Box 1. Gain on personal property sale.

In general, income from the sale of personal property is sourced according to the residence of the seller; see section 865. For purposes of section 904, personal property sold by the S corporation is treated as sold by the shareholders; see section 865(i)(5) and section 1373(a). A U.S. citizen or resident alien individual with a tax home (as defined in section 911(d)(3)) in a foreign country is treated as a nonresident with respect to the sale of personal property only if an income tax of at least 10% of the gain derived from the sale is actually paid to a foreign country, with respect to that gain; see section 865(g). In addition, if a U.S. resident maintains an office or other fixed place of business in a foreign country, income from the sale of personal property attributable to such office or other fixed place of business is foreign source only if an income tax of at least 10% of the income from the sale is actually paid to a foreign country with respect to such income; see section 865(e)(1).

If the S corporation has income from the sale of personal property (other than inventory, depreciable personal property, and certain intangible property excepted from the general rule of section 865(a)) and the S corporation pays income tax to a foreign country with respect to income from the sale or the income is eligible for re-sourcing under an applicable treaty, it must check box 1 and attach a statement to Schedules K-2 and K-3 (for shareholder’s share) with Table 1, Information on Personal Property Sold. Each item of property sold must be listed separately with Table 1 completed. The S corporation may combine sales of stock property by country. Otherwise, do not combine sales of property. In column (b), if the gain is capital, enter “long-term” or “short-term.” For column (f), enter the two-letter code from the list at IRS.gov/CountryCodes. Do not enter “various” or “OC” for the country code. If the property sale is taxed by more than one country, complete a separate line for that country, but denote in some manner (for example, a footnote) that the property entered on both lines is the same property.

Box 2. Foreign oil and gas taxes.

A separate foreign tax credit limitation is applied with respect to foreign oil and gas taxes. See section 907(a) and Regulations section 1.907(a)-1 for details. If the S corporation has such taxes, it must check box 2 and attach a completed Schedule I (Form 1118), Reduction of Foreign Oil and Gas Taxes, to the Schedules K-2 and K-3 (with the shareholder’s share). The S corporation need not complete Schedule I (Form 1118), Part I, column 12; Part II, lines 2 through 4; or Part III, lines 1 and 3. The S corporation must attach Schedule I (Form 1118) because the limitation applies to individuals eligible to claim a foreign tax credit.

Box 3. Splitter arrangements.

Foreign taxes with respect to a foreign tax credit splitting event are suspended until the related income is taken into account by the taxpayer. See section 909. There is a foreign tax credit splitting event with respect to foreign taxes of a payor if in connection with a splitter arrangement, as defined in Regulations section 1.909-2(b), the related income was, is, or will be taken into account by a covered person. See Regulations section 1.909-2(a). A covered person, as defined in Regulations section 1.909-1(a)(4), includes, for example, any entity in which the payor holds, directly or indirectly, at least a 10% ownership interest (determined by vote or value). A payor, as defined in Regulations section 1.909-1(a)(3), includes, for example, a person that takes foreign income taxes paid or accrued by an S corporation into account pursuant to section 1373(a).

The S corporation must report foreign taxes that are potentially suspended on Schedule K-2, Part III, Section 3, line 2E, and each shareholder's share of such taxes on Schedule K-3, Part III, Section 3, line 2E. An S corporation may not be able to determine whether taxes are suspended and whether related income is taken into account. However, where the S corporation is able to determine that taxes are potentially suspended, or potentially unsuspended, it must report such taxes and the information requested in these instructions for box 3.

For example, where an S corporation owns a reverse hybrid and the foreign country assesses tax on the S corporation with respect to income earned by the reverse hybrid, the S corporation should report such taxes as potentially suspended taxes.

Check box 3 and attach a statement to both Schedules K-2 and K-3 that includes the following for each arrangement in which the S corporation participates that would qualify as a splitter arrangement under section 909 if one or more shareholders are covered persons with respect to an entity that took into account related income from the arrangement.

Box 4. Foreign tax translation.

If the S corporation reports any foreign taxes in Schedules K-2 and K-3, Part III, Section 3, it must check the box for item 4 and attach to Schedules K-2 and K-3 the statement described in the instructions for those sections.

