Country code.

Forms 1116 and 1118 require the taxpayer to report the foreign country or U.S. territory for which the gross income and gross receipts are sourced. On lines 1 through 24, for each gross income and gross receipts item, enter on a separate line (A, B, or C) the two-letter code from the list at IRS.gov/CountryCodes for the foreign country or U.S. territory within which the gross income and gross receipts are sourced. If a type of income is sourced from more than three countries, attach a schedule with the information required on Schedules K-2, Part II, and Schedule K-3, Part II, for that type of income.

If income is U.S. source, enter “US.” Do not enter “various” or “OC” for the country code.

Each gross income and gross receipts item (for example, sales vs. interest income) may have different countries listed on A, B, C, etc., given that the partnership might not have sales income and interest income, for example, from the same country. Line 24 should sum each country’s total income reported on Part II, regardless of the line on which such income is reported, whether A, B, C, etc.

Lines 3 and 4. Rental income.

These lines are reported separately because they are reported separately on Form 8865, Schedule K. The sourcing rule may be the same for both types of rental income.

Lines 7 and 8. Ordinary dividends and qualified dividends.

Enter only ordinary dividends on line 7 and only qualified dividends on line 8.

Lines 11 through 15 and 27 through 30. Capital gains and losses.

These lines generally match the types of gains and losses reported separately on Form 8865, Schedule K. Further, section 904(b)(2)(B) contains rules regarding adjustments to account for capital gain rate differentials (as defined in section 904(b)(3)(D)) for any tax year.

Line 12. Net long-term capital gain.

Don’t include gains reported on lines 13, 14, and 15 on line 12.

Line 13. Collectibles (28%) gain.

Report collectibles gain on line 13 and not line 12.

Line 14. Unrecaptured section 1250 gain.

Report unrecaptured section 1250 gain on line 14 and not on line 12. If gain is both unrecaptured section 1250 gain and net section 1231 gain, report the gain on line 14 and not on line 15, but include an attachment indicating the amount of unrecaptured section 1250 gain that is also net section 1231 gain.

Line 15. Net section 1231 gain.

Report net section 1231 gain on line 15 and not on line 12 unless such amount is also unrecaptured section 1250 gain. See the instructions for line 14.

Lines 16 and 46. Section 986(c) gain and loss.

Report the partnership’s share of a lower-tier pass-through entity’s section 986(c) gain or loss. This isn’t reported as a net amount but rather total section 986(c) gains for the year are reported on line 16. Total section 986(c) losses for the year are reported on line 46.

Lines 17 and 47. Section 987 gain and loss.

The source of section 987 gain or loss is generally determined by reference to the source of the income or asset giving rise to such gain or loss. It’s also possible to obtain section 987 gain or loss information from Form 8858. This isn’t reported as a net amount but rather total section 987 gains for the year are reported on line 17. Total section 987 losses for the year are reported on line 47.

Lines 18 and 48. Section 988 gain and loss.

The source of foreign currency gain or loss on section 988 transactions is generally determined by reference to the residence of the taxpayer or QBU on whose books the asset, liability, or item of income or expense is properly reflected. If the source is determined by reference to the residence of the taxpayer partner, the section 988 gain and loss would be reported in column (f).

Line 20. Other income.

Attach a statement to both Schedules K-2 and K-3 describing the amount and type of other income. The statement must conform to the format of Part II.

Line 24. Total gross income.

Enter the total gross income received from all sources on line 24. Then, add the gross income on lines 1 through 23 by country or U.S. territory and enter the total by country in rows A, B, and C (and additional rows if more than three countries). The sum of the amounts in rows A, B, C, etc., doesn’t need to equal the amount on line 24 given that not every gross income amount is required to be reported by country.

Line 28. Net long-term capital loss.

Don’t include losses reported on line 29.

Line 29. Collectibles loss.

Report collectibles loss on line 29 and not on line 28.

Line 32. R&E expenses.

In general, R&E expenses are allocated and apportioned by the partner and reported in column (f). See Regulations section 1.861-17(f). R&E expenses, as described in section 174, are ordinarily definitely related to gross intangible income reasonably connected with relevant broad product categories of the taxpayer and are allocable to gross intangible income as a class related to such product categories. The product categories are determined by reference to the three-digit classification of the Standard Industrial Classification Manual (SIC code).

