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                                                                                                              Department of the Treasury
                                                                                                              Internal Revenue Service
2022

S Corporation Instructions 

for Schedules K-2 and K-3 

(Form 1120-S)

Shareholders' Pro Rata Share Items—International and Shareholder's Share of 
Income, Deductions, Credits, etc.—International

Section references are to the Internal Revenue Code unless                     the S corporation may combine stock sales by country instead of 
otherwise noted.                                                               listing each stock sale separately for that country.
Contents                                                                  Page Boxes 7, 8, and 9 in Part I. The instructions clarify the 
What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1  reporting with respect to Form 5471, Information Return of U.S. 
General Instructions      . . . . . . . . . . . . . . . . . . . . . . . . . 2  Persons With Respect to Certain Foreign Corporations, Form 
                                                                               8621, Information Return by a Shareholder of a Passive Foreign 
Purpose of Schedules K-2 and K-3                      . . . . . . . . . . . 2  Investment Company or Qualified Electing Fund, Form 8858, 
Who Must File           . . . . . . . . . . . . . . . . . . . . . . . . . . 2  Information Return of U.S. Persons With Respect to Foreign 
When and Where To File                . . . . . . . . . . . . . . . . . . . 4  Disregarded Entities (FDEs) and Foreign Branches (FBs), Form 
How To Complete Schedules K-2 and K-3                           . . . . . . 4  8865, Return of U.S. Persons With Respect to Certain Foreign 
                                                                               Partnerships, and other forms.
Specific Instructions     . . . . . . . . . . . . . . . . . . . . . . . . . 4
Schedule K-2 Identifying Information                    . . . . . . . . . . 5  New box 12 on Schedule K-3, Part I.    This box was added to 
                                                                               reflect that the S corporation attached Form(s) 8865 to the Form 
Schedule K-3 Identifying Information                    . . . . . . . . . . 5  1120-S, if applicable, and alert the shareholder that the S 
Part I. Corporation’s Other Current Year                                       corporation filed Form(s) 8865.
      International Information           . . . . . . . . . . . . . . . . . 5  New box 13 in Part I. The instructions clarify additional 
Part II. Foreign Tax Credit Limitation                . . . . . . . . . .   11 reporting that may be required with respect to box 13 (formerly 
Part III. Other Information for Preparation of                                 box 12).
      Form 1116 . . . . . . . . . . . . . . . . . . . . . . . . . .         13 Country codes. The instructions clarify the use of country 
Part IV. Distributions From Foreign                                            codes and add a new code “XX.”
      Corporations to S Corporation . . . . . . . . . . . .                 17
                                                                               Capital gains and losses.  The instructions clarify the reporting 
Part V. Information on Shareholders' Section                                   of capital gains and losses in Part II.
      951(a)(1) and Section 951A Inclusions . . . . . .                     18
                                                                               Research and experimental expense apportionment.               The 
Part VI. Information To Complete Form 8621                        . . . .   20
                                                                               instructions clarify when an S corporation must complete Part III, 
Part VII. S Corporation's Interest in Foreign                                  Section 1, with respect to the apportionment factors for research 
      Corporation Income (Section 960)                  . . . . . . . . .   24 & experimental (R&E) expense.
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Interest expense and stewardship expense apportionment. 
                                                                               The instructions clarify how to report information in Part II, 
Future Developments
                                                                               Section 2; Part III, Section 2; and expand the section to cover 
For the latest information about developments related to                       stewardship expense.
Schedule K-2 (Form 1120-S) and Schedule K-3 (Form 1120-S), 
and their instructions, such as legislation enacted after they were            Foreign tax redeterminations.  The instructions clarify the 
published, go to IRS.gov/Form1120S.                                            reporting of foreign tax redeterminations including new reporting 
                                                                               concerning contested taxes on Part III, Section 3, line 3.
What’s New                                                                     Final regulations apply aggregate treatment to S corpora-
Exception to completing Schedules K-2 and K-3.                    These        tions for certain purposes.  Final regulations under section 
instructions add a new exception for filing and furnishing                     958 published on January 25, 2022, treat a domestic partnership 
Schedules K-2 and K-3 for tax years beginning in 2022. See                     as an aggregate of its partners for purposes of sections 951, 
Domestic Filing Exception.                                                     951A, and 956(a), and for purposes of any provision that 
                                                                               specifically applies by reference to any of those sections or the 
Reporting by S corporations with solely domestic activity.                     regulations thereunder. See Regulations section 1.958-1(d)(1). 
The instructions provide further guidance and examples                         Under the final regulations, except for purposes of determining 
concerning the need for reporting by S corporations with solely                United States shareholder, controlling domestic shareholder, 
domestic activity.                                                             and controlled foreign corporation (CFC) statuses, a domestic 
Revised reporting for Part I, box 1.            The table attached to          partnership is not treated as owning the stock of a foreign 
Form 1120-S with respect to Schedules K-2 and K-3, Part I,                     corporation within the meaning of section 958(a). For purposes 
box 1, has been revised to require reporting of gains rather than              of determining the persons that own stock of a foreign 
both proceeds and basis. Also, instead of reporting the date of                corporation under section 958(a), stock of a foreign corporation 
sale of the property, if the gain is capital, the S corporation will           owned by a domestic partnership is treated in the same manner 
now report whether the gain is long-term or short-term. Finally,               as stock of a foreign corporation owned by a foreign partnership. 

Dec 5, 2022                                                               Cat. No. 74486Y

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The final regulations apply to tax years of foreign corporations 954(c)(1)(H) (personal service contracts). The instructions also
beginning on or after January 25, 2022, and to tax years of U.S. clarify other reporting in Part VII in relation to Form 5471.
persons in which or with which such foreign corporations’ tax
years end. However, a domestic partnership may apply the final
regulations to tax years of a foreign corporation beginning after General Instructions
December 31, 2017, and to tax years of the domestic
The Instructions for Form 1120-S and the Instructions for
partnership in which or with which such tax years of the foreign
Schedule K-1 (Form 1120-S) generally apply to the Schedules
corporation end, provided certain consistency requirements are
K-2 and K-3. These instructions provide additional instructions
met. See Regulations section 1.958-1(d)(4)(i). The final
with respect to the Schedules K-2 and K-3 for tax years
regulations also apply to S corporations and their shareholders
beginning in 2022.
because, for purposes of subpart F of Part III of the Internal
Revenue Code, which includes section 958(a), S corporations Purpose of Schedules K-2 and K-3
are treated as partnerships and the shareholders of the S
corporations are treated as partners of such partnerships. See Schedule K-2 is an extension of Form 1120-S, Schedule K, and
section 1373(a). is used to report items of international tax relevance from the
operation of an S corporation.
Proposed regulations allow certain S corporations to elect
to apply entity treatment to S corporations for certain pur- Schedule K-3 is an extension of Schedule K-1 (Form 1120-S)
poses. Proposed regulations under section 958 published on and is generally used to report to shareholders their share of the
January 25, 2022, permit certain S corporations to elect not to items reported on Schedule K-2. Shareholders must include the
apply Regulations section 1.958-1(d)(1), and thus be treated as information reported on Schedule K-3 on their tax or information
owning stock of a foreign corporation within the meaning of returns.
section 958(a), by attaching a statement to a timely filed
(including extensions) original Form 1120-S, U.S. Income Tax Who Must File
Return for an S Corporation, for the first tax year of the S Any S corporation that is required to file Form 1120-S and that
corporation ending on or after September 1, 2020. The proposed has items relevant to the determination of the U.S. tax or
regulations are proposed to apply to tax years of S corporations reporting obligations of its shareholders under the international
ending on or after September 1, 2020. See Proposed provisions of the Internal Revenue Code must complete the
Regulations section 1.958-1(e). relevant parts of Schedules K-2 and K-3. See each part and
section for a more detailed description of who must file each part
Exceptions added to Part IV. The instructions add an and section. Penalties may apply for filing Form 1120-S without
exception to completing Part IV of the Schedule K-2 with respect all required information or for furnishing Schedule K-3 to
to distributions by a foreign corporation and an exception to shareholders without all required information. The penalties that
completing Part IV of the Schedules K-3 for a shareholder with apply with respect to Form 1120-S and Schedule K-1 apply with
respect to distributions by a foreign corporation. respect to the Schedules K-2 and K-3, respectively. See the
Exceptions added to Part V. The instructions add an Penalties section of the Instructions for Form 1120-S.
exception to completing Part V of the Schedule K-2 with respect
to a CFC and an exception to completing Part V of the Note. Except as otherwise required by statute, regulations, or
Schedules K-3 for a shareholder with respect to a CFC. other IRS guidance, an S corporation is not required to obtain
information from its shareholders to determine if it needs to file
Exceptions to Part VI added and clarified. The instructions each of these parts.
add an exception to completing Part VI for any S corporation that
knows all of its direct and indirect shareholders that are U.S. Note. An S corporation is only required to complete and file the
persons are either not subject to the PFIC rules under section relevant portions of Schedules K-2 and K-3, as applicable. For
1297(d), are certain tax-exempt entities. The instructions also example, if the S corporation does not own (within the meaning
add exceptions to completing Part VI for S corporations that of section 958) an interest in a foreign corporation other than
mark-to-market stock of a PFIC as described in Regulations solely by reason of applying section 318(a)(3) (providing for
section 1.1291-1(c)(4) and for any S corporation electing to be downward attribution) as provided in section 958(b), it is not
treated as an entity for purposes of applying section 951A as required to complete Schedule K-2, Parts IV, V, VI, and VII or the
provided in Notice 2020-69, 2020-39 I.R.B. 604, and clarify corresponding Schedule K-3 parts.
when reporting is required for foreign corporations that may be
treated, or may be deemed to be treated, as a qualifying Note. Schedules K-2 and K-3 consist of the most common
insurance corporation. international tax provisions of the Internal Revenue Code.
Updates to references to MTM elections in Part VI. The However, not all provisions are specifically identified on these
instructions clarify that mark-to-market elections for PFICs schedules. To the extent that an international provision is
referenced in the instructions generally refer to elections under implicated that is not otherwise specifically identified, the S
section 1296 and not any other section of the Code or corporation should check box 13 in Schedules K-2 and K-3, Part
regulations. Additionally, the instructions provide guidance on I, and attach a statement to both Schedules K-2 and K-3 (for
how to report information in Schedules K-2 and K-3, Part VI for shareholder's share).
PFICs with respect to which an election under section 1296 is Note. An S corporation with no foreign source income, no
being made in the current tax year if the current tax year is not assets generating foreign source income, and no foreign taxes
the first year of the S corporation’s holding period in the PFIC paid or accrued may still need to report information on
stock. Schedules K-2 and K-3. For example, if a shareholder claims a
Subpart F income groups added to Part VII. In tax year credit for foreign taxes paid or accrued by the shareholder, the
2022, new line 1(f) is added to Part VII to allow the S corporation shareholder may need certain information from the S corporation
to report foreign personal holding company income under to complete Form 1116, Foreign Tax Credit (Individual, Estate,
section 954(c)(1)(F) (income from notional principal contracts); or Trust). See each part for applicability.
section 954(c)(1)(G) (payments in lieu of dividends); and section

