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determined under section 705) of the

date, bears to the sum of the partner's

Line 18. Partner's Adjusted Average

partnership in the column which

proportionate share of the adjusted bases

Outside Basis in Partnership. Add

corresponds to the line in Part I on which

of all partnership assets as of the

lines 16d and 17 and enter the amount on

the partnership interest is listed. The

determination date. The proportion of U.S.

line 18. The amount reported on line 18 is

average value is determined using the

assets to total assets of the partnership is

the corporation's adjusted outside basis

most frequent averaging period for which

determined as if the partnership were a

that is eligible for apportionment between

data is reasonably available. See

foreign corporation engaged in trade or

ECI and non-ECI.

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

business within the United States.

Line 19. Partner's Outside Basis Allo-

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

Generally, a partner's proportionate share

cable to ECI. Enter on line 19 the

of a partnership asset is the same as its

Line 16. Partner Liabilities Included in

corporation's average outside basis

proportionate share of all items of income,

the Corporation's Outside Basis. The

reported on line 18 that is apportioned to

gain, loss, and deduction that may be

corporation's outside basis reported on

ECI. Also enter this line 19 amount on

generated by the asset. See Regulations

line 15 is adjusted on line 16 to conform

Schedule I (Form 1120-F), line 5, column

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

the amount of liabilities the corporation

(b). See Regulations section 1.884-1(d)(3)

non-uniform treatment of certain

includes in the determination of its outside

(i) for the elective requirements for

partnership items.

basis to the proportionate amount of the

apportioning outside basis on the income

corporation's distributive share of interest

Income method. Under the income

or asset method. For purposes of

expense with respect to the partnership's

method, a partner's interest in a

determining the proportion of the

liabilities. This adjustment is made only for

partnership shall be treated as a U.S.

partnership interest that is a U.S. asset, a

purposes of determining the corporation's

asset in the same proportion that its

foreign corporation may elect separately

outside basis included in the interest

distributive share of partnership ECI for

for each partnership interest to use either

expense allocation and branch profits tax

the partnership's tax year that ends with or

the asset method or the income method

computations. The adjustment is not made

within the partner's tax year bears to its

described in Regulations sections

for other federal income tax purposes

distributive share of all partnership income

1.884-1(d)(3)(ii) and (iii). If the corporation

such as for determining the corporation's

for that tax year.

does not timely elect either method in the

gain or loss from disposition of the

first year the corporation has a distributive

Protective election. If the

partnership interest.

share of ECI from the partnership, the

corporation files a protective tax return

Director of Field Operations may make the

Line 16a. Adjustment for directly

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

election on behalf of the corporation. See

allocable interest. The outside basis is

(vi), and the partnership is not engaged in

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

reduced by the average amount of

trade or business within the United States

the instructions for line 20 below.

liabilities that give rise to directly allocable

or does not have business profits

interest expense in accordance with

attributable to a U.S. permanent

Note. The required timely-filed election

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

establishment, the corporation need not

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

Enter the portion of the partnership liability

file Schedule P and report its distributive

(iv) for apportioning outside basis between

that is subject to the direct interest

share of income and expenses with its

ECI and non-ECI also applies to lower-tier

expense allocation rules under Temporary

Form 1120-F. However, if it is later

partnership interests that are not required

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

determined that the corporation's

to be identified and reconciled to

and is subject to exclusion from the

distributive share of partnership income is

Schedule K-1 (Form 1065) on Schedule P

determination of the corporation's average

ECI with respect to a trade or business of

(Form 1120-F).

U.S. asset values under Regulations

the corporation, the corporation will have

section 1.882-5. See Temporary

Line 20. Outside Basis Election Meth-

failed to make a timely income method or

Regulations section 1.861-10T(d).

od. Enter “income” or “asset” on line 20

asset method election with respect to such

to indicate the elective outside basis

partnership for outside basis

Line 16b. Enter the average amount

apportionment method used to determine

apportionment purposes if no other

of the corporation's share of all other

the amount of the corporation's outside

election disclosure is made. To preserve

partnership liabilities it otherwise takes

basis in its partnership interests

the right to allocate and apportion its

into account under section 752 in

apportioned to ECI and reported on

outside basis under a chosen method, the

determining its outside basis in its

line 19. The allocation method is subject to

corporation may make a protective

partnership interest.

a five-year minimum period election that

election by completing Part I and Part III,

must be made in the first year the partner

line 20, of Schedule P, and including it

Line 16c. Add lines 16a and 16b and

has a distributive share of ECI included in

with the protective return filing of Form

enter the result on line 16c. This is the

the income reported on Schedule K-1

1120-F. The protective election is effective

corporation's combined average total

(Form 1065). The elective method chosen

only for the year in which the protective

share of partnership liabilities for the year.

must be used for both branch profits tax

election is also the first year in which the

Line 17. Enter the corporation's average

and interest expense allocation purposes

corporation's distributive share is in fact

partnership liabilities, or portion thereof,

during the same five-year minimum

ECI with a trade or business of the

for the year for which the corporation

period. See Regulations section

corporation within the United States. The

receives a distributive share of interest

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

corporation need not complete Part II or

expense for the year. See Regulations

Part III, lines 15 through 19 with the

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

Asset method. In general, a partner's

protective election.

line 17 amount on Schedule I (Form

interest in a partnership shall be treated as

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

a U.S. asset in the same proportion that

applicable in determining the corporation's

the sum of the partner's proportionate

interest expense deduction under

share of the adjusted bases of all

Regulations section 1.882-5.

partnership assets as of the determination

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Instructions For Schedule P (Form 1120-F) - List Of Foreign Partner Interests In Partnerships - 2012 Page 4

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