Line 38. Charitable contributions.

Charitable contribution deductions are apportioned solely to U.S. source gross income. See Regulations section 1.861-8(e)(12). So, this deduction should be reported in column (a).

Lines 39 and 40. Interest expense specifically allocable under Regulations sections 1.861-10 and -10T.

Apart from interest expense entered on line 39, enter on line 40 interest expense that is directly allocable under Temporary Regulations section 1.861-10T to income from specific partnership property. Such interest expense is treated as directly allocable to income generated by such partnership property. See Temporary Regulations section 1.861-9T(e)(1).

Lines 41 through 43. Other interest expense.

A partner's distributive share of a partnership's interest expense that isn’t directly allocable to income from specific partnership property is generally allocated and apportioned by the partner, subject to certain exceptions, and included in column (f). See Temporary Regulations section 1.861-9T(e)(1).

Interest expense incurred by certain individuals, estates, and trusts is characterized based on the categories of interest expense in sections 163 and 469: active trade or business interest, investment interest, or passive activity interest, adjusted for any interest expense directly allocated under Temporary Regulations section 1.861-10T. See Regulations section 1.861-9T(d). The amounts in each category of interest expense are reported on lines 41 through 43. See the Partnership Instructions for Schedules K-2 and K-3 (Form 1065) for an example. Also see the Partnership Instructions for Schedules K-2 and K-3 (Form 1065) for instances when interest expense may reduce passive category income or income in other categories and an attachment may be necessary. If the partnership's only partners are corporate partners, do not report the partnership’s interest expense by the categories of interest expense in sections 163 and 469. All such interest expense may be reported as business interest expense on line 41.

Line 45. Foreign taxes not creditable but deductible.

See the instructions for Forms 1116 and 1118 for examples of foreign taxes that are not creditable but deductible.

Lines 49 and 50. Other deductions.

Attach to the Schedules K-2 and K-3 a statement describing the amount and type of other deductions. The statement must conform to the format of Part II.

Stewardship expenses.

In the case of the partner’s stewardship expenses incurred to oversee the partnership, the partnership's value is determined and characterized under the asset method in Regulations section 1.861-9 (taking into account any adjustments under sections 734(b) and 743(b)). See Regulations section 1.861-8(e)(4)(ii)(C). So, the reporting below for Part III, Section 2, for interest expense apportionment factors generally applies to the partner’s stewardship expense apportionment.

Column (b).

Characterize the pro rata share of the partnership assets that give rise to foreign branch category income as assets in the foreign branch category. See Regulations section 1.861-9(e)(10).

Column (e).

As of the date of these instructions, the only separate category that could be included in column (e) is the section 901(j) category of income. See the Instructions for Form 1118 for the potential countries to be listed with the section 901(j) category of income.

Line 1.

On Schedule K-2, report the average of the beginning-of-year and end-of-year inside bases in the partnership’s total assets. See Regulations section 1.861-9(g)(2)(i)(A). On Schedule K-3, report the partner’s distributive share of the assets reported on Schedule K-2.

Line 2.

On Schedule K-2, report the partnership’s average of the beginning-of-year and end-of-year inside bases adjustments under sections 734(b) and 743(b). On Schedule K-3, report the partner’s distributive share of the adjustments reported on Schedule K-2.

Lines 3 and 4.

On Schedule K-2, report reductions in the partnership's asset values to reflect the partnership's directly allocable interest under Regulations section 1.861-10(e) and Temporary Regulations section 1.861-10T. See also Temporary Regulations section 1.861-9T(e)(1). On Schedule K-3, report the partner’s distributive share of the reduction in asset values reported on Schedule K-2.

Line 5.

On Schedule K-2, report the average value of partnership assets excluded from the apportionment formula. See section 864(e)(3). On Schedule K-3, report the partner’s distributive share of the excluded assets reported on Schedule K-2.

Line 6.

Individual partners who are general partners or who are limited partners with an interest in the partnership of 10% or more follow the same rules as corporate partners whose interest in the partnership is 10% or more except that their interest expense must be apportioned according to the interest expense classifications under sections 163 and 469. See Regulations section 1.961-9T(d). This includes reporting the assets according to such classifications. If the partnership has no such partners, don’t complete Schedule K-2, Part III, Section 2, lines 6b through d; or Schedule K-3, Part III, Section 2, lines 6b through d. Include the total amount on line 6a.