Box 5. High-taxed income.

If the S corporation has passive income, the S corporation must check box 5 and attach a statement to Schedules K-2 and K-3 with Attachment 1 or 2, or both, completed. These attachments will provide the shareholder with the information to determine whether its passive income is high-taxed passive income.

Income received or accrued by a U.S. person that would otherwise be passive income is not treated as passive income if the income is determined to be high-taxed income. See section 904(d)(2)(B)(iii)(II). To determine if income is high-taxed income, a shareholder must group its shares of passive income from an S corporation according to the rules in Regulations section 1.904-4(c)(3), except that the portion, if any, of the share of income attributable to income earned by an S corporation through a foreign qualified business unit (QBU) is separately grouped under the rules of Regulations section 1.904-4(c)(4). See also Regulations section 1.904-4(c)(5)(ii). For this purpose, a foreign QBU is a qualified business unit (as defined in section 989(a)), other than a controlled foreign corporation (CFC) or noncontrolled 10%-owned foreign corporation, that has its principal place of business outside the United States. See Regulations section 1.904-4(c)(3).

Box 6. Section 267A disallowed deduction.

Shareholders will also use the information from box 6 to prepare their tax returns (Form 1040) by taking into account that under section 267A they are not allowed deductions for the amounts listed in the statement with respect to box 6.

Check box 6 if the S corporation paid or accrued any interest or royalty for which the S corporation knows, or has reason to know, that one or more of its shareholders is not allowed a deduction under section 267A. See the instructions for Form 1065, Schedule B, line 22, and FAQs for section 267A at IRS.gov/Businesses/Partnerships/FAQs-for-Form-1065-Schedule-B-Other-Information-Question-22 for additional information regarding section 267A. In addition, for each shareholder that is disallowed a deduction under section 267A, the corporation should check box 6 in Part I of the specific shareholder’s Schedule K-3 and attach to the Schedule K-3 a statement titled “Section 267A Disallowed Deduction” that separately lists the following information.

When completing other parts of Schedules K-2 and K-3 (for example, a line in Part II, Section 2), list an amount without regard to whether the shareholder is disallowed a deduction under section 267A for the amount.

Note for boxes 7, 8, and 9.

If the filer meets an exception, such as the multiple filer exception, to filing Forms 5471, 8865, and/or 8858, the filer is not required to complete and attach those forms. However, the filer must still attach to the Form 1120-S any required statements to qualify for the exception to filing the Forms 5471, 8865, and/or 8858.

Box 7. Form 8858 information.

Check box 7 and ensure that Form(s) 8858 is attached to the Form 1120-S if the S corporation filed one or more Forms 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs), or if another person filed the Form(s) 8858 on behalf of the S corporation. With respect to Schedule K-3, the S corporation should check box 7 if the S corporation checked box 7 on the Schedule K-2. The S corporation need not attach Form 8858 to the Schedules K-1 or K-3.

Box 8. Form 5471 information.

Check box 8 and attach Form(s) 5471 to Form 1120-S and Schedule K-1 (Form 1120-S) if either of the following apply.

Form 5471 does not need to be attached to the Schedules K-1 or K-3 if the S corporation knows or has reason to know that its direct shareholder (and any indirect shareholder) does not need the information on Form 5471 to prepare its tax return. For example, the S corporation would not need to attach the Form 5471 to Schedules K-3 for certain tax-exempt shareholders.

A pass-through entity shareholder that receives a Form 5471 with a Schedule K-1 or K-3 must provide the relevant portions of Form 5471 to its shareholder unless the pass-through entity knows or has reason to know that its direct shareholder (and any indirect shareholder) does not need the information on the Form 5471 to prepare its tax return.

If a shareholder only needs certain information from the Form 5471, such as the Schedule Q, the S corporation need only attach that portion to the Schedule K-3, and not the complete Form 5471.

Box 9. Other forms.

Check box 9 if the S corporation filed any other international tax forms, or if another person filed these forms on behalf of the S corporation, or if the S corporation received these forms as an attachment to a Schedule K-1 or K-3 issued to the S corporation. Attach those form(s) to Form 1120-S and Schedule K-3, if applicable to the shareholder. This includes, but is not limited to, the following forms.