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Domestic Filing Exception (Exception To Filing K-2 and K-3 with respect to the requesting shareholder by the
tax year 2023 Form 1120-S filing deadline.
Schedules K-2 and K-3)
An S corporation does not need to (i) complete and file with the Note for S corporations that satisfy criteria 1 and 2, but do
IRS the Schedules K-2 and K-3, or (ii) furnish to a shareholder not satisfy criterion 3. If the S corporation received a request
the Schedule K-3 (except where requested by a shareholder from a shareholder for Schedule K-3 information on or before the
after the 1-month date (defined in criterion 3)) if each of the 1-month date and therefore the S corporation does not satisfy
following are met with respect to the S corporation’s tax year criterion 3, the S corporation is required to file the Schedules K-2
2022. and K-3 with the IRS and furnish the Schedule K-3 to the
requesting shareholder. The Schedules K-2 and K-3 are
1. No or limited foreign activity. During an S corporation’s tax required to be completed only with respect to the parts and
year 2022, the S corporation either has no foreign activity (as sections relevant to the requesting shareholder. For example, if
defined later), or if it does have foreign activity, such foreign a shareholder requests the information reported in Part III,
activity is limited to: Section 2 (Interest Expense Apportionment Factors), the S
• Passive category foreign income (determined without regard corporation is required to complete and file Schedule K-2, Part
to the high-taxed income exception under section 904(d)(2)(B) III, Section 2, with respect to the S corporation’s total assets and
(iii)), Schedule K-3, Part III, Section 2, with respect to the requesting
• Upon which not more than $300 of foreign income taxes shareholder’s pro rata share of the assets. On the date that the S
allowable as a credit under section 901 are treated as paid or corporation files Schedules K-2 and K-3 with the IRS, the S
accrued by the S corporation, and corporation must provide a copy of the filed Schedule K-3 to the
• Such income and taxes are shown on a payee statement (as requesting shareholder. The S corporation does not need to
defined in section 6724(d)(2)) that is furnished or treated as complete, attach, file, or furnish any other parts or sections of the
furnished to the S corporation. Schedules K-2 and K-3 to the IRS, the requesting shareholder,
Foreign activity. For purposes of the Domestic Filing or any other shareholder. The S corporation should keep
Exception, foreign activity means any of the following. records of the information requested by the shareholder. See
• Foreign income taxes paid or accrued (as defined in section Example 2.
901 and the regulations thereunder). If an S corporation receives requests from shareholders for
• Foreign source income or loss (as determined in sections 861 Schedule K-3 information both on or before the 1-month date
through 865, and section 904(h), and the regulations and after the 1-month date, the S corporation is required to file
thereunder). Schedules K-2 and K-3 as described in the prior paragraph only
• Ownership interest in a foreign partnership (as defined in with respect to the shareholder requests received on or before
sections 7701(a)(2) and (5)). the 1-month date. With respect to requests received after the
• Ownership interest in a foreign corporation (as defined in 1-month date, the S corporation is required to provide the
sections 7701(a)(3) and (5)). Schedule K-3, completed with that shareholder’s requested
• Ownership of a foreign branch (as defined in Regulations information, on the later of the date on which the S corporation
section 1.904-4(f)(3)(vii)). files the Form 1120-S or 1 month from the date on which the S
• Ownership interest in a foreign entity that is treated as corporation receives the request from the shareholder. See
disregarded as an entity separate from its owner (as defined in Examples 2 and 3.
Regulations section 301.7701-3).
Example 1. Husband and wife, U.S. citizens, each own a
2. Shareholder notification. With respect to an S corporation 50% interest in SC, an S corporation. SC and husband and wife
that satisfies criterion 1, shareholders receive a notification from each have a tax year end of December 31. SC invests in a
the S corporation at the latest when the S corporation furnishes regulated investment company. With respect to tax year 2022,
the Schedule K-1 to the shareholder. The notice can be provided SC receives a Form 1099 from the regulated investment
as an attachment to the Schedule K-1. The notification must company reporting $100 of creditable foreign taxes paid or
state that shareholders will not receive Schedule K-3 from the S accrued on passive category foreign source income. SC does
corporation unless the shareholders request the schedule. not have any foreign activity other than that from the regulated
3. No 2022 Schedule K-3 requests by the 1-month date. investment company. Husband and wife receive notification from
The S corporation does not receive a request from any SC as an attachment to Schedule K-1 that they will not receive
shareholder for Schedule K-3 information on or before the the Schedule K-3 unless they so request. Husband and wife do
1-month date. The “1-month date” is 1 month before the date the not request Schedule K-3 from SC for tax year 2022. SC
S corporation files the Form 1120-S. For tax year 2022 calendar qualifies for the Domestic Filing Exception, and, as such, SC
year S corporations, the latest 1-month date is August 15, 2023, need not complete Schedules K-2 and K-3.
if the S corporation files an extension. Example 2. The facts are the same as in Example 1 except
that husband and wife each own a 40% interest in SC, and A, a
Note. If an S corporation receives a request from a shareholder U.S. citizen, owns a 20% interest in SC. A requests
for the Schedule K-3 information after the 1-month date and has Schedule K-3 from SC for tax year 2022 and SC receives this
not received a request from any other shareholder for request on February 1, 2023. After requesting an extension, SC
Schedule K-3 information on or before the 1-month date, the files Form 1120-S on August 31, 2023. SC does not qualify for
Domestic Filing Exception is met and the S corporation is not the Domestic Filing Exception because A requested the
required to file the tax year 2022 Schedules K-2 and K-3 with the Schedule K-3 by the 1-month date (July 31, 2023). As such, SC
IRS or furnish the tax year 2022 Schedule K-3 to the must complete and file with the IRS the parts and sections of the
non-requesting shareholders. However, the S corporation is Schedules K-2 and K-3 that are relevant to A. With respect to the
required to provide the tax year 2022 Schedule K-3, completed Schedules K-2 and K-3 filed with the IRS, SC does not need to
with the requested information, to the requesting shareholder on complete, attach, or file any parts or sections relevant to
the later of the date on which the S corporation files the Form husband and wife. SC must provide a copy of the filed
1120-S or 1 month from the date on which the S corporation Schedule K-3 to A on the date that SC files its Form 1120-S. SC
receives the request from the shareholder. See Example 3. The does not need to furnish a Schedule K-3 to husband and wife.
S corporation must complete and file tax year 2023 Schedules