Line 6a is the sum of lines 1 and 2 less the sum of lines 3, 4, and 5. Line 6a is divided into the types of assets on lines 6b, 6c, and 6d if the partnership has partners other than corporate partners. See the Partnership Instructions Schedules K-2 and K-3 (Form 1065) for an example.

Lines 7 and 8.

The amounts reported on lines 7 and 8 are subsets of the amounts reported on line 6 representing the value of stock held by the partnership in certain foreign corporations. In determining its foreign tax credit limitation, a partner should disregard interest expense that is “properly allocable'' to stock of a 10%-owned foreign corporation that has been characterized as a section 245A asset. See section 904(b)(4) and Regulations section 1.904(b)-3(a)(1)(ii). The amount of properly allocable deductions is determined by treating the section 245A subgroup for each separate category as a statutory grouping for purposes of allocating and apportioning interest deductions on the basis of assets. Assets in a section 245A subgroup only include stock of a specified 10%-owned foreign corporation that has been characterized as a section 245A asset.

The stock is characterized as a section 245A asset to the extent it generates income that would generate a dividends received deduction under section 245A if distributed. This doesn’t include income that is included as GILTI, subpart F income, or a section 951(a)(1)(B) inclusion or income described in section 245(a)(5) (which gives rise to a dividends received deduction under section 245 instead of section 245A).

In the case of a specified 10%-owned foreign corporation that isn’t a CFC, all of the value of its stock is potentially in a section 245A subgroup because the stock generally generates dividends eligible for the section 245A deduction (and cannot generate an inclusion under section 951(a)(1) or 951A(a)) if the partner meets the requirements for eligibility. See Regulations section 1.904(b)-3(c)(2). However, because there may not be information to determine if a partner is eligible for a section 245A deduction (for example, due to tiered ownership), the partner must determine to what extent the stock is treated as an asset in a section 245A subgroup.

For a partnership-owned specified 10% foreign corporation that isn’t a CFC, report on line 7, columns (a) through (e), the total value of the stock in all such foreign corporations. The value of the stock is the partnership's basis in the stock adjusted to take into account the E&P of the foreign corporations as explained in Regulations section 1.861-12(c)(2). Attach to the Schedules K-2 and K-3 a statement with the following information for each foreign corporation for which adjusted basis is reported on line 7.

If the specified 10%-owned foreign corporation is a CFC, a portion of the value of stock in each separate category and in the residual grouping for U.S. source income is subdivided between a section 245A and non-section 245A subgroup under the rules described in Regulations section 1.861-13(a)(5). However, because there will generally not be information to apply the stock characterization rules described in Regulations section 1.861-13(a)(5), the partner must apply those rules to characterize the stock.

For partnership-owned CFCs, report on line 8, column (f), the total value of its stock in all such foreign corporations. The value of the stock is the partnership's inside basis in the stock adjusted to take into account the E&P of the foreign corporations as explained in Regulations section 1.861-12(c)(2). Attach to the Schedules K-2 and K-3 a statement with the following information for each foreign corporation for which basis is reported on line 8.

Line 1. Net income (loss).

This amount may equal Form 8865, Schedule M-1, line 9, Income (loss).

Line 2a. DEI gross receipts.

Enter all gross receipts from whatever source derived except for amounts included on lines 3 through 7.

Line 2b. DEI cost of goods sold.

Enter the amount of cost of goods sold attributable to the amount on line 2a.

Line 2c. DEI properly allocated and apportioned deductions.

Enter the amount of deductions (including taxes) properly allocable to the amount on line 2a. See Regulations section 1.250(b)-1(d)(2) for more details. Deductions properly allocable to gross DEI are determined without regard to sections 163(j), 170(b)(2), 172, 246(b), and 250.

Lines 3 through 7 are exclusions from DEI used to determine the partner’s DEI.

Line 4. CFC dividends.

Enter the amount of any dividend received from a CFC for which the partner is a U.S. shareholder as defined under section 951(b).

Line 5. Financial services income.

Enter the amount of net financial services income (as defined in section 904(d)(2)(D)) before interest and R&E deductions.

