Entering Foreign Tax Information Reported on Schedule K-3
The page layout of the
Foreign Taxes (K-3)
collapsible section on the partnership or S-Corporation entry page is similar to the layout of Schedule K-3. Under the Foreign Taxes (K-3)
collapsible section, there are three grids for entering foreign tax information. Each grid has an associated grid located underneath it.The following graphic shows where the
Foreign Taxes (K-3)
collapsible section is located on the partnership entry page:Part II (Foreign Tax Credit Limitation), Section 1 - Gross Income - First Grid
Enter gross foreign income in the first grid under the
Foreign Taxes (K-3)
collapsible section.There are 24 gross income lines (23 different types of income and a total) on Schedule K-3. The majority of these lines are relevant to filers of Form 1118, not to filers of Form 1116 (individuals and trusts). The first grid includes all lines from Section 1 that require country-by-country entry.
Currently, ONESOURCE Trust Tax uses entries in the following columns where the income category selection is either
Total gross income (sum of lines 1 - 23)
, which is line 24 of Schedule K-3, or Qualified dividends
, which is line 8 of Schedule K-3:- Foreign Branch Category Income
- Passive Category Income
- General Category Income
- Other Income
The following graphic shows the
Qualified dividends
and Total gross income (sum of lines 1 - 23)
selections:For each row entered, you must specify both the Part II, Section 1 type of gross income (selected in the
Description
column) as well as the country (or category, if reporting income from a Regulated Investment Company (RIC) or high-taxed income).The country selected in the
Country
column must be a valid country (not UNITED STATES OF AMERICA
, NO COUNTRY SELECTED
or UNKNOWN COUNTRY
). Information entered for the UNITED STATES OF AMERICA
country is not considered in ONESOURCE Trust Tax foreign tax computations.To include foreign gross income for purposes of Form 1116 (line 1) or beneficiary output with respect to foreign tax information,
Total gross income (sum of lines 1 - 23)
must be selected and a value must be entered in one of the four income columns listed above.The trust or estate’s portion of gross foreign income (as adjusted for qualified dividends) is reported on Form 1116, line 1. Each individual beneficiary’s share is included on a statement that follows the beneficiary’s 1041 Schedule K-1 (or the grantor letter for a grantor account).
Since ONESOURCE Trust Tax uses the
Total gross income (sum of lines 1 - 23)
and Qualified dividends
lines on the Schedule K-3, it is recommended that other lines not be input.If income is not reported by country but rather by a specific category (for example, a Regulated Investment Company or high-taxed income), then the appropriate category should be selected in the
Category Type (if not by country)
column. The Country
column is automatically unavailable if a selection other than Reported by foreign country
or no selection is made.The following graphic shows the selections in the
Category Type (if not by country)
column:Regulated Investment Company (RIC)
If income is passed from a mutual fund or other Regulated Investment Company, the income may be reported in aggregate (not country-by-country).
High-Taxed Income (HTKO)
Passive income that is taxed by a foreign government at a rate higher than the highest U.S. income tax rate is sometimes reported separately on a statement attached to Schedule K-3. This income is reclassified on Form 1116 to a different category (typically the General category).
The amount of passive high-taxed income should be reported as a negative amount in the
Passive Category Income
column and as a positive amount in the other category (typically, entered in the General Category Income
column) to which such passive income is reclassified. The following graphic shows an example:Part II (Foreign Tax Credit Limitation), Section 1 – Gross Income - Grid Associated with the First Grid
The grid associated with the first grid allows for entering the following gross income information from Part II, Section 1 that is not country specific:
- Line 5 (Guaranteed Payments)
- Line 16 (Section 986(c) gain)
- Line 17 (Section 987 gain)
- Line 18 (Section 988 gain)
- Line 21 (Section 951A(a) inclusions reported on an 1120-S Schedule K-3)
The information in this grid is not currently used by ONESOURCE Trust Tax. It is for informational purposes only.
The following graphic shows the grid associated with the first grid:
Part II (Foreign Tax Credit Limitation), Section 2 – Deductions - Second Grid
Use the second grid under the
Foreign Taxes (K-3)
collapsible section to enter research and experimental (R&E) expenses. Enter this information by SIC Code.The information in this grid is not currently used by ONESOURCE Trust Tax. It is for informational purposes only.