Box 10. Shareholder loan transactions.

Check box 10 and attach a statement with the information in the applicable Table 2 or Table 3, if the S corporation knows or has reason to know that it (i) received a loan from its shareholder (“downstream loan”), as described in Regulations section 1.861-9(e)(8), or (ii) loaned an amount to its shareholder (“upstream loan”), as described in Regulations section 1.861-9(e)(9).

Box 11. Entity treatment for certain S corporations.

Check box 11 if the S corporation has made an election under Proposed Regulations section 1.958-1(e)(2), to be treated as owning stock of a CFC within the meaning of section 958(a).

Box 12.

Box 12 is reserved for future use on Schedule K-2. Box 12 is used for Form 8865 information on Schedule K-3. If the S corporation filed one or more Forms 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, check box 12 on Schedule K-3 and attach such form(s) to Form 1120-S. The Form(s) 8865 need not be attached to the Schedules K-3.

Box 13. Other international items.

If the S corporation has transactions, income, deductions, payments, or anything else that implicates the international tax provisions of the Code and such events are not otherwise reported in this part or other parts of Schedules K-2 and K-3, report that information on an attachment to the Schedules K-2 and K-3 and check box 13. As an example, an S corporation should attach Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation.

S corporations with limited or no foreign activity.

In many instances, an S corporation with no foreign source income, no assets generating foreign source income, and no foreign taxes paid or accrued may still need to report information on Schedules K-2 and K-3. For example, if the shareholder claims the foreign tax credit, the shareholder generally needs certain information from the S corporation in Schedule K-3, Parts II and III, to complete Form 1116. This information should have been reported in prior years, including before the Tax Cuts and Jobs Act, with the Schedules K and K-1, and is information the shareholder needs to figure the foreign tax credit limitation, which determines the amount of foreign tax credit available to the shareholder. See Domestic Filing Exception , earlier.

Section 904 generally limits the foreign tax credit to the portion of U.S. tax liability attributable to foreign source taxable income. Foreign source taxable income is foreign source gross income less allocable expenses. In general, the S corporation must complete the Schedules K-2 and K-3, Parts II and III, because the S corporation’s gross income, gross receipts, expenses, assets, and foreign taxes paid may affect the foreign tax credit available to the shareholder. The source of certain gross income and gross receipts is determined by the shareholder. In addition, some expenses of the S corporation are allocated and apportioned by the shareholder. Because of this shareholder determination, it is not possible for the shareholder to assume that all income of the S corporation is U.S. source and all expenses of the S corporation reduce U.S. source income. Also, the allocation and apportionment of certain shareholder expenses take into account their shares of assets and income of the S corporation that are not otherwise reported on the Schedule K-1.

For example, for purposes of section 904, personal property sold by the S corporation is treated as sold by the shareholders; see section 865(i)(5) and section 1373(a). Generally, income from the sale of certain personal property (excluding inventory) is sourced according to the residence of the seller. In cases in which the shareholder is a pass-through entity, the S corporation might not know the ultimate residence of the first non-pass-through shareholder. The S corporation is not required to separately state gain from the sale of personal property on Schedules K and K-1 since it is generally included in ordinary income. However, the gain is separately reported in Schedules K-2 and K-3, Part II.

As another example, the shareholder’s R&E expense (which includes the share of the S corporation’s R&E expense) is allocated and apportioned by the shareholder; see Regulations section 1.861-17(f). R&E expense is allocated and apportioned based on the gross receipts by Standard Industrial Classification Manual (SIC) code. R&E expense by SIC code is not reported on Schedules K and K-1, but is reported in Schedules K-2 and K-3, Part II. Also, the shareholder needs Schedule K-3, Part III, Section 1, for the shareholder’s share of the S corporation’s gross receipts by SIC code for purposes of allocating and apportioning R&E expense.