Line 6. Domestic oil and gas extraction income.

Enter the amount of net domestic oil and gas extraction income before interest and R&E deductions. The term “domestic oil and gas extraction income” means income described in section 907(c)(1) determined by substituting “within the United States” for “outside the United States.”

Line 7. Foreign branch income.

Enter the amount of net foreign branch income before interest and R&E deductions (as defined in section 904(d)(2)(J)). Report all income that would be foreign branch income of its partners as if all partners were U.S. persons.

Line 8. Partnership QBAI.

Enter the amount, if any, of the partnership QBAI.

A domestic corporation’s QBAI is its share of the average of the aggregate adjusted bases, determined as of the close of each quarter of the tax year, in certain specified tangible property. See Regulations section 1.250(b)-2(b). The adjusted basis is determined by using the alternative depreciation system under section 168(g) and allocating depreciation deductions for such property ratably to each day during the period in the tax year to which such depreciation relates. See Regulations section 1.250(b)-2(e). The specified tangible property is that which is used in the trade or business of the corporation in the production of gross income included in the domestic corporation’s gross DEI and is of a type for which a deduction is allowable under section 167. See Regulations section 1.250(b)-2(b). If a domestic corporation holds an interest in one or more partnerships during a tax year (including indirectly through one or more partnerships that are partners in a lower-tier partnership), the QBAI of the domestic corporation for the tax year is increased by the sum of the domestic corporation’s partnership QBAI for each partnership for the tax year. See Regulations section 1.250(b)-2(g)(1). Partnership QBAI is the sum of the domestic corporation’s proportionate share of the partnership’s adjusted basis in the property and the domestic corporation’s partner specific QBAI basis in the property for the partnership tax year that ends with or within the tax year. See Regulations section 1.250(b)-2(g)(2). Partnership specified tangible property means, for a domestic corporation, tangible property that is used in the trade or business of the partnership, of a type for which a deduction is allowable under section 167 and used in the production of gross income included in the domestic corporation’s gross DEI. See Regulations section 1.250(b)-2(g)(5).

If the portion of partnership specified tangible property cannot be determined (for example, if it isn’t known if property gives rise to the production of gross income in one of the excluded categories from DEI that is determined by the partner, which would cause such property to not be classified as partnership specified tangible property), then in reporting the amount of a partner's share of the partnership QBAI, separately state any information so a direct or indirect domestic corporate partner can distinguish between the amount of the adjusted bases in a partnership's tangible property that the domestic corporation would include in its adjusted bases in the partnership specified tangible property and the amount of the adjusted bases in the partnership's tangible property that the domestic corporation would not include in its adjusted bases in the partnership specified tangible property.

If tangible property was used in the production of DEI and in the production of income that is non-DEI, then it is considered dual-use property and treated as specified tangible property in the same proportion that the amount of the gross income included in DEI produced for the property bears to the total amount of gross income produced for the property. See Example 2 of Regulations section 1.250(b)-2(g)(8) for guidance on how to calculate the partner adjusted basis. If specified tangible property is only partially depreciable, then only the depreciable portion is QBAI. See Regulations section 1.250(b)-2(b).

Line 9. Gross receipts.

Enter the amount, if any, of the partnership's foreign-derived gross receipts separately for aggregate sales of general property, aggregate sales of intangible property, and aggregate services. Foreign-derived gross receipts mean gross receipts that are used to figure gross FDDEI as defined in Regulations section 1.250(b)-1(c)(16).

Line 10. COGS.

Enter the amount of cost of goods sold attributable to the amount(s) on line 9.

For purposes of this form, when figuring FDDEI, cost of goods sold includes the cost of goods sold to customers, and the adjusted basis of non-inventory property sold or otherwise disposed of in a trade or business.

In making that determination, attribute costs of goods sold to gross receipts using a reasonable method in accordance with Regulations section 1.250(b)-1(d)(1).

Cost of goods sold must be attributed to gross receipts for gross DEI or gross FDDEI regardless of whether certain costs included in cost of goods sold can be associated with activities undertaken in an earlier tax year (including a year before the effective date of section 250).

Line 11. Allocable deductions.