Inst. for Schedules K-2 and K-3 (Form 1120-S) (2022) -3-

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Example 3. The facts are the same as in Example 2 except references to those prior forms encompass any successor
that SC receives the request from A on August 20, 2023. SC forms.
qualifies for the Domestic Filing Exception because A requested References in these instructions to Form 1040, U.S.
the Schedule K-3 after the 1-month date. SC is not required to Individual Income Tax Return, are intended, if applicable, to
file the tax year 2022 Schedules K-2 and K-3 with the IRS or include Form 1040-SR, U.S. Tax Return for Seniors, as well as
furnish the Schedule K-3 to husband and wife. However, SC is other tax returns for noncorporate shareholders such as Form
required to provide the Schedule K-3, completed with the 1041, U.S. Income Tax Return for Estates and Trusts.
requested information, to A on September 20, 2023, the later of
the date on which SC files the Form 1120-S or 1 month from Uses of the parts of Schedules K-2 and K-3, in general.
August 20, 2023. Because A requested a Schedule K-3 for tax Part I of Schedule K-2 (and Part I of Schedule K-3). Used
year 2022, SC must file tax year 2023 Schedules K-2 and K-3 to report international tax items not reported elsewhere on
with the IRS with respect to the information requested by A. Schedule K-2 or K-3.
Part II of Schedule K-2 (and Part II of Schedule K-3).
Note. If an S corporation does not meet the Domestic Filing Used to figure the S corporation's income or loss by source and
Exception, it may meet the Form 1116 Exemption to filing the separate category of income and to report the shareholder's
Schedules K-2 and K-3. See Form 1116 Exemption, later share of such income or loss. Shareholders will use the
information to figure and claim a foreign tax credit on Form 1116
When and Where To File or Form 1118, Foreign Tax Credit—Corporations.
Attach Schedules K-2 and K-3 to your Form 1120-S and file both Part III of Schedule K-2 (and Part III of Schedule K-3).
by the due date (including extensions) for that return. Used to report information necessary for the shareholder to
determine the allocation and apportionment of R&E expense
Provide Schedule K-3 to your shareholders according to the and interest expense for the foreign tax credit limitation. Also
timeline for providing the Schedule K-1. See the Instructions for used to report foreign taxes paid or accrued by the S corporation
Form 1120-S. and the shareholder's share of such taxes. Shareholders will use
See the Instructions for Form 1120-S for requirements with the information to figure and claim a foreign tax credit on Form
respect to recordkeeping. 1116.
Part IV of Schedule K-2 (and Part IV of Schedule K-3).
See the Instructions for Form 1120-S for instructions Used to report information the shareholder needs, in
concerning amendments or adjustments to Schedules K-2 and combination with other information known to the shareholder, to
K-3. determine the amount of each distribution from a foreign
corporation that is treated as a dividend or excluded from gross
Computer-Generated Schedules K-2 and K-3 income because the distribution is attributable to previously
Generally, all computer-generated forms must receive prior taxed earnings and profits (PTEP) in the shareholder’s annual
approval from the IRS and are subject to an annual review. PTEP accounts with respect to the foreign corporation, and the
However, see the Exception later. Requests for approval may be amount of foreign currency gain or loss on the PTEP that the
submitted electronically to substituteforms@irs.gov; or requests shareholder is required to recognize under section 986(c).
may be mailed to: Shareholders will report the dividends and foreign currency
gain or loss on Form 1040.
Internal Revenue Service Part V of Schedule K-2 (and Part V of Schedule K-3).
Attn: Substitute Forms Program Used to provide information the shareholder needs to determine
SE:W:CAR:MP:P:TP any inclusions under sections 951(a)(1) and 951A. Shareholders
1111 Constitution Ave. NW, Room 6554 will use the information to complete Form 8992, U.S.
Washington, DC 20224 Shareholder Calculation of Global Intangible Low-Taxed Income
(GILTI), and Form 1040, with respect to subpart F income
Exception. If computer-generated Schedules K-2 and K-3 inclusions, section 951(a)(1)(B) inclusions, and section 951A
conform to and do not deviate from the official form and inclusions.
schedules, they may be filed without prior approval from the IRS. Part VI of Schedule K-2 (and Part VI of Schedule K-3).
Important. Be sure to attach the approval letter to Used to provide information needed by shareholders to
computer-generated Schedules K-2 and K-3. However, if the complete Form 8621, Information Return by a Shareholder of a
computer-generated form is identical to the IRS prescribed form, Passive Foreign Investment Company or Qualified Electing
it does not need to go through the approval process, and an Fund, and to provide shareholders with information to determine
attachment is not necessary. income inclusions with respect to the passive foreign investment
company (PFIC).
Every year, the IRS issues a revenue procedure to provide Part VII of Schedule K-2 (and Part VII of Schedule K-3).
guidance for filers of computer-generated forms. In addition, Used to provide the foreign corporation's net income in the
every year the IRS issues Pub. 1167, General Rules and income groups for purposes of the shareholder's deemed paid
Specifications for Substitute Forms and Schedules, which taxes computation with respect to inclusions under sections
reprints the most recent applicable revenue procedure. Pub. 951A and 951(a)(1). Shareholders will use the information to
1167 is available at IRS.gov/Pub1167. The procedures relevant figure and claim a deemed paid foreign tax credit on Form 1118.
to Form 1120-S and the Schedule K-1 (Form 1120-S) apply for
purposes of the Schedules K-2 and K-3.
Specific Instructions
How To Complete Schedules K-2 and K-3
If the information required in a given section exceeds the
Reporting currency. Report all amounts in U.S. dollars except ! space provided within that section, do not write “See
where specified otherwise. CAUTION attached” in the section or leave the section blank.
Instead, complete all entry spaces in the section and attach the
Form references. These instructions refer to other forms. If the
remaining information on additional sheets. For all attachments,
referenced form has been succeeded by another form, the

