Non Resident Non Citizen Capital Gains from Limited Partnership

[W]

If a non resident and non citizen (NRNC) trades securities in a registered
broker dealer account, they pay withholding taxes on dividends, but they do
not pay US tax on capital gains. If the NRNC instead has an interest in a
US-based limited partnership that passes through capital gains on a Schedule
K-1, is the NRNC taxed on those capital gains? I read in a trader tax book
that any income from a US based limited partnership is recharacterized as
effectively connected income (ECI) of a US-based business, and would be
taxed. What's not clear to me is does this specifically mean that capital
gains income clearly shown as capital gains on the Schedule K-1 must be
treated as ECI on the 1040NR and subject to a 30%+ tax rate?

If yes, I guess that would explain why so many hedge funds end up having to
create both a US based partnership as well as an offshore partnership.

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W

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