In some cases, the shareholder will be able to use the information reported in Parts II and III to increase the foreign tax credit limitation, and the amount of available foreign tax credit to the shareholder. For example, Part III, Section 2, provides the shareholder with the tax book value of the assets of the S corporation. In general, a shareholder apportions interest expense to reduce U.S. source income or foreign source income based on the tax book value of its assets, including its share of the S corporation’s interest expense and assets; see section 864(e)(2) and Regulations section 1.861-9(e). Taking into account the assets of an S corporation generating solely U.S. source income would result in more expense allocated to reduce U.S. source income and less expense allocated to reduce foreign source income. Additional foreign source income increases the shareholder’s foreign tax credit limitation, and the ability of the shareholder to claim foreign tax credits. Schedules K and K-1 contain net amounts but do not include separately stated reporting for the S corporation’s interest expense for international tax reporting purposes, or the tax book value of the assets; see Regulations section 1.861- 9(e). See the instructions for Part II,lines 39 through 43, and Part III, Section 2, for further guidance.

General filing instructions.

In Schedules K-2 and K-3, Parts II and III, the S corporation reports its gross income, gross receipts, cost of goods sold (COGS), certain deductions, and taxes by source and separate category. The S corporation also reports information that the shareholders will need to allocate and apportion expenses and determine the source of certain items of gross income and gross receipts. Unless specifically noted later, the S corporation reports in Schedule K-3, Parts II and III, the shareholder's share of the S corporation's gross receipts, gross income, COGS, certain deductions, and taxes by source and separate category. The shareholder adds its share of the S corporation's foreign source gross receipts, gross income, COGS, certain deductions, and taxes by separate category to its other foreign source gross receipts, gross income, COGS, certain deductions, and taxes in that separate category to figure its foreign tax credit. The S corporation also reports on the Schedule K-3 the share of expenses and the allocation and apportionment factors so that the shareholder may determine expenses allocated and apportioned to foreign source income.

S corporation determination.

The source and separate category of certain gross income, gross receipts, COGS, as well as the allocation and apportionment of certain deductions, can be determined by the S corporation. This includes deductions that are definitely related to certain gross income and gross receipts of the S corporation. See Regulations section 1.861-8(b)(1). See Schedule K-2, Part II, columns (a) through (e), and Part III, Section 1, columns (a) through (e). In Part III, Section 2, columns (a) through (e), some S corporation assets may be characterized by source and separate category by the S corporation. This includes certain assets that attract directly allocated interest expense under Temporary Regulations section 1.861-10T(b) and (c). See Temporary Regulations section 1.861-10T(d)(2).

In Part III, Section 3, in the U.S. and foreign columns, the S corporation assigns foreign taxes paid or accrued to a separate category and source.

The shareholder's share of the amounts determined by the S corporation are reported on equivalent columns in Schedule K-3, Parts II and III.

Certain gross income, gross receipts, COGS, assets, deductions, and taxes are not assigned to a source or separate category by the S corporation. See Shareholder determination , later.

Foreign branch category income.

An S corporation itself does not have foreign branch category income. However, report all amounts that would be foreign branch category income of its shareholders as if all shareholders were U.S. persons that were not pass-through entities. See Schedule K-2, Part II, column (b); Part III, Sections 1 and 2, column (b); and Part III, Section 3, column (c). The shareholder's share of the amounts determined by the S corporation are reported in equivalent columns in Schedule K-3, Parts II and III.

Section 901(j) income.

Income derived from each sanctioned country is subject to a separate foreign tax credit limitation. If the S corporation derives such income, enter code 901j on the line after category code. See Schedule K-2, Part II, column (e); Part III, Sections 1 and 2, column (e); Part III, Section 3, column (f). The shareholder's share of the amounts determined by the S corporation are reported on equivalent columns in Schedule K-3, Parts II and III. See the Instructions for Form 1116 for the potential countries to be listed with the section 901(j) category of income.

Section 951A category income.

Section 951A category income is any amount of Global Intangible Low-Taxed Income (GILTI) includible in gross income under section 951A (other than passive category income). If the S corporation pays or accrues tax on the receipt of a distribution of PTEP assigned to the reclassified section 951A PTEP or section 951A PTEP groups, the S corporation must assign those taxes to section 951A category income. The S corporation will enter these taxes in Part III, Section 3, column (b). Section 951A category income is not otherwise reported on the Schedules K-2 and K-3.