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include the part, section, line number, and column of the relevant items are applicable in the tax year. If applicable, attach
portion of Schedule K-2 and Schedule K-3. The additional statements, as described later, to the Schedule K-2.
sheets must conform with the IRS version of that section. If applicable, the S corporation must also complete
Schedule K-3, Part I, and include with the Schedule K-3 the
attachment(s) as described later with the shareholder's share of
Schedule K-2, Identifying Information the amounts.
At the top of each new page, enter the name of the S corporation
as it appears on the Form 1120-S. At the top of each new page, Box 1. Gain on personal property sale. In general, income
enter the EIN of the S corporation as it appears on the Form from the sale of personal property is sourced according to the
1120-S. residence of the seller. See section 865. For sourcing purposes,
personal property sold by the S corporation is treated as sold by
Item A—Part applicability. Check the “Yes” box to indicate the the shareholders. See section 865(i)(5). A U.S. citizen or
applicable parts of Schedules K-2 and K-3. Complete and attach resident alien individual with a tax home (section 911(d)(3)) in a
each applicable part to Form 1120-S and Schedule K-1 (Form foreign country is treated as a nonresident with respect to the
1120-S). Check the “No” box to indicate the inapplicable parts of sale of personal property only if an income tax of at least 10% of
Schedules K-2 and K-3. Do not complete and attach to the filed the gain derived from the sale is actually paid to a foreign
Form 1120-S or the Schedule K-3 the inapplicable parts. country, with respect to that gain. See section 865(g). In
addition, if a U.S. resident maintains an office or other fixed
Schedule K-3, Identifying Information place of business in a foreign country, income from the sale of
Items A and B. Items A and B should be the same as reported personal property attributable to such office or other fixed place
on Schedule K-1 (Form 1120-S), Part I, Items A and B. 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
Items C and D. Items C and D should be the same as reported country with respect to such income. See section 865(e)(1).
on Schedule K-1 (Form 1120-S), Part II, Items E and F.
If the S corporation has income from the sale of personal
Item E. Item E should correspond to Schedule K-2, Identifying property (other than inventory, depreciable personal property,
Information, Item A. and certain intangible property excepted from the general rule of
section 865(a)) and the S corporation pays income tax to a
Schedule K-2, Part I (Corporation’s foreign country with respect to income from the sale or the
income is eligible for re-sourcing under an applicable treaty, it
Other Current Year International must check box 1 and attach a statement to both Schedules K-2
Information), and Schedule K-3, Part I and K-3 (for shareholder’s share) with Table 1, Information on
Personal Property Sold. The S corporation may combine sales
(Shareholder's Share of of stock property by country. Otherwise, do not combine sales of
property. Each item of property sold must be listed separately
Corporation's Other Current Year with Table 1 completed. In column (b), if the gain is capital, enter
International Information) “long-term” or “short-term.” For column (g), enter the two-letter
code from the list at IRS.gov/CountryCodes. Do not enter
Note. Shareholders will use the information reported in the “various” or “OC” for the country code. If the property sale is
attachments with respect to boxes 1 through 5 and 10 to claim taxed by more than one country, complete a separate line for
and figure a foreign tax credit on Form 1116 or 1118. Section that country, but denote in some manner (for example, a
1373(a) treats an S corporation as a partnership for purposes of footnote) that the property entered on both lines is the same
sections 901 through 909 and sections 951 through 965. property.
Box 2. Foreign oil and gas taxes. A separate foreign tax
Note. Shareholders will also use the information reported in credit limitation is applied with respect to foreign oil and gas
attachments with respect to box 6 to prepare their tax returns taxes. See section 907(a) and Regulations section 1.907(a)-1 for
(Form 1040) by taking into account that under section 267A they details. If the S corporation has such taxes, it must check box 2
are not allowed deductions for the amounts listed in the and attach a completed Schedule I (Form 1118), Reduction of
statement with respect to box 6. Foreign Oil and Gas Taxes, to the Schedules K-2 and K-3 (with
Note. Shareholders will use the information reported in the shareholder’s share). The S corporation need not complete
attachments with respect to boxes 7 through 9 to identify any Schedule I (Form 1118), Part I, column 12; Part II, lines 2
international tax information reporting forms or other through 4; or Part III, lines 1 and 3. The S corporation must
international tax forms that may impact the shareholders tax attach Schedule I (Form 1118) because the limitation applies to
returns. individuals eligible to claim a foreign tax credit.
This part is used to report information for international tax Note. The S corporation attaches a partially completed
items not reported elsewhere on the Schedule K-2. Check the Schedule I (Form 1118), so that the shareholder has the
box to indicate whether any of the following international tax information it needs to complete Form 1116. The S corporation
is not attaching Schedule I (Form 1118), as a form required to be
Table 1—Information on Personal Property Sold (for use with Schedule K-2 (Form 1120-S), Part I, box 1; also for use with
Schedule K-3 (Form 1120-S), Part I, box 1)

(a) Property (b) Long-term/Short-term (c) Gains (d) Amount of tax paid in (e) Amount of tax paid (f) Taxing country
description local currency in U.S. dollars (enter two-letter country
code)

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filed by the S corporation for purposes of the S corporation Section 2 of attached statement—Potentially
determining creditable taxes because an S corporation cannot unsuspended taxes. Include a separate section that reports
claim a foreign tax credit. the following with respect to each splitter arrangement for which
the S corporation has taken into account any related income.
Box 3. Splitter arrangements. Foreign taxes with respect to a
foreign tax credit splitting event are suspended until the related 1. Origin year of the splitter arrangement.
income is taken into account by the taxpayer. See section 909. 2. Explanation of the splitter arrangement (for example,
There is a foreign tax credit splitting event with respect to foreign reverse hybrid owned by the S corporation).
taxes of a payor if in connection with a splitter arrangement the 3. Amount of taxes paid or accrued by the S corporation in
income is or will be taken into account by a covered person. See connection with the splitter arrangement in the origin year of the
Regulations section 1.909-2(a). A covered person, as defined in splitter arrangement.
Regulations section 1.909-1(a)(4), includes, for example, any
entity in which the payor holds, directly or indirectly, at least a 4. Amount of related income on which such taxes were paid
10% ownership interest (determined by vote or value). A payor, or accrued in the origin year of the splitter arrangement.
as defined in Regulations section 1.909-1(a)(3), includes, for 5. The two-letter code for the country to which the taxes
example, a person that takes foreign income taxes paid or were paid or accrued from the list at IRS.gov/CountryCodes. Do
accrued by a partnership into account pursuant to section 702(a) not enter “various” or “OC” for the country code.
(6). 6. The separate category and source of income to which the
The S corporation must report foreign taxes that are taxes are assigned if determinable by the S corporation.
potentially suspended on Schedule K-2, Part III, Section 3, 7. Amount of related income taken into account in the
line 2E, and each shareholder's share of such taxes on current tax year and the amount of taxes originally paid that
Schedule K-3, Part III, Section 3, line 2E. An S corporation may relate to that portion of the related income if determinable by the
not be able to determine whether taxes are suspended and S corporation.
whether related income is taken into account. However, where
the S corporation is able to determine that taxes are potentially Box 4. Foreign tax translation. If the S corporation reports
suspended, or potentially unsuspended, it must report such any foreign taxes in Schedules K-2 and K-3, Part III, Section 3, it
taxes and the information requested in these instructions for must check the box for item 4 and attach to Schedules K-2 and
box 3. K-3 the statement described in the instructions for those
For example, where an S corporation owns a reverse hybrid sections.
and the foreign country assesses tax on the S corporation with Box 5. High-taxed income. If the S corporation has passive
respect to income earned by the reverse hybrid, the S income, the S corporation must check the box for item 5 and
corporation should report such taxes as potentially suspended attach a statement to Schedules K-2 and K-3 with Attachment 1
taxes. or 2, or both, completed. These attachments will provide the
Report foreign taxes that are potentially suspended on shareholder with the information to determine whether its
Schedule K-2, Part III, Section 3, line 2E, and each shareholder's passive income is high-taxed passive income.
share of such taxes on Schedule K-3, Part III, Section 3, line 2E. Income received or accrued by a U.S. person that would
Check box 3 and attach a statement to both Schedules K-2 otherwise be passive income is not treated as passive income if
and K-3 that includes the following for each splitter arrangement the income is determined to be high-taxed income. See section
in which the S corporation participates that would qualify as a 904(d)(2)(B)(iii)(II). To determine if income is high-taxed income,
splitter arrangement under section 909 if one or more a shareholder must group its shares of passive income from an
shareholders are covered persons with respect to an entity that S corporation according to the rules in Regulations section
took into account related income from the arrangement. 1.904-4(c)(3), except that the portion, if any, of the share of
Section 1 of attached statement—Potentially suspended income attributable to income earned by an S corporation
taxes. through a foreign qualified business unit (QBU) is separately
1. Explanation of the splitter arrangement (for example, grouped under the rules of Regulations section 1.904-4(c)(4).
reverse hybrid owned by S corporation). 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
2. Amount of taxes paid or accrued by the S corporation in 989(a)), other than a controlled foreign corporation (CFC) or
connection with the splitter arrangement. noncontrolled 10%-owned foreign corporation, that has its
3. Amount of related income on which such taxes were paid principal place of business outside the United States. See
or accrued. Regulations section 1.904-4(c)(3).
4. The two-letter code for the country to which the taxes
were paid or accrued from the list at IRS.gov/CountryCodes. Do Note. Passive income is not treated as subject to a withholding
not enter “various” or “OC” for the country code. tax or other foreign tax when a credit is disallowed in full for such
foreign tax, for example, under section 901(k).
5. The separate category and source of income to which the
taxes are assigned if determinable by the S corporation.

