Instructions For Water'S Edge Schedule printable pdf download

Instructions for Water’s Edge Schedule

directly or indirectly owned or controlled by a

member of the water’s edge group.

Who needs to fill out Water’s Edge Schedule?

2. Domestic international sales corporations, as described in

You need to fill out this schedule if you have a valid water’s

26 U.S.C. 991 through 994, and foreign sales

edge election. A water’s edge election allows you to

corporations, as described in 26 U.S.C. 921 through 927.

apportion your worldwide income to this state using only

certain affiliated corporations. When you file a return using

3. Export trade corporations, as described in 26 U.S.C. 970

the water’s edge method, you include corporations based

and 971.

upon attributes such as the location of the corporation’s

payroll and property and the percentage of ownership that

4. Foreign corporations deriving gain or loss from

you have in the corporation. 15-31-322, MCA.

disposition of a United States real property interest to the

extent recognized under 26 U.S.C. 897.

Part I. Water’s Edge Election

5. A corporation incorporated outside the United States if

You can elect to compute your income attributable to

over 50% of its voting stock is owned directly or indirectly

Montana sources based on a water’s edge combined return.

by the taxpayer and if less than 80% of the average of its

payroll and property is assignable to a location outside

If you wish to claim a water’s edge election, you will need to

the United States.

file a written election with us within 90 days of the tax year

in which this election is to become effective. Each election

6. An affiliated entity that is in a unitary relationship with you

binds you for a three-year renewable period. You will have

and that is incorporated in a tax haven country. Please

to file a written election for each three-year period. You will

refer to Part IV below for additional details.

need to file for a new election again within the first 90 days

of the tax period for which your subsequent election is to

A portion of the after-tax net income of United States

become effective. You can revoke the election if we send

corporations that are excluded as 80/20 companies and the

you our written permission to do so.

United States possession corporations described in sections

931 through 934 and 936 of the Internal Revenue Code are

On Line 1, enter the tax periods for which a valid water’s

considered dividends received from corporations that are

edge election has been approved by the department.

incorporated outside of the United States. These deemed

dividends are included in the apportionable income and are

Part II. How to Calculate the Deemed

to be calculated in Part II.

Dividends Received from Corporations

Line 1 – Positive taxable income of 80/20 companies.

Incorporated Outside of the United States

Using a by-company breakdown of your federal

A corporation that is incorporated in the United States that

consolidated return, enter on line 1 the amount that you

has more than 80% of the average of its payroll and

reported on line 30 of your federal return for all of your 80/

property assignable to a location outside the United States is

20 companies that had positive income. When you

commonly referred to as an 80/20 company. An 80/20

compute 80/20 income for this line, you should report zero

company is excluded from a water’s edge filing group.

income for any 80/20 company that reported a loss on your

federal return, line 30.

The water’s edge combined return includes only the income

and apportionment factors of the members of the unitary

Line 2 – Consolidated 1120 positive taxable income.

group that meet the criteria set forth in §15-31-322 of the

Enter the total of the amounts that you reported on your

Montana Code Annotated and summarized in 1-6 below. If

federal line 30 for all of your companies that had a positive

your affiliated entity meets any one of these criteria and is

income. For any company that reported a loss on your

unitary, it is included in your combined return. If your

federal form line 30, you should report this as zero when

affiliated entity does not meet any of these criteria, it is

you compute that company’s income on this line.

excluded from your combined return.

Line 3 – Ratio of 80/20 positive income to consolidated

1. An affiliated entity that:

1120 income. Divide the amount on line 1 by the amount

(a)

is incorporated in the United States;

on line 2; enter the result on line 3.

(b)

is in a unitary relationship with you;

(c)

has less than 80% of it’s payroll and property

Line 4 – Tax liability as reported on consolidated 1120.

assigned to locations outside the United States; and

Enter the federal tax liability that you reported on your

(d)

is eligible to be included in a federal consolidated

federal consolidated Form 1120, net of any federal credits.

tax return as described in 26 U.S.C. 1501 through

1505, with the exception that the 80% ownership

Line 5 – Federal tax liability associated with 80/20

requirement described in 26 U.S.C. 1504 is reduced

companies. Multiply line 3 by line 4; enter the result on line

to ownership of over 50% of the voting stock

Instructions For Water'S Edge Schedule

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