Instructions For Schedule U-M - Member'S Income And Expenses

and any deductions from such additional federal gross income that are allowed for purposes of

determining the combined group’s taxable income. In the case of a corporation that is includible only as

provided in the preceding paragraph (pursuant to 830 CMR 63.32B.2 (5) (b) 1.c.), the income inclusion to

be reported in column (c) is limited to the gross income received from the other combined group

members for certain intangible property or services, see above, and the deductions to be offset against

this income shall not exceed the total of gross income reported by the member on line 11(c).

Where a non-U.S. corporation is included as a member of a water’s edge combined report but has no

items of federal gross income or only has items of federal gross income that are treated as excluded

from the combined group’s taxable income by reason of the application of a federal income tax treaty, a

Schedule U-M must be filed to indicate the fact of the non-U.S. corporation’s inclusion, though there will

be no items of income or deductions to report as being part of the combined group’s taxable income. In

any case where a member excludes any amount from gross income by virtue of a federal treaty, the

member must also complete and file Schedule TTP identifying the treaty position taken and the income

being excluded from the return. In any case where such filing is not made, the commissioner may, inter

alia, deny expenses paid by group members to such non-U.S. member.

Column (b) adjustments (fiscalization) may be required for a non-U.S. corporation that is included in a

water’s edge combined group if the amounts reported by the member in column (a) are for a period

other than the combined group’s taxable year. Further, columns (d) and (e) adjustments may also apply

to a non-U.S. corporation if the member has income or deductions reported in columns (a), (b) or (c)

that are from sources other than the unitary business and the combined group is not subject to an

affiliated group election. See above discussion of columns (d) and (e). Only amounts included in the

member’s income as reported in columns (a), (b) or (c) may be excluded in columns (d) and (e).

Rules for Non-U.S. Corporations where a Worldwide Election is in Effect

In any case in which the combined group has made and is subject to a worldwide election, a non-U.S.

corporation that is not treated as a U.S. corporation for federal income tax purposes and that is a

member of such combined group is to include in the combined group’s taxable income all of its income

from the unitary business, wherever derived. Such income is not limited to items of federal gross income

under the Code. See 830 CMR 63.32B.2 (6) (c) 2.b.

Each such non-U.S. corporation that is included in a “worldwide” combined report must complete

Schedule U-M on a pro-forma basis, checking the box “Pro-forma, other U.S. return filed” if the member

filed US 1120F and checking “Pro-forma, no U.S. return filed” in all other cases. In those cases where the

non-U.S. corporation included in a worldwide combined group files U.S. Form 1120F, the member must

report in column (a) all of the member’s effectively connected income and the deductions allowable

with respect to that income under the Code as reported on its Form 1120F.

Instructions For Schedule U-M - Member'S Income And Expenses - 2012 Page 8