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Attachment 1
                                                                           Attachment 1 for Example 4
Reference: Regulations section 1.904-4(c)(3)
                                                I. Passive    II. Taxes    Reference: Regulations section 1.904-4(c)(3)
                                                Income Net of                                                              I. Passive   II. Taxes 
                                                Allocable                                                                  Income Net 
                                                Expenses                                                                   of Allocable 
A Passive income subject to withholding tax of                                                                             Expenses
  15% or more                                                              A Passive income subject to withholding tax of  $170         $60
B Passive income subject to withholding tax of                               15% or more
  less than 15% but greater than zero                                      B Passive income subject to withholding tax of  0             0
C Passive income not subject to any foreign tax                              less than 15% but greater than zero
D Passive income subject to no withholding                                 C Passive income not subject to any foreign tax 50            0
  tax, but subject to other foreign tax                                    D Passive income subject to no withholding      0             0
                                                                             tax, but subject to other foreign tax
Attachment 2
                                                                           Attachment 2 for Example 4
Reference: Regulations section 1.904-4(c)(4)
A Name of foreign QBU:                                                     Reference: Regulations section 1.904-4(c)(4)
                                                I. Passive    II. Taxes    A Name of foreign QBU: Country X QBU
  (Complete a separate Attachment 2 for each    Income Net                                                                 I. Passive   II. Taxes 
  foreign QBU.)                                 of Allocable                 (Complete a separate Attachment 2 for each    Income Net 
                                                Expenses                     foreign QBU.)                                 of Allocable 
B Passive income subject to withholding tax of                                                                             Expenses
  15% or more                                                              B Passive income subject to withholding tax of  $100         $15
C Passive income subject to withholding tax of                               15% or more
  less than 15% but greater than zero                                      C Passive income subject to withholding tax of  0             0
D Passive income not subject to any foreign tax                              less than 15% but greater than zero
E Passive income subject to no withholding tax,                            D Passive income not subject to any foreign     0             0
  but subject to other foreign tax                                           tax
                                                                           E Passive income subject to no withholding 
Example 4.      USC is an S corporation, with two U.S. citizen               tax, but subject to other foreign tax         280          40
individual shareholders with equal interests in the S corporation. 
In Year 1, USC receives $100 of passive dividend income from a             USC completes the same attachments with the shareholder 
noncontrolled 10%-owned foreign corporation subject to a 15%               shares and attaches those attachments to each Schedule K-3 
withholding tax. USC also receives $150 of passive interest                provided to the shareholders.
income from an unrelated person subject to a 30% withholding               Box 6. Section 267A disallowed deduction.       Shareholders 
tax. USC incurs $80 of expenses that are allocable to the                  will also use the information from box 6 to prepare their tax 
interest income. USC also receives $50 of passive dividend                 returns (Form 1040) by taking into account that under section 
income from a CFC, which is not subject to tax. No expenses are            267A they are not allowed deductions for the amounts listed in 
allocable to the dividend income. USC's branch operation in                the statement with respect to box 6.
Country X that is treated as a QBU under section 989(a) 
receives $100 of passive dividend income subject to a 15%                  Check box 6 if the S corporation paid or accrued any interest 
withholding tax. Finally, USC earns $400 of passive income with            or royalty for which the S corporation knows, or has reason to 
respect to its branch operation in Country X that is treated as a          know, that one or more of its shareholders is not allowed a 
QBU under section 989(a). Such income is subject to foreign tax            deduction under section 267A. See the instructions for Form 
(but not withholding tax) of $40. Expenses of $120 are allocable           1065, Schedule B, line 22, and FAQs for section 267A at 
to the share of branch income. No expenses are allocable to the            IRS.gov/businesses/partnerships/faqs-for-Form-1065-Schedule-
dividend income.                                                           B-Other-Information-Question-22 for additional information 
                                                                           regarding section 267A. In addition, for each shareholder that is 
For Year 1, USC checks box 5 in Part I of Schedule K-2                     disallowed a deduction under section 267A, the corporation 
(Form 1120-S) and attaches Attachments 1 and 2 to Form                     should, on the Schedule K-3 as to the specific shareholder, 
1120-S, Schedule K-2.                                                      check box 6, Schedule K-3, Part I, and attach to the 
                                                                           Schedule K-3 a statement titled “Section 267A Disallowed 
                                                                           Deduction” that separately lists the following information.
                                                                           1. The amount of interest paid or accrued by the S 
                                                                           corporation for which the shareholder is not allowed a deduction 
                                                                           under section 267A.
                                                                           2. The amount of royalty paid or accrued by the S 
                                                                           corporation for which the shareholder is not allowed a deduction 
                                                                           under section 267A.
                                                                           3. The extent to which information reported in other parts of 
                                                                           the Schedule K-3 (for example, a line in Part II, Section 2) 

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reflects interest or royalty for which the shareholder is not attached to Schedule K-2. The S corporation need not attach
allowed a deduction under section 267A. Forms 8621 to the Schedule K-1 or K-3.
When completing other parts of Schedules K-2 and K-3 Note. If the S corporation attached any of the forms identified in
! (for example, a line in Part II, Section 2), list an amount boxes 7, 8, and 9 to the Form 1120-S, the S corporation need
CAUTION without regard to whether the shareholder is disallowed
not attach them again to the Schedule K-2. See Other Forms
a deduction under section 267A for the amount. and Statements That May Be Required in the Instructions for
Form 1120-S.
Note for boxes 7, 8, and 9. If the filer meets an exception,
such as the multiple filer exception, to filing Forms 5471, 8865, Box 10. Shareholder loan transactions. An S corporation will
and/or 8858, the filer is not required to complete and attach need to check this box and complete the attachment if either the
those forms. However, the filer must still attach to the Form S corporation knows or has reason to know that it (i) received a
1120-S, any required statements to qualify for the exception to loan from its shareholder (“downstream loan”), as described in
filing the Forms 5471, 8865, and/or 8858. Further, in the case of Regulations section 1.861-9(e)(8), or (ii) loaned an amount to its
the Form 5471 multiple filer exception, the S corporation must shareholder (“upstream loan”), as described in Regulations
provide on the Schedule K-3 to its shareholders any information section 1.861-9(e)(9).
that the S corporation receives from the person required to file Downstream loan. On the attachment to both the Schedules
the Form 5471 and that is requested by the instructions to the K-2 and K-3, provide the details with respect to any downstream
Schedules K-2 and K-3, such as information from Schedule Q loans from its shareholder, including the amount of interest
(Form 5471), CFC Income by CFC Income Groups, if applicable. expense paid or accrued by the S corporation. Report the
information separately for each separate loan. The reporting
Box 7. Form 8858 information. If the S corporation filed one should be as follows.
or more Forms 8858, Information Return of U.S. Persons With
Respect to Foreign Disregarded Entities (FDEs) and Foreign Table 2. Downstream Loans
Branches (FBs), or if another person filed the Form(s) 8858 on
behalf of the S corporation, check box 7 and ensure that Form(s) Name of lender Lender’s TIN Date of loan Amount of loan Interest expense
8858 is attached to the Form 1120-S. With respect to for year
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 Upstream loan. On the attachment to both the Schedules
K-3. K-2 and K-3, provide the details with respect to any upstream
loans to its shareholder, including the amount of interest income
Box 8. Form 5471 information. If the S corporation filed one received or accrued by the S corporation. Report the information
or more Forms 5471, Information Return of U.S. Persons With separately for each separate loan. The reporting should be as
Respect to Certain Foreign Corporations, or if the S corporation follows.
received Form(s) 5471 as an attachment to a Schedule K-3
issued to the S corporation, check box 8 and attach the form(s). Table 3. Upstream Loans
The 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 Name of Borrower’s TIN Date of loan Amount of loan Interest income
its direct shareholder (and any indirect shareholder) does not borrower for year
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 Box 11. Entity treatment for certain S corporations. If the S
pass-through entity shareholder that receives a Form 5471 with corporation has made an election under Proposed Regulations
a Schedule K-1 or K-3 must provide the relevant portions of section 1.958-1(e)(2), to be treated as owning stock of a CFC
Form 5471 to its shareholder unless the pass-through entity within the meaning of section 958(a), check box 11.
knows or has reason to know that its direct shareholder (and any
indirect shareholder) does not need the information on the Form Box 12. Box 12 is reserved for future use on Schedule K-2.
5471 to prepare its tax return. If a shareholder only needs certain Box 12 is used for Form 8865 information on Schedule K-3. If the
information from the Form 5471, such as the Schedule Q, the S S corporation filed one or more Forms 8865, Return of U.S.
corporation need only attach that portion to the Schedule K-3, Persons With Respect to Certain Foreign Partnerships, check
and not the complete Form 5471. 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
Box 9. Other forms. If the S corporation filed any other Schedules K-3.
international tax forms, or if another person filed these forms on
behalf of the S corporation, or if the S corporation received these Box 13. Other international transactions. If the S corporation
forms as an attachment to a Schedule K-1 or K-3 issued to the S has transactions, income, deductions, payments, or anything
corporation, check box 9, and attach those form(s) to Form else that implicates the international tax provisions of the Internal
1120-S and Schedule K-3, if applicable to the shareholder. This Revenue Code and such events are not otherwise reported in
includes, but is not limited to, the following forms. this part or other parts of Schedules K-2 and K-3, report that
• Form 5713, International Boycott Report. information on an attachment to the Schedules K-2 and K-3 and
• Form 8833, Treaty-Based Return Position Disclosure Under check box 13. As an example, an S corporation should attach
Section 6114 or 7701(b). Form 926, Return by a U.S. Transferor of Property to a Foreign
• Form 8621, Information Return by a Shareholder of a Passive Corporation.
Foreign Investment Company or Qualified Electing Fund.
Schedule K-2, Parts II and III, and
Exception for Form 8621. With respect to Schedule K-3, the
S corporation should check box 9 if the S corporation checked Schedule K-3, Parts II and III
box 9 on the Schedule K-2. The S corporation should indicate in
an attachment to the Schedule K-3 that Form(s) 8621 is Note. Shareholders will use the following information to claim
and figure a foreign tax credit on Form 1116 or 1118.

