8804 Required or not?

Partnership with a foreign partner and US partners owns a rental property, its only activity. In 2021 there was gross rent collected and a taxable loss. It received a CP282 from the IRS saying there may be form 8804 filing requirement on effectively connected gross income (ECGI) even if there's no effectively connected taxable income (ECTI).
Is there form 8804 filing requirement in this situation?

I don't know what a CP282 says, but if your paraphrase is accurate, it's odd, because the instructions don't just say "may be required".

Every partnership (other than a publicly traded partnership) that has effectively connected gross income allocable to a foreign partner must file a Form 8804, regardless of whether it had ECTI allocable to a foreign partner. The partnership must also file a Form 8805 for each partner on whose behalf it paid section 1446 tax, regardless of whether the partnership made any distributions during its tax year. The partnership can designate a person to file the forms. The partnership, or person it designates, must file these forms even if the partnership has no withholding tax liability under section 1446.

. Emphasis mine.

Filing requirement is based on gross income, not net

I don't know what a CP282 says, but if your paraphrase is accurate, it's odd, because the instructions don't just say "may be required".

Every partnership (other than a publicly traded partnership) that has effectively connected gross income allocable to a foreign partner must file a Form 8804, regardless of whether it had ECTI allocable to a foreign partner. The partnership must also file a Form 8805 for each partner on whose behalf it paid section 1446 tax, regardless of whether the partnership made any distributions during its tax year. The partnership can designate a person to file the forms. The partnership, or person it designates, must file these forms even if the partnership has no withholding tax liability under section 1446.

. Emphasis mine.

On the upper left paragraph of the notice it says
"On your completed Form 1065 indicated that your partnership has a foreign partner. Because of this relationship, your
partnership may have an additional filing requirement."
Next to that paragraph it says
"If your partnership has gross income effectively connected with the conduct of a U.S. trade or business, known as effectively connected gross income (ECGI), that is allocable to a foreign partner, you have an additional filing requirement. This filling requirement applies even if the partnership has no taxable income effectively connected with the conduct of a U.S. trade or business, known as effectively connected taxable income (ECTI)."

I think the issue here is if gross rental income is considered effectively connected gross income in this situation. From my quick research, my understanding is ECI and therefore ECGI and ECTI treatment has to be elected by the foreign partner for rent. If the election is not made, then rental income is FDAP.
If that's the case, is form 8804 still required?
The foreign partner had a loss, would FDAP withholding still be required here on the gross?
The partnership had losses for the past 3 years and didn't file 8804 in any of those years. 2021 is the 1st time they got the CP282.

BTW there seems to be no penalty for late filed or unfiled 8804 if there's no tax due?

FDAP wouldn't allow for deductions ... in which case, withholding on gross rents reported on Form 1042-S

FDAP wouldn't allow for deductions ... in which case, withholding on gross rents reported on Form 1042-S

Yes, this looks like an oversight.
Am I right there's no penalty for failure to file or late filed 8804 if there's no tax due?
I think there could be a minimal penalty for failing to file informational return, but no crazy $10,000/$25,000 penalties on this form?

Check the instructions, but that sounds right

Check the instructions, but that sounds right

Thanks!

If the foreign partner has not made a timely net election, I'd expect that partner would owe US tax at the 30% rate. Consequently the partner would be pleased to have the correct tax withheld.