Enter the amount of the allocable deductions. See Regulations section 1.250(b)-1(d)(2) for more details. Enter the amounts of interest and R&E expenses on lines 13 and 16, respectively. Deductions are determined without regard to sections 163(j),170(b)(2), 172, 246(b), and 250.

Column (a). General property.

Enter the amount of the deductions that are allocated and apportioned to gross FDDEI from all sales of general property.

Column (b). Intangible property.

Enter the amount of the deductions that are allocated and apportioned to gross FDDEI from all sales of intangible property.

Column (c). Services.

Enter the amount of the deductions that are allocated and apportioned to gross FDDEI from all services.

Line 12. Other apportioned deductions.

Enter all other apportioned deductions that relate to gross FDDEI that are not otherwise included on lines 11, 13, and 16. If a deduction doesn’t bear a definite relationship to a class of gross income constituting less than all of gross income, it shall ordinarily be treated as definitely related and allocable to all of the taxpayer's gross income, including gross DEI and gross FDDEI, except where otherwise directed in the regulations.

Line 13. Interest deduction.

The term “interest” refers to the gross amount of interest expense incurred by a partnership in a given year. Generally, interest expense includes any expense that is currently deductible under section 163 (including original issue discount), and interest equivalents. See Regulations section 1.861-9(b) for the definition of interest equivalents and Temporary Regulations section 1.861-9T(c) for section that disallow, suspend, or require the capitalization of interest deductions. Include excess business interest expense determined under section 163(j)(4) on this line. Under Regulations section 1.250(b)-1(d)(2)(ii), deductions are determined without regard to section 163(j).

Lines 13A and 13B. Interest expense specifically allocable under Regulations sections 1.861-10(e) and -10T.

Apart from interest expense entered on line 13A, enter on line 13B interest expense that is directly allocable under Temporary Regulations section 1.861-10T to income from specific partnership property. Such interest expense is treated as directly allocable to income generated by such partnership property. See Temporary Regulations section 1.861-9T(e)(1).

Line 13C.

Enter all interest deductions not otherwise included on lines 13A and 13B.

Line 14. Interest expense apportionment factors.

Report information that a partner will use to allocate and apportion its interest expense for FDII purposes.

Interest deductions are apportioned to gross DEI and FDDEI based ordinarily on the tax book value of the taxpayer’s assets. See Regulations section 1.861-9T(g)(1)(i). A taxpayer can use either the tax book value or the alternative tax book value of its assets. See Regulations section 1.861-9(i). Under both methods, the partner uses the partnership's inside basis in its assets, including adjustments required under sections 734(b) and 743(b). See Regulations sections 1.861-9(e)(2) and -9(e)(3). When reporting the asset that is the basis of stock in nonaffiliated 10%-owned corporations, adjust such amount for E&P. See Regulations section 1.861-12(c)(2)(i)(A).

The total interest deductions for the members of the corporation's affiliated group are allocated and apportioned to the statutory and residual groupings under proposed, final, and Temporary Regulations sections 1.861-8 through 1.861-14.

Line 14A.

Enter the amount of the average of the beginning-of-year and end-of-year inside bases in the partnership's total assets. See Regulations section 1.861-9(g)(2)(i)(A).

Line 14B.

Enter the amount of the average of the beginning-of-year and end-of-year inside bases adjustments under sections 734(b) and 743(b).

Lines 14C and 14D.

Enter the amount of the reductions in the partnership's asset values to reflect the partnership's directly allocable interest under Regulations section 1.861-10(e) and Temporary Regulations section 1.861-10T. See also Temporary Regulations section 1.861-9T(e)(1).

Line 14E.

Enter the amount of the average value of assets excluded from the apportionment formula. See section 864(e)(3).

Lines 15 and 16. R&E expenses apportionment factors.

These lines require information that a partner will use to allocate and apportion its R&E expense for FDII purposes. Lines 15 and 16 aren’t required to be completed unless either (a) the partnership incurs R&E expense; or (b) the partner is expected to license, sell, or transfer its intangible property to the partnership (as provided in Regulations section 1.861-17(f)(3)).