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If the S corporation does not qualify for the Domestic Filing Section 904 generally limits the foreign tax credit to the
Exception, Schedules K-2 and K-3, Parts II and III, must be portion of U.S. tax liability attributable to foreign source taxable
completed unless (a) the S corporation does not have a direct or income. Foreign source taxable income is foreign source gross
indirect shareholder that is eligible to claim a foreign tax credit or income less allocable expenses. In general, the S corporation
(b) no direct or indirect shareholder would have to file a Form must complete the Schedules K-2 and K-3, Parts II and III
1116 or Form 1118 to claim the foreign tax credit. because the S corporation’s gross income, gross receipts,
expenses, assets, and foreign taxes paid may affect the foreign
Shareholders Eligible To Claim Credit tax credit available to the shareholder. The source of certain
A shareholder that is eligible to claim a foreign tax credit includes gross income and gross receipts is determined by the
(i) a U.S. citizen or resident, and (ii) a U.S. citizen or resident shareholder. In addition, some expenses of the S corporation
beneficiary of domestic trusts and estates. See sections 901 and are allocated and apportioned by the shareholder. Because of
906. this shareholder determination, it is not possible for the
shareholder to assume that all income of the S corporation is
Form 1116 Exemption Exception U.S. source and all expenses of the S corporation reduce U.S.
Under section 904(j), certain shareholders are not required to file source income. Also, the allocation and apportionment of certain
a Form 1116 (“Form 1116 Exemption”). Also see Foreign Tax shareholder expenses take into account their shares of assets
Credit - How to Figure the Credit on IRS.gov. An S corporation is and income of the S corporation that are not otherwise reported
not required to complete Schedules K-2 and K-3 if all on the Schedule K-1.
shareholders are eligible for the Form 1116 Exemption and the S For example, for sourcing purposes, personal property sold
corporation receives notification of the shareholders’ eligibility by the S corporation is treated as sold by the shareholders. See
for such exemption by the 1-month date (as defined earlier). If an section 865(i)(5). Generally, income from the sale of certain
S corporation receives notification from only some of the personal property (excluding inventory) is sourced according to
shareholders that they are eligible for the Form 1116 Exemption, the residence of the seller. In cases in which the shareholder is a
the S corporation need not complete the Schedule K-3 for those pass-through entity, the S corporation might not know the
exempt shareholders but must complete the Schedules K-2 and ultimate residence of the first non-pass-through shareholder.
K-3 with respect to the other shareholders to the extent that the The S corporation is not required to separately state gain from
S corporation does not qualify for the Domestic Filing Exception. the sale of personal property on Schedules K and K-1 since it is
generally included in ordinary income. However, the gain is
Example 5. Husband and wife, U.S. citizens, each own a separately reported in Schedules K-2 and K-3, Part II.
50% interest in SC, an S corporation. Husband and wife and SC
each have a calendar tax year. SC invests in a regulated As another example, the shareholder’s R&E expense (which
investment company. SC receives a Form 1099 from the includes the share of the S corporation’s R&E expense) is
regulated investment company reporting $400 of creditable allocated and apportioned by the shareholder. See Regulations
foreign taxes paid or accrued on passive category foreign section 1.861-17(f). R&E expense is allocated and apportioned
source income. SC’s only foreign activity is that from the based on the gross receipts by SIC code. R&E expense by SIC
regulated investment company. Husband and wife do not pay or code is not reported on Schedules K and K-1, but is reported in
accrue any foreign taxes other than their pro rata share of SC’s Schedules K-2 and K-3, Part II. Also, the shareholder needs
foreign taxes. Husband and wife also do not have any other Schedule K-3, Part III, Section 1, for the shareholder’s share of
foreign source income. Husband and wife qualify for the Form the S corporation’s gross receipts by SIC code for purposes of
1116 Exemption and notify SC by the 1-month date that they do allocating and apportioning R&E expense.
not need the Schedule K-3. Even though SC does not qualify for In some cases, the shareholder will be able to use the
the Domestic Filing Exception because the creditable foreign information reported in Parts II and III to increase the foreign tax
taxes treated as paid or accrued by SC are greater than $300, credit limitation, and the amount of available foreign tax credit to
because husband and wife notify SC by the 1-month date that the shareholder. For example, Part III, Section 2, provides the
they do not need the Schedule K-3 under the Form 1116 shareholder with the tax book value of the assets of the S
Exemption, SC need not complete Schedules K-2 and K-3. corporation. In general, a shareholder apportions interest
expense to reduce U.S. source income or foreign source income
An S corporation that does not have or receive sufficient based on the tax book value of its assets, including its share of
information or notice regarding a direct or indirect shareholder the S corporation’s interest expense and assets. See section
must presume such shareholder is eligible to claim a foreign tax 864(e)(2) and Regulations section 1.861-9(e). Taking into
credit and such shareholder would have to file a Form 1116 or account the assets of an S corporation generating solely U.S.
Form 1118 to claim a credit. As such, the S corporation must source income would result in more expense allocated to reduce
complete the Schedules K-2 and K-3, including Parts II and III, U.S. source income and less expense allocated to reduce
accordingly. foreign source income. Additional foreign source income
S corporations with limited or no foreign activity. In many increases the shareholder’s foreign tax credit limitation, and the
instances, an S corporation with no foreign source income, no ability of the shareholder to claim foreign tax credits. Schedules
assets generating foreign source income, and no foreign taxes K and K-1 contain net amounts but do not include separately
paid or accrued may still need to report information on stated reporting for the S corporation’s interest expense for
Schedules K-2 and K-3. For example, if the shareholder claims international tax reporting purposes, or the tax book value of the
the foreign tax credit, the shareholder generally needs certain assets. See Regulations section 1.861- 9(e). See later
information from the S corporation in Schedule K-3, Parts II and instructions for further guidance.
III, to complete Form 1116. This information should have been Example 6. U.S. citizens A and B own equal interests in SC,
reported in prior years, including before the Tax Cuts and Jobs an S corporation. SC has no foreign activity. In Year 1, A pays
Act, with the Schedules K and K-1, and is information the $2,000 of foreign income taxes on passive category income
shareholder needs to figure the foreign tax credit limitation, other than capital gains reported to A on a payee statement. A
which determines the amount of foreign tax credit available to has interest expense of $5,000 and SC does not have interest
the shareholder. See Domestic Filing Exception, earlier. expense. None of A’s interest expense is directly allocable. A
does not have an overall domestic loss in tax year 2022.