Income resourced by treaty.

If a sourcing rule in an applicable income tax treaty treats any U.S. source income as foreign source, and there is an election to apply the treaty, the income will be treated as foreign source. This category applies if the S corporation pays or accrues foreign taxes on receipt of a distribution of PTEP that is sourced from an annual PTEP account that corresponds to the separate category relating to U.S. source income included under section 951(a)(1) or 951A and resourced as foreign source income under a treaty.

The designations below are only relevant for Part III, Section 3, column (f).

Code RBT PAS.

If an applicable income tax treaty treats any U.S. source passive category income as foreign source passive category income, and there is an election to apply the treaty, enter code RBT PAS.

Code RBT GEN.

If an applicable income tax treaty treats any U.S. source general category income as foreign source general category income, and there is an election to apply the treaty, enter code RBT GEN.

Code RBT 951A.

If an applicable income tax treaty treats any U.S. source section 951A category income as foreign source section 951A category income, and there is an election to apply the treaty, enter code RBT 951A.

Shareholder determination.

In Schedule K-2, Part II, Section 1, column (f), and Part III, Section 1, column (f), enter the gross income, income adjustments, and gross receipt of the S corporation that is required to be sourced by the shareholder. This includes income from the sale of most personal property other than inventory, depreciable property, and certain intangible property sourced under section 865. See sections 1366 and 1373(a). This also includes certain foreign currency gain on section 988 transactions. See the Instructions for Form 1116 and Pub. 514, Foreign Tax Credit for Individuals, for additional details. Attach a statement to the Form 1120-S, to identify the separate category of income under section 904(d) of the amounts listed in Part II, Section 1, column (f).

In Schedule K-2, Part II, column (f), include deductions that are allocated and apportioned by the shareholder. This includes most interest and R&E expense. See Regulations sections 1.861-9(e) and 1.861-17(f).

In Schedule K-2, Part III, Section 2, column (f), enter the assets that are assigned to a source and separate category by the shareholder.

In Schedule K-2, Part III, Section 3, in the shareholder column, enter the foreign taxes that are assigned to a source of income by the shareholder. This includes taxes imposed on certain sales income. The shareholder's share of the amounts determined by the S corporation are reported on equivalent columns in Schedule K-3, Parts II and III.

Rows A through O.

Use rows A through O to report information with respect to each distribution by a foreign corporation with respect to its stock that the S corporation (directly or through pass-through entities) owns (within the meaning of section 958) other than solely by reason of applying section 318(a)(3) (providing for downward attribution) as provided in section 958(b). Each row should relate the S corporation's direct ownership of stock in the foreign corporation or direct ownership of the ownership interests in a pass-through entity that (directly or through other pass-through entities) owns (within the meaning of section 958) stock in the foreign corporation other than solely by reason of applying section 318(a)(3) (providing for downward attribution) as provided in section 958(b). For example, if an S corporation directly owns 50% of the foreign corporation's stock and owns 50% of the foreign corporation's stock through a partnership, then distributions by the foreign corporation to the S corporation and partnership are to be reported on separate rows in Part IV of the S corporation’s Schedule K-2 (Form 1120-S). If the S corporation owns stock of a foreign corporation through a partnership from which it receives a Part V of Schedule K-3 (Form 1065 or 8865), the S corporation must replicate each line of Part V, Schedule K-3 (Form 1065 or 8865) in Part IV of its Schedule K-2 (Form 1120-S). Rows for distributions with respect to an S corporation’s direct ownership of foreign corporation stock should be listed before rows for distributions with respect to an S corporation's ownership of foreign corporation stock through a pass-through entity.

The S corporation may have annual PTEP accounts with respect to the foreign corporation, or the foreign corporation may have E&P that, when distributed, is excludable from the S corporation’s gross income under section 1293(c). Do not report distributions to the extent that they are attributable to PTEP in annual PTEP accounts of the S corporation or to E&P that is excludable from the S corporation’s gross income under section 1293(c). Distributions by the foreign corporation to the S corporation that are attributable to PTEP in annual PTEP accounts of the S corporation should be properly reflected on the Schedules J (Form 5471) for the foreign corporation. The S corporation should provide this information to its shareholders, as appropriate.