R&E expenses deducted, or amortized and deducted, under section 174 are definitely related to all gross intangible income reasonably connected with relevant broad product categories of the taxpayer and are allocable to all items of gross intangible income as a class related to such product categories. The product categories are generally determined by reference to the three-digit SIC code. R&E expenses are apportioned between the statutory and residual groupings based on an analysis of the taxpayer’s gross receipts from certain sales, leases, licenses, and services. See Regulations section 1.861-17. The exclusive apportionment rule in Regulations section 1.861-17(c) doesn’t apply for purposes of apportioning R&E to gross DEI and gross FDDEI.

R&E expenses are allocated and apportioned by the partner. This requires the reporting to the partners of the gross receipts related to certain income within the statutory and residual groupings within a SIC code and the partner’s distributive share of the partnership’s R&E deductions, if any, connected with the SIC codes.

Line 15. R&E gross receipts by SIC code.

Enter the gross receipts that resulted in gross income for each category, DEI, FDDEI, and then total gross receipts. Note that the Total column isn’t a sum of DEI and FDDEI but rather refers to all the partnership’s gross receipts. Such gross receipts include both the partnership's sales and certain other parties' sales. See Regulations section 1.861-17(d). Gross receipts from certain transactions of parties both controlled or uncontrolled by the partnership may be included on line 15. See, generally, Regulations section 1.861-17(d).

Line 16.

Enter the amount of R&E expense by SIC code.

Rows A–O.

Use rows A–O to report information for each distribution by a foreign corporation for its stock that the partnership (directly or through pass-through entities) owns (within the meaning of section 958) other than solely by reason of applying section 318(a)(3) (providing for downward attribution) as provided in section 958(b).

Each row should relate to the partnership’s direct ownership of stock in the foreign corporation or direct ownership of the ownership interests in a pass-through entity that (directly or through other pass-through entities) owns (within the meaning of section 958) stock in the foreign corporation other than solely by reason of applying section 318(a)(3) (providing for downward attribution) as provided in section 958(b). For example, if a partnership (upper-tier partnership) directly owns 50% of the foreign corporation's stock and owns 50% of the foreign corporation's stock through another partnership (lower-tier partnership), then distributions by the foreign corporation to each of the upper-tier partnership and the lower-tier partnership are to be reported on separate rows on the upper-tier partnership's Part V (Form 8865). If the partnership owns stock of a foreign corporation through another partnership (lower-tier partnership) from which it receives a Part V of Schedule K-3 (Form 1065 or 8865), the partnership must replicate each line of the Part V of Schedule K-3 (Form 1065 or 8865) on its Part V (Form 8865). Rows for distributions for a partnership's direct ownership of foreign corporation stock should be listed before rows for distributions for a partnership’s ownership of foreign corporation stock through a pass-through entity.

If the partnership received a Schedule K-3 from another partnership with an attachment related to net investment income PTEP (NII PTEP), append Attachment 3 to Schedule K-2 and Attachment 4 to each Schedule K-3 in the following format, adding additional rows as necessary for each distribution by a foreign corporation. For more information about net investment income and net investment income tax relating to CFCs and qualified electing funds (QEFs), see Regulations section 1.1411-10.

Columns (a) through (c).

Enter the name, U.S. EIN or reference ID number, and address of each PFIC held directly or indirectly by the partnership during its tax year. Do not enter “FOREIGNUS” or “APPLIED FOR.”

For basic information about reference ID numbers (including the requirements as to the characters permitted), see the Instructions for Form 8621.

Columns (c) and (d).

Enter the partnership's share of the total ordinary earnings and net capital gain (as defined in Regulations section 1.1293-1(a)(2)) of the PFIC for the partnership’s tax year in which or with which the tax year of the PFIC ends in columns (c) and (d), respectively. The PFIC should provide a statement that provides information to assist in determining these amounts. See Regulations section 1.1295-1(g) for additional information on annual PFIC statements.

Provide the information received in an annual information statement for the PFIC, unless the U.S. person filing the Form 8865 hasn’t made, or doesn’t intend to make, a QEF election for the PFIC.

Columns (e) and (f).

Enter the fair market value of the PFIC stock at the beginning and end of the partnership’s tax year in columns (e) and (f), respectively. If any shares of the PFIC were acquired during the tax year for which the Form 8865 is being filed, the fair market value in column (e) should reflect the fair market value of those shares as of the date of acquisition. This information must be provided unless the U.S. person filing the Form 8865 hasn’t made, or doesn’t intend to make, a section 1296 MTM election for the PFIC, including a non-initial section 1296 MTM election.

