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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
income in this column is U.S. source income or foreign
source income. Then, only enter the foreign source income in
Part I of each of the applicable Forms 1116 (that is, a
separate Form 1116 for each category of income you
received).
Use the following rules to source the income reported to
you in this column of Schedule K-3. If you are a U.S. resident
(as defined next), the income is U.S. source income. If you
are a nonresident (as defined later), the income is foreign
source income. See the partner and shareholder instructions
for Forms 1065 and 1120-S, Schedule K-3, for further
information.
U.S. resident. A U.S. resident is a U.S. citizen or resident
alien who doesn't have a tax home in a foreign country or a
nonresident alien who has a tax home in the United States.
Tax home. Generally, your tax home is the general area of
your main place of business, employment, or post of duty,
regardless of where you maintain your family home. Your tax
home is the place where you are permanently or indefinitely
engaged to work as an employee or self-employed individual.
If you don't have a regular or main place of business because
of the nature of your work, then your tax home is the place
where you regularly live. If you don't fit either of these
categories, you are considered an itinerant and your tax
home is wherever you work.
Nonresident. A nonresident is any person who isn't a U.S.
resident. U.S. citizens and resident aliens with a foreign tax
home won't be treated as nonresidents for a sale of eligible
personal property unless a foreign tax of 10% or more was
paid or accrued on the gain on the sale (or, in the case of a
loss sale, a foreign tax of 10% or more would have been paid
had the sale resulted in a gain).
Note. To help you with these rules, the partnership or S
corporation has specifically identified the following on an
attachment to Form 1065, 1120-S, or 8865. See
Schedule K-3, Part I, box 1.
•
Gains on the sale of eligible personal property for which a
foreign tax of 10% or more was paid or accrued.
•
Losses on the sale of eligible personal property for which a
foreign tax of 10% or more would have been paid had the
sale resulted in a gain.
Include foreign source income in Part I of the applicable
Form 1116 (that is, the Form 1116 for the applicable category
of income). Don't include in Part I of Form 1116 income that
you determined (using these rules) to be U.S. source income.
If the partnership or S corporation has specifically
identified any capital gains or losses or unrecaptured
section 1250 gain on Schedule K-3, Part II, Section 1,
line 8, or lines 11 through 15, and you have determined that
those gains or losses are foreign source, see Foreign
Qualified Dividends and Capital Gains (Losses), later, before
entering an amount in Part I of Form 1116. See the partner
and shareholder instructions for Forms 1065 and 1120-S,
Schedule K-3, for further information.
Forms 1065, 1120-S, and 8865, Schedule K-3, Part II,
Section 1, line 24, column (g)—Total gross income.
Combine your distributive share of “Total gross income” from
Schedule K-3 with all of your other gross income and enter
the total on line 3e. Note that you must include the total for all
countries in each column of line 3e. “Gross income from all
sources” is a constant amount (that is, you will enter the
same amount on line 3e for each column of all Forms 1116
that you file).
Forms 1065, 1120-S, and 8865, Schedule K-3, Part II,
Section 2, lines 25 through 38, and 44 through 50, col-
umns (b) through (e)—Deductions allocated and appor-
tioned at partnership or S corporation level to foreign
source income. The partnership or S corporation has
already allocated these expenses to foreign source income
and has reported them to you by category of income. Include
these amounts on line 2 of each of the applicable Forms
1116 (that is, a separate Form 1116 for each category of
income you received). See the partner and shareholder
instructions for Forms 1065 and 1120-S, Schedule K-3, for
further information.
Forms 1065, 1120-S, and 8865, Schedule K-3, Part II,
Section 2, lines 25 through 38, and 44 through 50, col-
umn (f)—Other expenses. These lines in column (f)
include expenses (other than interest expense) of the
partnership or S corporation that must be allocated and
apportioned at the partner or shareholder level (for example,
research and experimental (R&E) expenses on line 32).
Combine your distributive share of these expenses with all
of your other like expenses, if any, and then allocate and
apportion them using the applicable rules (for example, for
R&E expenses, the rules under Regulations section
1.861-17(f)).
Forms 1065, 1120-S, and 8865, Schedule K-3, Part III,
Section 1, reports information you will need to allocate and
apportion R&E expense. Forms 1065 and 8865,
Schedule K-3, Part III, Section 3, reports information you will
need to allocate and apportion the foreign-derived intangible
income deduction to foreign source income in separate
categories. Include expenses that you allocate to foreign
source income on line 2 of the applicable Form 1116.
Expenses that you allocate to U.S. source income shouldn't
be entered on any line of Part I of Form 1116. See the partner
and shareholder instructions for Forms 1065 and 1120-S,
Schedule K-3, for further information.
Forms 1065, 1120-S, and 8865, Schedule K-3, Part II,
Section 2, lines 39 through 43—Interest expense. See
the instructions for line 4b, later, to allocate and apportion the
interest expense shown on these lines of Schedule K-3. In
applying those instructions, take into account your distributive
share of the partnership's or S corporation's gross income
(for purposes of the $5,000 threshold) or your pro rata share
of the partnership's or S corporation's assets. See Forms
1065, 1120-S, and 8865, Schedule K-3, Part III, Section 2, for
the share of the partnership's or S corporation's assets.
However, if you were a limited partner and your interest in the
partnership was less than 10%, see the next paragraph.
Include interest expense that you allocate to foreign source
income on line 4b of the applicable Form 1116. Don't enter in
Part I of Form 1116 any interest expense that you allocate to
U.S. source income.
Less-than-10% limited partners. If you are a limited
partner and you own (directly or indirectly) a less-than-10%
interest (by income) in the partnership, you may generally
allocate your distributive share of interest expense from that
partnership to foreign or U.S. source income based on your
distributive share of the gross foreign or U.S. source income
of that partnership. The interest expense you allocate to
foreign source income may generally be apportioned
exclusively to passive category income. However, see
Temporary Regulations section 1.861-9T(e)(4) for
exceptions. See the Partner’s Instructions for Schedule K-3
(Form 1065) for further information.
8
Instructions for Form 1116 (2023)