Instructions For Schedule P (Form 1120-F) - 2007 (Page 3 of 4) in pdf

Line 16a. Adjustment for directly

Schedule K-1 (and is not reportable on

reported on Schedule I (Form 1120-F),

allocable interest. The outside basis is

lines 4 and 5 of Schedule P). On line 9,

line 9, column (b). The line 14c amount is

reduced by the average amount of

enter the amount of non-interest expense

also taken into account on Form 1120-F,

liabilities that give rise to directly allocable

from line 8 that is allocated and

Section III, Part II, line 8 in determining

interest expense in accordance with

apportioned to ECI. Include on line 8 (and

the corporation’s branch interest under

line 9 if applicable) guaranteed payments

Regulations section 1.884-4(b).

Temporary Regulations section

made by the partnership that are not

1.882-5T(a)(1)(ii)(B). Enter the portion of

Part III – Foreign Partner’s

included on lines 4 and 5.

the partnership liability that is subject to

the direct interest expense allocation

Average Outside Basis

Lines 10 and 11. Summary of

rules under Temporary Regulations

Gross Income

Under Regulations

section 1.861-10T(b) or (c) and is subject

to exclusion from the determination of the

Line 10. Total Gross Income. Enter on

Sections 1.882-5(b) and

corporation’s average U.S. asset values

line 10 the sum of the gross income

under Regulations section 1.882-5. See

1.884-1(d)(3)

amounts entered on line 2 and line 6. The

Temporary Regulations section

amount on line 10 is the total gross

Report in Part III the corporation’s outside

1.861-10T(d).

income from Schedule K-1 (Form 1065).

basis for each partnership interest

Line 16b. Enter the average amount

Line 11. Total Gross Effectively

identified in Part I of this Schedule P

of the corporation’s share of all other

Connected Income. Enter on line 11 the

(1120-F) for purposes of determining the

partnership liabilities it otherwise takes

sum of the ECI amounts entered on lines

amount the corporation includes as a U.S.

into account under section 752 in

3 and 7. The amount on line 11 is the

asset in Step 1 of the interest expense

determining its outside basis in its

total gross ECI from Schedule K-1 (Form

allocation under Regulations section

partnership interest.

1065).

1.882-5. The corporation’s outside basis

in its partnership interests reported on

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

Lines 12 Through 14. Interest

Schedule P is determined and adjusted

enter the result on line 16c. This is the

Expense Reconciliation

under the rules applicable to the

corporation’s combined average total

determination of the corporation’s outside

share of partnership liabilities for the year.

Enter on line 12 the amount of interest

basis in the partnership for branch profits

expense included in the net income (loss)

Line 17. Enter the corporation’s average

tax purposes under Regulations section

on lines 1 through 3 of Schedule K-1

partnership liabilities, or portion thereof,

1.884-1(d)(3), except that the amounts

(Form 1065) and in the net income (loss)

for the year for which the corporation

entered on lines 15 through 19 are the

reported on line 1 of Schedule P (Form

receives a distributive share of interest

average values rather than the

1120-F). On line 13, enter the sum of the

expense for the year. See Regulations

determination dates used under the

other interest expense reported on

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

section 884 regulations for branch profits

Schedule K-1 (Form 1065), lines 13 and

line 17 amount on Schedule I (Form

tax purposes. If the corporation is not

18.

1120-F), line 8, column (b).

exempt from the branch profits tax under

Note. If interest expense is included on

Line 18. Partner’s Adjusted Average

an applicable income tax treaty, attach a

any line of Schedule K-1 (Form 1065)

Outside Basis in Partnership. Add

schedule showing the determination of

other than lines 1, 2, 3, 13 or 18, attach a

lines 16d and 17 and enter the amount on

the corporation’s outside basis in

schedule indicating the line the interest is

line 18. The amount reported on line 18 is

accordance with the requirements of lines

included on and reclassify the interest

the corporation’s adjusted outside basis

15 through 19 for an averaging period

expense reported on such other line to

that is eligible for apportionment between

that shows the apportioned outside basis

Schedule K-1 (Form 1065), line 13 or line

ECI and non-ECI.

for the beginning and ending

18, as appropriate, for purposes of

determination dates of the corporation’s

Line 19. Partner’s Outside Basis

reporting the reclassified amount on line

tax year.

Allocable to ECI. Enter on line 19 the

13 of Schedule P. The reclassification will

corporation’s average outside basis

Line 15. Section 705 Outside Basis.

require an adjustment to such other line

reported on line 18 that is apportioned to

Enter on line 15 the corporation’s average

to prevent double counting of total

ECI. Also enter this line 19 amount on

value of the outside basis (otherwise

expenses.

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

determined under section 705) of the

Line 14a. Total interest expense. Add

(b). See Regulations section

partnership in the column which

lines 12 and 13 and enter the result on

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

corresponds to the line in Part I on which

line 14a. This amount is the corporation’s

requirements for apportioning outside

the partnership interest is listed. The

total distributive share of interest expense

basis on the mandatory proportionate

average value is determined using the

from Schedule K-1 (Form 1065) that is

income or asset method. For purposes of

most frequent averaging period for which

subject to allocation under Regulations

determining the proportion of the

data is reasonably available. See

section 1.882-5.

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

Temporary Regulations sections

foreign corporation may elect separately

Line 14b. Direct interest expense

1.882-5T(b)(3) and 1.882-5T(c)(2)(iv).

for each partnership interest to use either

allocation. On line 14b, enter the

Line 16. Partner Liabilities Included in

amount of interest expense included in

the asset method or the income method

the Corporation’s Outside Basis. The

line 14a that is directly allocable to ECI

described in Regulations sections

corporation’s outside basis reported on

under Temporary Regulations section

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

line 15 is adjusted on line 16 to conform

1.882-5T(a)(1)(ii)(B) and the applicable

corporation does not timely elect either

the amount of liabilities the corporation

requirements of Temporary Regulations

method in the first year the corporation

includes in the determination of its outside

section 1.861-10T(b) or (c). The amount

has a distributive share of ECI from the

basis to the proportionate amount of the

entered on line 14b is also included on

partnership, the Director of Field

corporation’s distributive share of interest

Schedule I (Form 1120-F), line 22.

Operations may make the election on

expense with respect to the partnership’s

behalf of the corporation. See

Line 14c. U.S. booked interest expense

liabilities. This adjustment is made only

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

of the partnership. Subtract line 14b

for purposes of determining the

the instructions for line 20 on page 4.

from line 14a and enter the amount on

corporation’s outside basis included in the

line 14c. This amount constitutes the

interest expense allocation and branch

Note. The required timely-filed election

book interest expense of the partnership

profits tax computations. The adjustment

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

that is includible in the three-step formula

is not made for other federal income tax

for apportioning outside basis between

under Regulations section 1.882-5(d) or

purposes such as for determining the

ECI and non-ECI also applies to lower-tier

1.882-5(e). The amount on line 14c

corporation’s gain or loss from disposition

partnership interests that are not required

(“Totals” column) is also required to be

of the partnership interest.

to be identified and reconciled to

-3-

Instructions For Schedule P (Form 1120-F) - 2007 Page 3

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