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Because A must complete Form 1116 to claim a foreign tax rate, A may use $1,187.50 (25% x $4,750) of the $2,000 of
credit, A requests a Schedule K-3 by the 1-month date, and foreign taxes in Year 1—an additional foreign tax credit amount
therefore the Domestic Filing Exception does not apply to SC of $62.50 after taking into account A’s pro rata share of the gross
with respect to A. SC must complete the relevant portions of income of SC.
Parts II and III of Schedules K-2 and K-3 (for A). The tax book Because A and SC do not have R&E expense or interest
value of SC’s assets is $100,000 (reported on Schedule K-2, expense, and because SC did not pay or accrue any foreign
Part III, Section 2, column (a)) and A’s share of those assets is taxes, SC does not need to complete Schedules K-2 and K-3,
$50,000 (reported on Schedule K-3, Part III, Section 2, column Part III.
(a)). Not including A’s pro rata share of the assets of SC, the tax
book value of A’s assets is $50,000. Of A’s assets, $10,000 Note. A shareholder may need the share of the S corporation’s
generates passive category foreign source income and $40,000 gross income for purposes of allocating and apportioning
generates U.S. source income. A has passive category foreign expenses other than those described in Regulations section
source taxable income before interest expense of $8,000. A’s 1.861-8(e)(9).
U.S. tax rate is 25%. A’s interest expense and SC’s assets are
characterized in the same category under sections 163 and 469 General filing instructions. In Schedules K-2 and K-3, Parts II
for purposes of Temporary Regulations section 1.861-9T(d). A and III, the S corporation reports its gross income, gross
uses the tax book value (as opposed to the alternative tax book receipts, cost of goods sold, certain deductions, and taxes by
value) to allocate and apportion interest expense. source and separate category. The S corporation also reports
information that the shareholders will need to allocate and
A’s interest expense is apportioned between U.S. source and apportion expenses and determine the source of certain items of
foreign source income ratably based on the tax book value of A’s gross income and gross receipts. Unless specifically noted later,
U.S. source and foreign source assets. Without taking into the S corporation reports in Schedule K-3, Parts II and III, the
account the pro rata share of SC’s assets, the amount of A’s shareholder's share of the S corporation's gross receipts, gross
interest expense that would reduce passive category foreign income, cost of goods sold, certain deductions, and taxes by
source income is $1,000 ($5,000 x $10,000 / $50,000). source and separate category. The shareholder adds its share of
Therefore, A’s passive category foreign source taxable income the S corporation's foreign source gross receipts, gross income,
would be $7,000 ($8,000 − $1,000). At a 25% U.S. tax rate, A cost of goods sold, certain deductions, and taxes by separate
may only use $1,750 (25% x $7,000) of the $2,000 of foreign category to its other foreign source gross receipts, gross
taxes. See section 904. income, cost of goods sold, certain deductions, and taxes in that
Taking into account the pro rata share of SC’s assets, the separate category to figure its foreign tax credit. The S
amount of A’s interest expense that reduces passive category corporation also reports on the Schedule K-3 the share of
foreign source income is $500 ($5,000 x $10,000 / $100,000). expenses and the allocation and apportionment factors so that
Therefore, A’s passive category foreign source taxable income the shareholder may determine expenses allocated and
would be $7,500 ($8,000 − $500). At a 25% U.S. tax rate, A may apportioned to foreign source income.
use $1,875 (25% x $7,500) of the $2,000 of foreign taxes—an
additional foreign tax credit amount of $125 after taking into S corporation determination. The source and separate
account A’s share of the tax book value of the S corporation category of certain gross income, gross receipts, cost of goods
assets. sold, as well as the allocation and apportionment of certain
deductions, can be determined by the S corporation. This
B does not request a Schedule K-3 from SC for tax year includes deductions that are definitely related to certain gross
2022. Under the Domestic Filing Exception, SC does not need to income and gross receipts of the S corporation. See Regulations
complete Schedule K-3 for B. section 1.861-8(b)(1). See Schedule K-2, Part II, columns (a)
Example 7. The facts are the same as in Example 6, except through (e), and Part III, Section 1, columns (a) through (e). In
that A has $5,000 of deductions that are not definitely related to Part III, Section 2, columns (a) through (e), some S corporation
any gross income as described in Regulations section assets may be characterized by source and separate category
1.861-8(e)(9), and A and SC have no other expenses. Further, by the S corporation. This includes certain assets that attract
A’s share of SC’s gross income is $50,000. Not including A’s pro directly allocated interest expense under Temporary Regulations
rata share of the income of SC, A’s gross income is $50,000. Of section 1.861-10T(b) and (c). See Temporary Regulations
A’s gross income, $5,000 is passive category foreign source section 1.861-10T(d)(2).
gross income and $45,000 is U.S. source gross income. SC In Part III, Section 3, in the U.S. and foreign columns, the S
does not have any gross income the source of which is corporation assigns foreign taxes paid or accrued to a separate
determined by the shareholder. category and source.
A’s expenses must be ratably apportioned based on A’s The shareholder's share of the amounts determined by the S
gross income (including A’s pro rata share of the income of SC). corporation are reported on equivalent columns in Schedule K-3,
See Regulations section 1.861-8(c)(3). Therefore, SC must Parts II and III.
complete Schedule K-2, Part II, and Schedule K-3, Part II (for A). Certain gross income, gross receipts, cost of goods sold,
Before taking into account the pro rata share of SC’s gross assets, deductions, and taxes are not assigned to a source or
income, the amount of A’s expenses described in Regulations separate category by the S corporation. See Shareholder
section 1.861-8(e)(9) that reduce foreign source income is $500 determination, later.
($5,000 x $5,000 / $50,000). Therefore, A’s foreign source
taxable income would be $4,500 ($5,000 − $500). At a 25% U.S. Foreign branch category income. An S corporation itself
tax rate, A may only use $1,125 (25% x $4,500) of the $2,000 of does not have foreign branch category income. However, report
foreign taxes. See section 904. all amounts that would be foreign branch category income of its
Taking into account the pro rata share of SC’s gross income, shareholders as if all shareholders were U.S. persons that were
the amount of A’s expenses described in Regulations section not pass-through entities. See Schedule K-2, Part II, column (b);
1.861-8(e)(9) that reduce foreign source income is $250 ($5,000 Part III, Sections 1 and 2, column (b); and Part III, Section 3,
x $5,000 / $100,000). Therefore, A’s foreign source taxable column (c). The shareholder's share of the amounts determined
income would be $4,750 ($5,000 − $250). At a 25% U.S. tax by the S corporation are reported in equivalent columns in
Schedule K-3, Parts II and III.

