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average value is determined using the

that is eligible for apportionment between

date, bears to the sum of the partner's

most frequent averaging period for which

ECI and non-ECI.

proportionate share of the adjusted bases

data is reasonably available. See

of all partnership assets as of the

Line 20. Partner's Outside Basis Allo-

Regulations sections 1.882-5(b)(3) and

determination date. The proportion of U.S.

cable to ECI. Enter on line 20 the

1.882-5(c)(2)(iv).

assets to total assets of the partnership is

corporation's average outside basis

determined as if the partnership were a

Line 17. Partner Liabilities Included in

reported on line 19 that is treated as a

foreign corporation engaged in trade or

the Corporation's Outside Basis. The

U.S. asset under Regulations sections

business within the United States.

corporation's outside basis reported on

1.884-1(d)(3) and 1.882-5. Also enter this

Generally, a partner's proportionate share

line 16 is adjusted on line 17 to conform

line 20 amount on Schedule I (Form

of a partnership asset is the same as its

the amount of liabilities the corporation

1120-F), line 5, column (b). See

proportionate share of all items of income,

includes in the determination of its outside

Regulations section 1.884-1(d)(3)(i) for

gain, loss, and deduction that may be

basis to the proportionate amount of the

the elective requirements for apportioning

generated by the asset. See Regulations

corporation's distributive share of interest

outside basis on the income or asset

section 1.884-1(d)(3)(ii)(B) for

expense with respect to the partnership's

method. For purposes of determining the

non-uniform treatment of certain

liabilities. This adjustment is made only for

proportion of the partnership interest that

partnership items.

purposes of determining the corporation's

is a U.S. asset, a foreign corporation may

outside basis included in the interest

elect separately for each partnership

Income method. Under the income

expense allocation and branch profits tax

interest to use either the asset method or

method, a partner's interest in a

computations. The adjustment is not made

the income method described in

partnership shall be treated as a U.S.

for other federal income tax purposes

Regulations sections 1.884-1(d)(3)(ii) and

asset in the same proportion that its

such as for determining the corporation's

(iii). If the corporation does not timely elect

distributive share of partnership ECI for

gain or loss from disposition of the

either method in the first year the

the partnership's tax year that ends with or

partnership interest.

corporation has a distributive share of ECI

within the partner's tax year bears to its

from the partnership, the Director of Field

distributive share of all partnership income

Line 17a. Adjustment for directly

Operations may make the election on

for that tax year.

allocable interest. The outside basis is

behalf of the corporation. See Regulations

reduced by the average amount of

Protective election. If the

section 1.884-1(d)(3)(v) and the

liabilities that give rise to directly allocable

corporation files a protective tax return

instructions for line 21 below.

interest expense in accordance with

under Regulations section 1.882-4(a)(3)

Regulations section 1.882-5(a)(1)(ii)(B).

(vi), and the partnership is not engaged in

Note. The required timely-filed election

Enter the portion of the partnership liability

trade or business within the United States

under Regulations section 1.884-1(d)(3)

that is subject to the direct interest

or does not have business profits

(iv) for apportioning outside basis between

expense allocation rules under Temporary

attributable to a U.S. permanent

ECI and non-ECI also applies to lower-tier

Regulations section 1.861-10T(b) or (c)

establishment, the corporation need not

partnership interests that are not required

and is subject to exclusion from the

file Schedule P and report its distributive

to be identified and reconciled to

determination of the corporation's average

share of income and expenses with its

Schedule K-1 (Form 1065) on Schedule P

U.S. asset values under Regulations

Form 1120-F. However, if it is later

(Form 1120-F).

section 1.882-5. See Temporary

determined that the corporation's

Line 21. Outside Basis Election Meth-

Regulations section 1.861-10T(d).

distributive share of partnership income is

od. Enter “income” or “asset” on line 21

ECI with respect to a trade or business of

Line 17b. Enter the average amount

to indicate the elective outside basis

the corporation, the corporation will have

of the corporation's share of all other

apportionment method used to determine

failed to make a timely income method or

partnership liabilities it otherwise takes

the amount of the corporation's outside

asset method election with respect to such

into account under section 752 in

basis in its partnership interests

partnership for outside basis

determining its outside basis in its

apportioned to ECI and reported on

apportionment purposes if no other

partnership interest.

line 20. The allocation method is subject to

election disclosure is made. To preserve

a five-year minimum period election that

Line 18. Enter the corporation's average

the right to allocate and apportion its

must be made in the first year the partner

partnership liabilities, or portion thereof,

outside basis under a chosen method, the

has a distributive share of ECI included in

for the year for which the corporation

corporation may make a protective

the income reported on Schedule K-1

receives a distributive share of interest

election by completing Part I and Part III,

(Form 1065). The elective method chosen

expense for the year. See Regulations

line 21, of Schedule P, and including it

must be used for both branch profits tax

section 1.884-1(d)(3)(vi). Also, enter this

with the protective return filing of Form

and interest expense allocation purposes

line 18 amount on Schedule I (Form

1120-F. The protective election is effective

during the same five-year minimum

1120-F), line 8, column (b), to the extent

only for the year in which the protective

period. See Regulations section

applicable in determining the corporation's

election is also the first year in which the

1.884-1(d)(3)(iv).

interest expense deduction under

corporation's distributive share is in fact

Regulations section 1.882-5.

ECI with a trade or business of the

Asset method. In general, a partner's

corporation within the United States. The

interest in a partnership shall be treated as

Line 19. Partner's Adjusted Average

corporation need not complete Part II or

a U.S. asset in the same proportion that

Outside Basis in Partnership. Add

Part III, lines 16 through 20 with the

the sum of the partner's proportionate

lines 17d and 18 and enter the amount on

protective election.

share of the adjusted bases of all

line 19. The amount reported on line 19 is

partnership assets as of the determination

the corporation's adjusted outside basis

Instructions for Schedule P (Form 1120-F) (2014)

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Form 1120-F - Instructions For Schedule P - List Of Foreign Partner Interests In Partnerships - 2014 Page 4

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