Reminder.

The U.S. person filing the Form 8865 isn’t required to complete Schedules K-2 and K-3, Part VII, for a PFIC the stock of which has been marked to market as described in Regulations section 1.1291-1(c)(4), though it may use Part VII to provide the partners with additional information to meet their tax obligations for the PFIC in certain instances, such as when the section 1291 rules apply because the stock wasn’t marked to market the first year of the shareholder’s holding period.

Reminder.

If the partnership has additional required information for a PFIC for any of columns (g) through (j) or (l) through (m) (for example, multiple distributions for the PFIC stock), the U.S. person filing the Form 8865 must complete those columns with the first of those entries and attach a statement including the remaining entries to Schedule K-2, Part VII, and its corresponding Schedules K-3, Part VII, with the information contained in Attachment 6.

Column (g).

Enter the date(s) on which the partnership initially acquired each block of stock in the PFIC using the format YYYYMMDD.

Column (h).

Enter the amount of each distribution of cash and/or the fair market value of any other property distributed to the partnership by the PFIC during the tax year, if any.

Column (i).

Enter the date(s) of distribution of the amounts entered in column (h) using the format YYYYMMDD.

Column (j).

Enter the total creditable foreign taxes attributable to a distribution from the PFIC. See section 1291(g) and the instructions for Form 8621, Part V, line 16d, for additional information on creditable foreign taxes attributable to PFIC distributions, including apportioning creditable foreign taxes to the portion of a distribution which constitutes an excess distribution and certain rules related to creditable foreign taxes on a disposition of PFIC stock.

Column (k).

Enter the total amount of distributions the partnership received from the PFIC in the 3 preceding tax years, or, if shorter, the total amount of distributions the partnership received during its holding period of the PFIC stock. However, don’t enter any amount in this column for a PFIC for which the U.S. person filing the Form 8865 has made a pedigreed QEF election or section 1296 MTM election (other than a non-initial section 1296 MTM election).

Column (l).

Enter the date(s) on which the partnership disposed of any block of stock in the PFIC during the partnership's tax year, if any, using the format YYYYMMDD.

Column (m).

If the partnership disposed of any block of stock in the PFIC during the partnership's tax year, enter the amount realized by the partnership on each disposition.

Column (n).

If the partnership disposed of any block of stock in the PFIC during the partnership's tax year, enter the partnership's tax basis in the shares of the PFIC on the date of disposition.

Column (o).

Enter the partnership's gain or loss on the disposition of PFIC shares. This equals column (m) minus column (n).

Lines 1a through 4a.

Enter the partnership's total gross receipts for the current year and each of the 3 preceding tax years. The determination of the partnership's gross receipts is made in accordance with Regulations section 1.448-1T(f)(2)(iv).

Lines 1b through 4b.

Complete lines 1b through 4b if the partnership has a foreign partner or there is reason to know it has a foreign partner through a partner that is a pass-through entity. Enter the partnership’s total gross receipts on income effectively connected with a U.S. trade or business (ECI) for the current year and each of the 3 preceding tax years which the foreign partner(s) would take into account as income that is ECI. If the foreign partner(s) is subject to tax on a net basis pursuant to an applicable income tax treaty of the United States, enter the gross receipts that would be attributable to transactions taken into account in determining its net taxable income.

Lines 1c through 4c.

Complete lines 1c through 4c if the partnership has a foreign partner or has reason to know it has a foreign partner through a partner that is a pass-through entity. Enter the total non-ECI gross receipts as the difference between column (a) and column (b).

Line 5. Amounts included in the denominator of the base erosion percentage as described in Regulations section 1.59A-2(e)(3).

Enter the amount of deductions and other items allocated to the partners from the partnership that will be included in the denominator of the partners' base erosion percentage. For a description of deductions that aren’t included in the denominator, see Regulations section 1.59-2(e)(3)(ii).

Column (b). Base erosion payments.

For purposes of determining whether a payment or accrual by a partnership is a base erosion payment, any amount paid or accrued by the partnership is treated as paid or accrued by each partner based on the partner's distributive share of the item of deduction for that amount. A partner that is an applicable taxpayer has a base erosion payment for any amount paid or accrued by the partnership to a foreign person (as defined in Regulations section 1.59A-1(b)(10)) that is a related party to the partner (as defined in Regulations section 1.59A-1(b)(12)) for which a deduction is allowable under chapter 1 and for certain other items on lines 13 and 15. See Regulations section 1.59A-3 and the Instructions for Form 8991 for more information on the definition of a base erosion payment.