Part II (Foreign Tax Credit Limitation), Section 2 – Deductions - Grid Associated with the Second Grid
Unlike gross income, deductions are not entered country-by-country.
As noted below, entering deductions for lines 25 through 38 and 44 through 50 of Section 2 in the
Foreign Branch Category Income
, Passive Category Income
, General Category Income
and Other Income
columns of the grid associated with the second grid under the Foreign Taxes (K-3)
collapsible section are are used to determine Form 1116, line 2, which is country-by-country.- Line 25 - Expenses allocable to sales income
- Line 26 - Expenses allocable to gross income from performance of services
- Line 27 - Net short-term capital loss
- Line 28 - Net long-term capital loss
- Line 29 - Collectibles loss
- Line 30 - Net section 1231 loss
- Line 31 - Other losses
- Line 33 - Allocable rental expenses – depreciation, depletion, and amortization
- Line 34 - Allocable rental expenses – other than depreciation, depletion, and amortization
- Line 35 - Allocable royalty and licensing expenses – depreciation, depletion, and amortization
- Line 36 - Allocable royalty and licensing expenses – other than depreciation, depletion, and amortization
- Line 37 - Depreciation not included on line 33 or 35
- Line 38 - Charitable contributions
- Line 44 - Section 59(e)(2) expenditures, excluding R&E expenses on line 32
- Line 45 - Foreign taxes not creditable but deductible
- Line 46 - Section 986(c) loss
- Line 47 - Section 987 loss
- Line 48 - Section 988 loss
- Line 49 - Other allocable deductions
- Line 50 - Other apportioned share of deductions
note
ONESOURCE Trust Tax assumes that entries made on the
Total deductions (sum of lines 25 -53)
row of a partnership or S-Corporation represent Other allocable deductions if one or more entries in the Total deductions (sum of lines 25 - 53)
row do not have corresponding entries on the rows for deductions related to lines 25 through 53.The following graphic shows the grid associated with the second grid:
Computations
The aggregate (by income category) of the line items is allocated to each country based on gross income. For example, the aggregate of deductions in the passive category for an account is $1,600 and there is $16,000 of foreign gross income in the passive category in the account ($6,000 of foreign gross income is from Austria and $10,000 of foreign gross income is from Belgium). $600 of deductions is allocated to Austria and $1,000 of deductions is allocated to Belgium.
Other Part II, Section 2 line items are not currently used by ONESOURCE Trust Tax. This includes, for example, the Total deductions and Net income (loss) line items for interest expense.
The information in this grid is not currently used by ONESOURCE Trust Tax. It is for informational purposes only.
Part III (Other Information for Preparation of Form 1116 or 1118), Section 4 (or Section 3 for S-Corporations) – Foreign Taxes – Third Grid
Use the third grid under the
Foreign Taxes (K-3)
collapsible section to enter foreign taxes paid on foreign source income. Enter amounts as U.S. dollars in the Foreign
column for the applicable income category. Unless otherwise indicated below, enter these amounts as positive values.note
Entries in the
Type of Tax
column are used for Form 1116 reporting and do not reflect the actual codes provided on Schedule K-3.If foreign tax is not reported by country but rather by a specific category (for example, Regulated Investment Company or Taxes Reclassified Under High Tax Kickout), then select the appropriate category in the
Category Type (if not by country)
column. The Country
column is automatically unavailable if a selection other than Reported by foreign country
or no selection is made.Regulated Investment Company (RIC)
If income is passed from a mutual fund or other Regulated Investment Company (RIC), the foreign taxes may be reported in aggregate (not country-by-country).
Taxes Reclassified under High Tax Kickout
Foreign taxes on passive income that is taxed by a foreign government at a rate higher than the highest U.S. income tax rate is sometimes reported separately on a statement attached to Schedule K-3. These taxes are reclassified on Form 1116 to a different category(typically the General category).
The amount of foreign tax paid on passive high-taxed income should be reported as a negative amount in the
Passive Category Income - Foreign
column and as a positive amount in the other category (typically, entered in the General Category Income - Foreign
column) to which such taxes are being reclassified under the high tax kickout rules. Part III (Other Information for Preparation of Form 1116 or 1118), Section 4 (or Section 3 for S-Corporations) – Foreign Taxes – Grid Associated with the Third Grid
The information in the grid associated with the third grid is not currently used by ONESOURCE Trust Tax. It is for informational purposes only.