MLP Tax Flow For Nonresidents

Non-U.S. investors holding U.S.-based Master Limited Partnership (MLP) units face unique federal reporting requirements. Because MLPs are pass-through entities, holding these units creates an effectively connected income (ECI) obligation, requiring a non-resident tax return and a U.S. taxpayer identification number. Understanding the MLP tax flow for nonresidents is critical to maintaining compliance and avoiding IRS processing delays. To understand fundamental tax ID rules, start with our guide on what is an ITIN.

Visual Workflow Diagram

           +----------------------------+
           |   CLIENT RECEIVES          |
           |   • K-1 (always)           |
           |   • 1042-S (usually)       |
           |   • 8805 (rare)            |
           +--------------+-------------+
                          |
                          v
         +--------------------------------------+
         |   STEP 1: REPORT INCOME              |
         |   Use Schedule E (Part II)           |
         |   Input K-1 ordinary business income |
         +-----------------+--------------------+
                          |
                          v
         +-------------------------------------------+
         |   STEP 2: MOVE INCOME TO SCHEDULE 1       |
         |   Schedule 1, Line 5 = income from Sch. E |
         |   Schedule 1, Line 10 = total             |
         +------------------+------------------------+
                          |
                          v
         +--------------------------------------------------------+
         |   STEP 3: FILL FORM 1040-NR                            |
         |   Line 8 = income from Schedule 1                      |
         |   Line 16 = calculate tax                              |
         |   Line 25g = withholding from 1042-S                   |
         |   Line 25e = withholding from 8805 (if any)            |
         +---------------------+----------------------------------+
                               |
                               v
         +--------------------------------------------------------+
         |   RESULT: Refund or Amount Due                         |
         |   Refund = Payments - Tax                              |
         |   Amount Due = Tax - Payments                          |
         +---------------------+----------------------------------+
                               |
                               v
         +--------------------------------------------------------+
         |   STEP 4: ASSEMBLE ITIN PACKAGE                        |
         |   W-7 + 1040-NR + Schedules + Withholding forms        |
         +--------------------------------------------------------+

Standard Operating Procedure (SOP) for MLP Tax Filing

1. Collect Required Documents From Client

Before beginning the preparation of an MLP tax flow for nonresidents, assemble all required documentation:

• Income & Tax Forms:

  • Schedule K-1 (Form 1065): Issued directly by the MLP partnership (always required).

  • Form 1042-S: Issued by the custodian broker showing tax withheld at source (common).

  • Form 8805: Foreign Partner’s Information Statement of Section 1446 Withholding Tax (rare).

  • Form 8288-A: Statement of Withholding on Dispositions by Foreign Persons under Section 1446(f) (required if MLP units were sold during the tax year).

• Identity Verification:

  • Valid Passport: Required for Certified Acceptance Agent (CAA) verification.

For investors who also hold dividend-yielding equities, see how passive income fits into tax filings in our guide on getting an ITIN with Form 1042-S.

2. Prepare Form W-7 (ITIN Application)

If the client does not already possess a Social Security Number (SSN) or an ITIN:

• Select Reason b (Nonresident alien filing a U.S. federal tax return).

• Complete all legal applicant details, including full name and foreign residential address.

• Attach the CAA Certificate of Accuracy (COA) along with the certified passport documentation.

Read more about structure requirements in our overview on ITIN for international entrepreneurs.

3. Prepare Schedule E (Form 1040)

Schedule E (Supplemental Income and Loss) is used to report pass-through income derived from the MLP partnership.

• Navigate to Part II (Income or Loss From Partnerships and S Corporations).

• Enter the MLP partnership name and Employer Identification Number (EIN).

• Record the Ordinary Business Income listed in Box 1 of Schedule K-1.

• Calculate the total net income and carry this figure forward.

4. Prepare Schedule 1 (Form 1040)

Schedule 1 (Additional Income and Adjustments to Income) transfers Schedule E values onto the main tax return.

• Line 5: Enter the total partnership income derived from Schedule E.

• Line 10: Calculate total additional income (this total transfers directly to Form 1040-NR, Line 8).

5. Prepare Form 1040-NR

Complete the U.S. Nonresident Alien Income Tax Return as follows:

• Income Reporting:

  • Line 8: Report total income transferred from Schedule 1.

  • Line 12: Typically $0 (non-residents are generally ineligible for the standard deduction).

  • Line 15: Determine total taxable income.

  • Line 16: Compute tax liability using standard IRS tax tables.

• Payments and Withholding:

  • Line 25g: Record federal tax withheld from Form 1042-S.

  • Line 25e: Record tax withheld from Form 8805 (if applicable).

  • Line 25f: Record tax withheld from Form 8288-A (if applicable).

• Final Calculation:

  • Refund: Applies when total payments exceed total tax liability.

  • Amount Due: Applies when total tax liability exceeds total payments made.

To better understand non-resident tax filings, review our guide on Form 1040 vs 1040-NR.

Required IRS Form Stacking Order

To prevent processing bottlenecks at the IRS ITIN unit, organize the application packet in the following order:

┌─────────────────────────────────────────────────────────────┐
│ TOP / FRONT OF RETURN                                       │
│ 1. Form W-7 (ITIN Application)                              │
│ 2. Form 1040-NR (Tax Return)                                │
│ 3. Schedule 1                                               │
│ 4. Schedule E                                               │
│ 5. Form 1040-S (Attach here)                                │
│ 6. Form 8288-A (Attach here, if applicable)                 │
├─────────────────────────────────────────────────────────────┤
│ BACK OF RETURN                                              │
│ 7. Form 8805 (Attach here only if received)                 │
├─────────────────────────────────────────────────────────────┤
│ CAA ATTACHMENTS                                             │
│ 8. CAA Certificate of Accuracy (COA)                        │
│ 9. Certified Passport Copy                                  │
└─────────────────────────────────────────────────────────────┘

Review our checklist of 10 common errors filing Form W-7 to ensure your packet passes IRS review.

Submission & Filing Address

Mail the compiled tax and ITIN packet to the dedicated IRS Austin processing center:

Internal Revenue Service

ITIN Operation

P.O. Box 149342

Austin, TX 78714-9342

USA

Form Summary Matrix

For business structures outside individual investments, explore how to form an LLC as a non-resident, check whether you need an ITIN to form a U.S. LLC, and review LLC vs No LLC for non-US residents.

Final Thoughts

Executing a proper MLP tax flow for nonresidents ensures that foreign investors meet their U.S. tax obligations, claim all available tax withholdings, and secure an ITIN without application rejections. Whether you are managing individual MLP holdings or a multi-asset portfolio, following a standardized SOP simplifies the entire process. Applicants in South Asia can also consult our ITIN Bangladesh application guide.

Explore our full range of ITIN services and company formation support. You can get started today, visit our about us page, contact us directly, or book a free consultation with our CAA team.