Instructions For Schedule P (Form 1120-F) - 2008 (Page 4 of 4) in pdf

the corporation’s adjusted outside basis

determine the amount of the corporation’s

or within the partner’s tax year bears to its

that is eligible for apportionment between

outside basis in its partnership interests

distributive share of all partnership

ECI and non-ECI.

apportioned to ECI and reported on line

income for that tax year.

19. The allocation method is subject to a

Line 19. Partner’s Outside Basis

Protective election. If the

five-year minimum period election that

Allocable to ECI. Enter on line 19 the

corporation files a protective tax return

must be made in the first year the partner

corporation’s average outside basis

under Regulations section

has a distributive share of ECI included in

reported on line 18 that is apportioned to

1.882-4(a)(3)(vi), and the partnership is

the income reported on Schedule K-1

ECI. Also enter this line 19 amount on

not engaged in trade or business within

(Form 1065). The elective method chosen

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

the United States or does not have

must be used for both branch profits tax

(b). See Regulations section

business profits attributable to a U.S.

and interest expense allocation purposes

1.884-1(d)(3)(i) for the elective

permanent establishment, the corporation

during the same five-year minimum

requirements for apportioning outside

need not file Schedule P and report its

period.

basis on the mandatory proportionate

distributive share of income and

income or asset method. For purposes of

Asset method. In general, a

expenses with its Form 1120-F. However,

determining the proportion of the

partner’s interest in a partnership shall be

if it is later determined that the

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

treated as a U.S. asset in the same

corporation’s distributive share of

foreign corporation may elect separately

proportion that the sum of the partner’s

partnership income is ECI with a trade or

for each partnership interest to use either

proportionate share of the adjusted bases

business of the corporation, the

the asset method or the income method

of all partnership assets as of the

corporation will have failed to make a

described in Regulations sections

determination date, bears to the sum of

timely income method or asset method

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

the partner’s proportionate share of the

election with respect to such partnership

corporation does not timely elect either

adjusted bases of all partnership assets

for outside basis apportionment purposes

method in the first year the corporation

as of the determination date. The

if no other election disclosure is made. To

has a distributive share of ECI from the

proportion of U.S. assets to total assets of

preserve the right to allocate and

partnership, the Director of Field

the partnership is determined as if the

apportion its outside basis under a

Operations may make the election on

partnership were a foreign corporation

chosen method, the corporation may

behalf of the corporation. See

engaged in trade or business within the

make a protective election by filing

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

United States. Generally, a partner’s

Schedule P (Form 1120-F) and

the instructions for line 20 below.

proportionate share of a partnership asset

completing Part I and line 20 with the

is the same as its proportionate share of

protective return filing on Form 1120-F.

Note. The required timely-filed election

all items of income, gain, loss, and

The protective election is effective only for

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

deduction that may be generated by the

a year in which a Schedule P (Form

for apportioning outside basis between

asset. See Regulations section

1120-F) protective election attachment is

ECI and non-ECI also applies to lower-tier

1.884-1(d)(3)(ii)(B) for non-uniform

also the first year in which the

partnership interests that are not required

treatment of certain partnership items.

corporation’s distributive share is in fact

to be identified and reconciled to

ECI with a trade or business of the

Schedule K-1 (Form 1065) on this

Income method. Under the income

corporation within the United States. The

Schedule P (Form 1120-F).

method, a partner’s interest in a

corporation need not complete Part II or

partnership shall be treated as a U.S.

Line 20. Outside Basis Election

Part III, lines 15 through 19 with the

asset in the same proportion that its

Method. Enter “income” or “asset” on

protective election.

distributive share of partnership ECI for

line 20 to indicate the elective outside

the partnership’s tax year that ends with

basis apportionment method used to

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Instructions For Schedule P (Form 1120-F) - 2008 Page 4

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