) When do Forms 8804 / 8805 / 8813 apply?
These forms are used to pay and report section 1446 withholding tax on ECTI allocable to foreign partners.
What each form does (high level):
- 8804: the partnership’s annual return summarizing total section 1446 withholding
- 8805: issued per foreign partner showing that partner’s share of ECTI and withholding credit
- 8813: the payment voucher used when making deposits during the year
The instructions explain that these forms are used for section 1446 withholding and how the credit is claimed.
8) We already paid withholding (1446) by mistake. How do we get it back?
Usually the fix looks like this:
1. The partnership files the appropriate 8804 package and issues Form 8805 to the partner(s).
2. The partner attaches Form 8805 to their U.S. income tax return to claim the withholding credit/refund.
Also: if you need to correct reporting, the IRS instructions explicitly allow an amended Form 8804 process.
9) What’s the deadline for these filings?
In general:
• Forms 8804/8805 are due by the 15th day of the 3rd month after the partnership year ends (with special timing rules if books/records are kept outside the U.S.).
• Form 1065 is also tied to the partnership filing calendar (commonly March 15 for calendar-year partnerships).
10) Do nonresident partners file Form 1040-NR?
Sometimes yes, sometimes no.
Common “yes” reasons:
- You need to claim a refund of withholding (example: section 1446 tax withheld and reported on 8805).
- You have U.S.-source FDAP income (like certain dividends) that needs reporting/true-up.
Common “no” reasons:
- You have no U.S.-source taxable income and no credits/refunds to claim.
11) Nonresident owners: are U.S. dividends, U.S. interest, and capital gains taxable?
General framework (always confirm your facts and treaty posture):
- U.S. dividends paid to nonresidents are generally U.S.-source FDAP and often subject to withholding (commonly 30% unless reduced by treaty).
- Certain U.S. interest can be exempt for nonresidents (common example: portfolio/bank-deposit type concepts), but exceptions exist.
- Capital gains for nonresidents are often not taxed by the U.S. in many ordinary stock-sale situations, but major exceptions exist (e.g., U.S. real property interests, certain presence rules).
12) Practical checklist: what you should gather before your CPA prepares the filing
To make this smooth (and audit-defensible), have:
- Ownership chart + partner residency/tax status for the year
- Partnership financials: P&L and balance sheet
- Partner capital activity (contributions/distributions)
- Travel/work-location facts: where services were performed, who performed them
- Any withholding payments already made (EFTPS receipts / 8813 / confirmations)
- Prior-year filings (1065, K-1/K-2/K-3, 8804/8805, amendments)
- Any U.S. partner involvement description (if applicable)
13) A note on state filings (Texas, etc.)
A partnership can have federal rules pointing one way and still have state-level compliance (like Texas franchise tax, annual reports, registered agent requirements, etc.). State sourcing and nexus can be its own separate analysis.
Bottom line
A foreign-owned U.S. partnership LLC can be in a “file but owe $0 federal income tax” position when:
- services are performed outside the U.S.,
- there is no meaningful U.S. business activity creating ECI/ECTI for foreign partners,
- and the filings properly tell the story (1065 + K-1, and K-2/K-3 where needed).
But when withholding was paid (or might apply), 8804/8805/8813 mechanics and refund strategy become critical.
If you want this analyzed and filed correctly (including K-2/K-3 and any required 1446 withholding reporting), you can book a paid consultation here:
https://oandgaccounting.com/appointment-booking-form/
