Guide to Global Payroll Management - 2020 - D-125

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Appendix D--Federal Forms and Instructions

codes C and D-H, of Schedule K-1
(Form 1120-S)), and the apportionment
of deductions rules outlined in the
instructions for line 16, later, codes J
and K-O (or line 14, codes J and K-O)
of the Schedule K-1.
Reporting amounts on Form 1116.
Include amounts reported to you on
Schedule K-1 with any other amounts
reportable on Form 1116 using:
* A separate Form 1116 for each
category of income, and
* A separate column in Part I and a
separate line in Part II for each country
or possession.

Explanation of Certain Line Items
on Schedule K-1
In each instance that follows,

TIP the first line reference is to the

Schedule K-1 for Form 1065
and the second line reference is to the
Schedule K-1 for Form 1120-S.
Line 16, code B; or line 14, code
B-Gross income from all sources.
Combine your distributive share of
"gross income from all sources" with all
of your other gross income and enter
the total on line 3e. "Gross income from
all sources" is a constant amount (that
is, you will enter the same amount on
line 3e of all Forms 1116 that you file).

Line 16, code C; or line 14, code
C-Gross income sourced at partner
or shareholder level. This line
includes income from the sale of eligible
personal property (most personal
property other than inventory,
depreciable property, and certain
intangible property). See Pub. 514 for
details.
Although all income reported to
you on this line of the
CAUTION Schedule K-1 has been
apportioned to separate categories of
income, you must nevertheless first
determine (using the rules below)
whether the income on this line is U.S.
source income or foreign source
income. Then, enter only foreign source
income in Part I of each of the
applicable Forms 1116 (that is, those
Forms 1116 for each category of
income you received from the
partnership or S corporation).

Use the following rules to source the
income reported to you on this line of
the Schedule K-1. If you are a U.S.
resident (as defined below), the income
is U.S. source income. If you are a
nonresident (as defined later), the
income is foreign source income.

U.S. resident. A U.S. resident is a
U.S. citizen or resident alien who
doesn't have a tax home in a foreign
country or a nonresident alien who has
a tax home in the United States.

Tax home. Generally, your tax
home is the general area of your main
place of business, employment, or post
of duty, regardless of where you
maintain your family home. Your tax
home is the place where you are
permanently or indefinitely engaged to
work as an employee or self-employed
individual. If you don't have a regular or
main place of business because of the
nature of your work, then your tax home
is the place where you regularly live. If
you don't fit either of these categories,
you are considered an itinerant and your
tax home is wherever you work.
Nonresident. A nonresident is any
person who isn't a U.S. resident. U.S.
citizens and resident aliens with a
foreign tax home won't be treated as
nonresidents for a sale of eligible
personal property unless a foreign tax of
10% or more was paid or accrued on
the gain on the sale (or, in the case of a
loss sale, a foreign tax of 10% or more
would have been paid had the sale
resulted in a gain).

Note. To help you with these rules, the
partnership or S corporation has
specifically identified the following.
* Gains on the sale of eligible personal
property for which a foreign tax of 10%
or more was paid or accrued.
* Losses on the sale of eligible
personal property for which a foreign tax
of 10% or more would have been paid
had the sale resulted in a gain.
Include foreign source income in Part
I of the applicable Form 1116 (that is,
the Form 1116 for each category of
income provided to you for this line of
the Schedule K-1). Don't include in Part
I of Form 1116 income that you
determined (using the above rules) to
be U.S. source income.
If the partnership or S
corporation has specifically
CAUTION identified any capital gains or
losses or unrecaptured section 1250
gain on this line (Schedule K-1, line 16,
code C, or line 14, code C) and you
have determined that those gains or
losses are foreign source, see Foreign
Qualified Dividends and Capital Gains
(Losses), later, before entering an
amount in Part I of Form 1116.

Line 16, codes D, E, F, G, and H; or
line 14, codes D, E, F, G, and H-Foreign gross income sourced at part-6-

nership or S corporation level.
Income reported on this line has already
been sourced for you by the partnership
or S corporation. The partnership or S
corporation has reported this income to
you by country and by category of
income. Include these amounts in Part I
of each of the applicable Forms 1116
(that is, those Forms 1116 for each
category of income you received).

Line 16, code I; or line 14, code I-Interest expense. See the instructions
for Line 4b, later, to allocate and
apportion the interest expense shown
on this line of Schedule K-1. In applying
those instructions, take into account
your distributive share of the
partnership's or S corporation's gross
income (for purposes of the $5,000
threshold) or your pro rata share of the
partnership's or S corporation's assets.
However, if you were a limited partner or
an S corporation shareholder who didn't
actively participate in the management
of the S corporation and your interest in
the partnership or S corporation was
less than 10%, see the next paragraph.
Include interest expense that you
allocate to foreign source income on
line 4b of the applicable Form 1116.
Don't enter in Part I of Form 1116 any
interest expense that you allocate to
U.S. source income.
Less-than-10% limited partners
and certain less-than-10% S
corporation shareholders. If you are
a limited partner or an S corporation
shareholder (who doesn't actively
participate in the management of the S
corporation) and you own (directly or
indirectly) a less-than-10% interest (by
income) in the partnership or S
corporation, you may generally allocate
your distributive share of interest
expense from that partnership or S
corporation to foreign or U.S. source
income based on your distributive share
of the gross foreign or U.S. source
income of that partnership or S
corporation. The interest expense you
allocate to foreign source income
generally may be apportioned
exclusively to passive category income.
However, see Temporary Regulations
section 1.861-9T(e)(4) for exceptions.

Line 16, code J; or line 14, code
J-Other expenses. This line includes
expenses (other than interest expense)
of the partnership or S corporation that
must be allocated and apportioned at
the partner or shareholder level (for
example, research and experimental
expenses).
Combine your distributive share of
these expenses with all of your other
Instructions for Form 1116 (2019)

D-125

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