However, to the extent a distribution is attributable to PTEP in an annual PTEP account of the S corporation with respect to a foreign corporation, or attributable to E&P that is excludable from the S corporation’s gross income under section 1293(c), that corresponds to a tax year of the foreign corporation that ended with or within a tax year of the S corporation (i) that began after December 31, 2012, and (ii) for which an election under Regulations section 1.1411-10(g) was not made by the S corporation NII PTEP, append Attachment 3 to Schedule K-2 and an Attachment 4 to each K-3 in the following format, adding additional rows as necessary for each distribution by a foreign corporation. For more information about net investment income and net investment income tax relating to CFCs and QEFs, see Regulations section 1.1411-10.

Column (b).

Enter the EIN or reference ID number of the distributing foreign corporation. Do not enter “FOREIGNUS” or “APPLIED FOR.” For basic information about reference ID numbers (including the requirements as to the characters permitted), see the Instructions for Form 1118.

Column (c).

Enter the year, month, and day in which the distribution was made using the format YYYYMMDD.

Column (d).

Enter the applicable three-character alphabet code for the foreign corporation’s functional currency using the ISO 4217 standard. These codes are available at ISO.org/ISO-4217-currency-codes.html.

Column (e).

This represents the S corporation’s share of the amount distributed in functional currency. See Schedule R (Form 5471), Distributions From a Foreign Corporation, column (c).

Column (f).

This represents the S corporation’s share of the amount of E&P distributed in functional currency. See Schedule R (Form 5471), column (d). The total of the amounts reported in column (f) with respect to a distributing foreign corporation should equal the S corporation’s share of the total reported on line 9 of all Schedules J (Form 5471), Accumulated Earnings and Profits (E&P) of Controlled Foreign Corporation, on a separate category of income basis as reported in Schedule J (Form 5471) TOTAL filed with respect to the distributing foreign corporation.

If a Schedule J (Form 5471) with code “TOTAL” entered on line a (at the top of page 1 of Schedule J) is not filed with respect to the distributing foreign corporation, then the total of the amounts reported in column (f) with respect to a distributing foreign corporation should equal the S corporation’s share of the amount reported on line 9, column (f), of the Schedule J (Form 5471) filed with respect to the distributing foreign corporation.

Column (g).

Enter the exchange rate on the date of distribution used to translate the amount of the distribution in functional currency to U.S. dollars. See section 989(b)(1). Report the exchange rate using the “divide-by convention” specified under Reporting exchange rates on Form 5471 in the Instructions for Form 5471.

Column (h).

Enter the amount of the distribution in U.S. dollars. Translate column (e) using the spot rate reported in column (g).

Column (i).

Enter the amount of E&P distributed in U.S. dollars. Translate column (f) using the spot rate reported in column (g).

Column (j).

If the distributing foreign corporation is a qualified foreign corporation, determined without regard to section 1(h)(11)(C)(iii)(I), check the box. See section 1(h)(11)(C).

Line a.

Complete a separate Part V for each applicable separate category of income. However, all GILTI items must be reported in only one Part V. If GILTI items include passive category income, report all GILTI items in the Part V completed for passive category income; otherwise, report all GILTI items in the Part V completed for general category income. Enter the appropriate code on line a.

Line b.

If any portion of a CFC item is U.S. source, complete a separate Part V for U.S. source CFC items, and check the box on line b in such separate Part V.

Line 1.

Use lines A through K to report information with respect to each CFC owned (within the meaning of section 958) by the S corporation, and for which Part V of Schedules K-2 and K-3 must be completed. If the S corporation owns a CFC through a partnership from which it receives a Schedule K-3 (Form 1065 or 8865), Part VI, the S corporation must replicate each line of Part VI, Schedule K-3 (Form 1065 or 8865) that is related to the CFC in its Schedule K-2 (Form 1120-S), Part V. For example, if an S corporation directly owns 50% of the CFC's stock and owns 50% of the CFC's stock through a partnership, the CFC should be listed on two lines with one line related to the S corporation's direct ownership and the other line related to the S corporation's ownership through the partnership. Lines related to an S corporation's direct ownership of CFCs should be listed before lines related to an S corporation's non-direct ownership of CFCs. If additional lines are required, attach a statement to the Schedules K-2 and K-3 that looks like the current version of Part V.