Column (c). Base erosion tax benefits.

A partner's distributive share of any deduction or reduction in gross receipts attributable to a base erosion payment is the partner's base erosion tax benefit. A partner's base erosion tax benefits are determined separately for each asset, payment, or accrual, as applicable, and aren’t netted with other items. A partner's base erosion tax benefit may be more than the partner's base erosion payment (for example, in the case of special allocations made by the partnership). See the Instructions for Form 8991 and Regulations section 1.59A-7(d) for further information concerning a partner's base erosion tax benefits.

General.

For line 8, columns (b) and (c); line 9, columns (b) and (c); line 10a, columns (b) and (c); line 11, columns (b) and (c); line 12, columns (b) and (c); line 13, columns (b) and (c); line 14a, columns (b) and (c); line 15, columns (b) and (c); and line 16, columns (b) and (c), don’t include amounts that a partner doesn’t take into account pursuant to the exception for certain small partners. See Regulations section 1.59A-7(d)(2) and Exception for small partners , earlier. For Schedule K-2, Part VIII, report the total allocated to all partners, and for Schedule K-3, Part VIII, report the amount allocated to each individual partner.

Line 8. Purchase or creation of property rights for intangibles (patents, trademarks, etc.).

Line 9. Rents, royalties, and license fees.

Line 10a. Compensation/consideration paid for services NOT excepted by section 59A(d)(5).

Line 10b. Compensation/consideration paid for services excepted by section 59A(d)(5).

Line 11. Interest expense.

Line 12. Payments for the purchase of tangible personal property.

Line 13. Premiums and/or other considerations paid or accrued for reinsurance as covered by section 59A(d)(3) and section 59A(c)(2)(A)(iii).

Line 14a. Nonqualified derivative payments.

Line 14b. Qualified derivative payments excepted by section 59A(h).

Enter the total amount of qualified derivative payments paid or accrued by the partnership. Generally, a qualified derivative payment is any payment made by the taxpayer pursuant to a derivative contract, provided that the taxpayer recognizes gain or loss on the derivative contract as if it were sold for its fair market value on the last business day of the tax year; treats the gain or loss as ordinary; and treats the character of all other items of income, deduction, gain, or loss for a payment pursuant to the derivative as ordinary. A payment isn’t a qualified derivative payment if the payment would be treated as a base erosion payment if it weren’t made pursuant to a derivative (such as interest, royalty, or services income). For a contract with both derivative and nonderivative components, a payment isn’t a qualified derivative payment if it’s properly allocable to the nonderivative component.

Line 15. Payments reducing gross receipts made to surrogate foreign corporation.

Line 16. Other payments—specify.

Line 17, column (c). Base erosion tax benefits related to payments reported on lines 6 through 16, on which tax is imposed by section 871 or 881, with respect to which tax has been withheld under section 1441 or 1442 at 30% (0.30) statutory withholding tax rate.

Enter the aggregate amount of the partners' base erosion tax benefits, reported on lines 8 through 16, on which tax is imposed under section 871 or 881 and for which tax has been deducted and withheld under section 1441 or 1442 at a 30% statutory withholding tax rate.

Line 18, column (c). Portion of base erosion tax benefits reported on lines 6 through 16, on which tax is imposed by section 871 or 881, with respect to which tax has been withheld under section 1441 or 1442 at a reduced withholding rate pursuant to an income tax treaty.

Multiply the ratio of percentage withheld divided by 30% (0.30) times base erosion tax benefit. Complete Worksheet B for all partnership-related items and attach a Worksheet B to the Schedule K-3 for each partner's share of the amounts reported on the partnership Worksheet B.

Complete Worksheet B to determine the portion of the base erosion tax benefits, reported on lines 8 through 16, on which tax is imposed under section 871 or 881 and for which tax has been deducted and withheld at a reduced withholding tax rate (but not exempt from tax) pursuant to a U.S. income tax treaty. Keep a copy of the completed Worksheet B for the partnership’s records.