Column (a).

Enter the name of each CFC for which Part V must be completed.

Column (b).

Enter the EIN or reference ID number of the CFC. Do not enter “FOREIGNUS” or “APPLIED FOR.” For basic information about reference ID numbers (including the requirements as to the characters permitted), see the Instructions for Form 1118.

Column (c).

Enter the end of the CFC’s tax year using the format YYYYMMDD.

Column (d).

Enter the shareholders' shares of CFC items through the shareholders' ownership in the S corporation (aggregate share). See Regulations sections 1.951-1(b), 1.951-1(e), and 1.951A-1(d)(1) for rules on determining the shareholders' shares.

Column (e).

Enter the aggregate share of the amount of the CFC's subpart F income, if any. Note that an amount determined under section 956(a) is not considered subpart F income. For guidance on figuring a CFC's subpart F income and the shareholders' shares of a CFC's subpart F income, see Worksheet A in the Instructions for Form 5471.

Column (f).

Enter the amount determined under section 956 with respect to the shareholders that relate to the shareholders' ownership in the S corporation, as described in these instructions for column (f) (aggregate section 951(a)(1)(B) inclusion). In determining the section 956 amount, use only the shareholders' shares through their ownership in the S corporation of:

For guidance on figuring the shareholders' share of a CFC's earnings invested in U.S. property, see Worksheet B in the Instructions for Form 5471.

Column (g).

Enter the CFC's tested income, if any, from line 6 of Schedule I-1 (Form 5471), Information for Global Intangible Low-Taxed Income, for each CFC.

Column (h).

Enter the CFC's tested loss, if any, from line 6 of Schedule I-1 (Form 5471) for each CFC. The loss amounts should be shown as negative numbers.

Column (i).

Enter the aggregate share of the tested income listed in column (g) for each CFC with tested income.

Column (j).

Enter the aggregate share of the tested loss listed in column (h) for each CFC with tested loss. The loss amounts should be shown as negative numbers.

Column (k).

If the CFC has a tested loss in column (h), enter zero. If the CFC has tested income in column (g), enter the aggregate share of QBAI. A CFC's QBAI is reported on Schedule I-1 (Form 5471), line 8.

Column (l).

If the CFC has tested income in column (g), enter zero. If the CFC has a tested loss in column (h), enter as a negative number the aggregate share of the CFC's tested loss QBAI amount. See Regulations section 1.951A-4(b)(1)(iv). A CFC's tested loss QBAI amount is reported on Schedule I-1 (Form 5471), line 9c, which must be translated to U.S. dollars.

Column (m).

Enter the aggregate share of the CFC's tested interest income. A CFC's tested interest income is reported on Schedule I-1 (Form 5471), line 10c.

Column (n).

Enter the aggregate share of the CFC's tested interest expense. A CFC's tested interest expense is reported on Schedule I-1 (Form 5471), line 9d.

Reporting currency.

Report all amounts in Part VII in functional currency.

The S corporation must complete a separate Schedule K-2, Part VII, for each CFC with respect to which it has a direct or indirect interest, unless the S corporation does not have a shareholder that is eligible to make a section 962 election to claim a deemed paid foreign tax credit with respect to such CFC. An indirect interest means that the CFC is owned by the S corporation through one or more partnerships.

Schedule K-3, Part VII, must be completed and provided to shareholders who may be eligible to make a section 962 election to claim a deemed paid foreign tax credit.

An S corporation that does not have or receive sufficient information or notice regarding a shareholder must presume the shareholder is eligible to claim the indirect credit and must complete the Schedules K-2 and K-3, Part VII, accordingly.

In general, if a section 962 election is in effect, a U.S. shareholder of a CFC is deemed to pay all or a portion of the foreign income taxes paid or accrued by the CFC that are properly attributable to subpart F income or tested income of the CFC that the U.S. shareholder includes in its gross income. See section 960(a) and (d).

To figure the foreign taxes deemed paid by the U.S. shareholder, the income, deductions, and taxes of the CFC must be assigned to separate categories of income and then included in income groups within those separate categories. See Regulations section 1.960-1(c)(1). The applicable separate categories of income are general category income, passive category income, and section 901(j) income. The income groups include the subpart F income groups, the tested income group, and the residual income group. Each single item of foreign base company income as defined in Regulations section 1.954-1(c)(1)(iii) is a separate subpart F income group. See Regulations section 1.960-1(d)(2)(ii)(B).

Line 1f allows the S corporation to report foreign personal holding company income under section 954(c)(1)(F) (income from notional principal contracts); (G) (payments in lieu of dividends); and (H) (personal service contracts). An S corporation must report a separate line 1f for income in each of sections 954(c)(1)(F), (G) and (H). Income within one of these income groups may need to be further subdivided on separate lines to the extent it is attributable to more than one country, source of income, passive grouping, etc. See the instructions for Schedule Q (Form 5471) in the Instructions for Form 5471.

The tested income group consists of tested income within a section 904 category; see Regulations section 1.960-1(d)(2)(ii)(C). The residual income group consists of any income not in the other income groups or in a PTEP group; see Regulations section 1.960-1(d)(2)(ii)(D). See Regulations section 1.960-3(c)(2) with respect to the PTEP groups. The PTEP groups are not reported in this Part VII.

Lines 1 through 4.

The S corporation’s share of the CFC’s net income in each of the subpart F income groups, tested income group, and residual income group by unit is reported on lines 1 through 4.

The CFC’s net income and taxes in each of these groups are figured on Schedule Q (Form 5471), and then included in columns (iii) and (iv), respectively. See Schedule Q in the Instructions for Form 5471, for the meaning of unit.

Do not include on line 1 (including lines 1a through 1j and any subset lines (1), (2), etc., under line 1) any amounts excluded from subpart F income under the high-tax exception in section 954(b)(4) (subpart F high-tax exception); these amounts are reported on line 4 (including any subset lines (1), (2), etc., under line 4).

Also do not include on line 3 (or lines (1), (2), etc., under line 3) any amounts excluded under the GILTI high-tax exclusion in Regulations section 1.951A-2(c) (7) (“GILTI high-tax exclusion”); these amounts are reported on line 4 (and on lines (1), (2), etc., under line 4).

The PTEP groups are not reported in Part VII. Do not report by unit with respect to the following subpart F income groups: (i) international boycott income; (ii) bribes, kickbacks, and other payments; and (iii) section 901(j) income. Also do not report by unit with respect to the recaptured subpart F income group.

Line A.

On line A, enter the EIN or reference ID number of the CFC as listed on Form 5471. Do not enter “FOREIGNUS” or “APPLIED FOR.”

Line B.

The S corporation must file separate Schedules K-2 and K-3, Part VII, to report the net income or loss of the CFC in each separate category. Use the applicable code from the table below.

Line C.

With respect to passive category income, separate Schedules K-2 and K-3, Part VII, must be completed for each applicable grouping under Regulations section 1.904-4(c). This includes the groups in Regulations section 1.904-4(c)(3) reported on the Schedule Q (Form 5471).

The S corporation should use the following codes to report each of these groupings for each unit.

Line D.

If net income in an income group is sourced from more than one country, check the box on line D, and attach a statement to Schedules K-2 and K-3 to indicate that you have expanded Part VII to report these additional countries on both Form 1120-S and Schedule K-3 (for shareholder’s share).

Line E.

The S corporation should check the box and complete a separate Part VII for U.S. source income in each separate category.

Line F.

If the foreign corporation has foreign oil and gas extraction income (FOGEI) or foreign oil-related income (FORI), the S corporation should check the box and complete a separate Part VII indicating the amount of FOGEI and FORI in each grouping. The S corporation should check box 2 in Part I and complete Schedule I (Form 1118). See the instructions for Part I, box 2.

Line G.

Enter the functional currency of the foreign corporation as reported on Form 5471, line 1h.