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Section 901(j) income. Income derived from each sanctioned of income under section 904(d) of the amounts listed in Part II,
country is subject to a separate foreign tax credit limitation. If the Section 1, column (f). Schedule K-2, Part II, column (f), includes
S corporation derives such income, enter code “901j” on the line deductions that are allocated and apportioned by the
after “category code.” See Schedule K-2, Part II, column (e); Part shareholder. This includes most interest and R&E expense. See
III, Sections 1 and 2, column (e); Part III, Section 3, column (f). Regulations sections 1.861-9(e) and 1.861-17(f). In
The shareholder's share of the amounts determined by the S Schedule K-2, Part III, Section 2, column (f), enter the assets
corporation are reported on equivalent columns in Schedule K-3, that are assigned to a source and separate category by the
Parts II and III. See the Instructions for Form 1116 for the shareholder. In Schedule K-2, Part III, Section 3, in the
potential countries to be listed with the section 901(j) category of shareholder column, enter the foreign taxes that are assigned to
income. a source of income by the shareholder. This includes taxes
imposed on certain sales income. The shareholder's share of the
Note. At the time these instructions went to print, section 901(j) amounts determined by the S corporation are reported on
is the only category reported in Part II, Sections 1 and 2, column equivalent columns in Schedule K-3, Parts II and III.
(e), and Part III, Sections 1 and 2, column (e).
Schedule K-2, Part II, and
Section 951A category income. Section 951A category
income is any amount of Global Intangible Low-Taxed Income Schedule K-3, Part II (Foreign Tax
(GILTI) includible in gross income under section 951A (other
than passive category income). (Section 951A category income Credit Limitation)
does not include passive category income.) If the S corporation
pays or accrues tax on the receipt of a distribution of PTEP Section 1. Gross Income
assigned to the reclassified section 951A PTEP or section 951A Lines 1 through 24. Form 1116 requires a corporation to
PTEP groups, the S corporation must assign those taxes to separately report gross income and gross receipts by source
section 951A category income. The S corporation will enter and separate category. See sections 861 through 865 (and
these taxes in Part III, Section 3, column (b). Section 951A section 904(h) and, in some cases, U.S. income tax treaties).
category income is not otherwise reported on the Schedules K-2 See also section 1366. Therefore, shareholders will report
and K-3. line 24 by country on their Form 1116, Part I, line 1a. Section 1
also generally follows the types of gross income and gross
Note. An S corporation may have an income inclusion under receipts separately reported on Form 1120-S, Schedule K.
section 951A if it made an election under Proposed Regulations
section 1.958-1(e)(2), to be treated as owning stock of a CFC Shareholders making a section 962 election, in addition to
within the meaning of section 958(a). completing the Form 1116, complete the Form 1118 solely with
respect to the deemed paid credit for inclusions under sections
Income resourced by treaty. If a sourcing rule in an 951(a) and 951A.
applicable income tax treaty treats any U.S. source income as
For each line, report the total for each country in column (g).
foreign source, and there is an election to apply the treaty, the
income will be treated as foreign source. This category applies if Country code. Forms 1116 and 1118 require the taxpayer to
the S corporation pays or accrues foreign taxes on receipt of a report the foreign country or U.S. possession with respect to
distribution of PTEP that is sourced from an annual PTEP which the gross income and gross receipts are sourced. On lines
account that corresponds to the separate category relating to 1 through 24, for each gross income and gross receipts item,
U.S. source income included under section 951(a)(1) or 951A enter on a separate line (A, B, or C) the two-letter code from the
and resourced as foreign source income under a treaty. list at IRS.gov/CountryCodes for the foreign country or U.S.
The designations below are only relevant for Part III, Section possession within which the gross income and gross receipts
3, column (f). are sourced. If a type of income is sourced from more than three
countries, attach a schedule with the information required in
Code “RBT PAS.” If an applicable income tax treaty treats any Schedule K-2, Part II, and Schedule K-3, Part II, for that type of
U.S. source passive category income as foreign source passive income.
category income, and there is an election to apply the treaty,
If income is U.S. source, enter “US.” Do not enter “various” or
enter code “RBT PAS.”
“OC” for the country code.
Code “RBT GEN.” If an applicable income tax treaty treats any
U.S. source general category income as foreign source general Note. For Part II, column (f), enter the code “XX” if the S
category income, and there is an election to apply the treaty, corporation cannot determine the country or U.S. possession
enter code “RBT GEN.” with respect to which the gross income and gross receipts are
sourced because the source is determined by the shareholder.
Code “RBT 951A.” If an applicable income tax treaty treats any However, do not enter the code “XX” for Part II, column (f), if an
U.S. source section 951A category income as foreign source income tax of at least 10% of the gain derived from the sale is
section 951A category income, and there is an election to apply actually paid to a foreign country with respect to that gain. See
the treaty, enter code “RBT 951A.” sections 865(e) and 865(g). Instead, enter for Part II, column (f),
Shareholder determination. In Schedule K-2, Part II, Section the foreign country to which the S corporation paid the tax of at
1, column (f), and Part III, Section 1, column (f), enter the gross least 10% of the gain.
income, income adjustments, and gross receipt of the S Each gross income and gross receipts item (for example,
corporation that is required to be sourced by the shareholder. sales vs. interest income) may have different countries listed on
This includes income from the sale of most personal property rows A, B, C, etc., given that the S corporation might not have
other than inventory, depreciable property, and certain intangible sales income and interest income, for example, from the same
property sourced under section 865. See section 1366. This also country. Line 24 should sum each country's total income
includes certain foreign currency gain on section 988 reported in Part II, regardless of the line on which such income is
transactions. See the Instructions for Form 1116 and Pub. 514, reported, whether A, B, C, etc.
Foreign Tax Credit for Individuals, for additional details. Attach a
statement to the Form 1120-S, to identify the separate category Exceptions. The instructions for Forms 1116 and 1118
specify exceptions from the requirement to report gross income
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and gross receipts by foreign country or U.S. possession with
respect to regulated investment companies and section 863(b). Short-term capital gains (losses)
See the instructions to the Forms 1116 and 1118 for these Total $900
exceptions that apply in completing the Schedules K-2 and K-3, U.S. Source 1,000
Parts II and III. Do not enter a foreign country or U.S. possession
(to report on a country-by-country basis) for lines 16 through 18. Passive category (France) 400
Passive category (Canada) (300)
Note. Schedules K-2 and K-3 request that gross income and Passive category (Haiti) (200)
gross receipts be reported by country or U.S. possession
because such information is requested on Forms 1116 and
1118. Income and taxes are reported by country on the Forms
1116 and 1118 so that, for example, the IRS may initially S corporation reports these amounts on Schedule K-2, Part II,
evaluate whether taxpayers are claiming credits for compulsory Section 1, line 11, as follows.
payments to foreign governments.
Example 8. In Year 1, USC, an S corporation, has (b) Foreign source
employees who perform services in Country X and Country Y. (a) U.S. source passive
USC earns $25,000 of general category services income,
$10,000 with respect to Country X, and $15,000 with respect to A US $1,000
Country Y. The two-letter code for Country X is AA and the B FR $400
two-letter country code for Country Y is YY. USC makes the C CA (300)
following entries on the first two lines of Schedule K-2, Part II,
under line 2. D HA (200)
Example 8 Table
Description (d) Line 12. Net long-term capital gain. Do not include gains
reported on lines 13, 14, and 15 on line 12.
A AA $10,000
Line 13. Collectibles (28%) gain. Report collectibles gain on
B YY $15,000 line 13 and not line 12.
Line 14. Unrecaptured section 1250 gain. Report
Lines 3 and 4. Rental income. These lines are reported unrecaptured section 1250 gain on line 14 and not on line 12. If
separately because they are reported separately on Form gain is both unrecaptured section 1250 gain and net section
1120-S, Schedule K. The sourcing rule may be the same for 1231 gain, report the gain on line 14 and not on line 15, but
both types of rental income. include an attachment indicating the amount of unrecaptured
section 1250 gain that is also net section 1231 gain.
Lines 7 and 8. Ordinary dividends and qualified dividends.
Enter only ordinary dividends on line 7 and only qualified Line 15. Net section 1231 gain. Report net section 1231 gain
dividends on line 8. Do not include as ordinary dividends or on line 15 and not on line 12 unless such amount is also
qualified dividends the amount of any distributions received to unrecaptured section 1250 gain. See the instructions for line 14.
the extent that they are attributable to PTEP in annual PTEP Lines 16 and 46. Section 986(c) gain and loss. Include the S
accounts of the S corporation. See the instructions for line 19 for corporation’s share of a lower-tier pass-through entity’s section
when an S corporation might have an income inclusion with 986(c) gain or loss, and the amount of section 986(c) gain or
respect to a foreign corporation. loss on distributions of PTEP sourced from the S corporation’s
annual PTEP accounts. This is not reported as a net amount but,
Note. The amount by which distributions are attributable to rather, total section 986(c) gains for the year are reported on
PTEP in annual PTEP accounts of a person other than the S line 16. Total section 986(c) losses for the year are reported on
corporation (for example, a shareholder) is not determined by line 46.
the S corporation and therefore is not taken into account for
purposes of determining the ordinary dividends to be entered on Note. An S corporation is only responsible for figuring and
line 7 or the qualified dividends to be entered on line 8. reporting foreign currency gain or loss under section 986(c) with
Lines 11 through 15 and 27 through 30. Capital gains and respect to distributed PTEP sourced from an annual PTEP
losses. These lines generally match the types of gains and account of the S corporation. It is not responsible for figuring or
losses reported separately on Form 1120-S, Schedule K. reporting foreign currency gain or loss under section 986(c) with
Further, section 904(b)(2)(B) contains rules regarding respect to distributed PTEP sourced from an annual PTEP
adjustments to account for capital gain rate differentials (as account of a person other than the S corporation (for example, a
defined in section 904(b)(3)(D)) for any tax year. shareholder).
Example 9. S corporation has the following amounts for the Lines 17 and 47. Section 987 gain and loss. The source of
tax year 2022. section 987 gain or loss is generally determined by reference to
the source of the income or asset giving rise to such gain or loss.
An S corporation may also obtain section 987 gain or loss
information from Form 8858. This is not reported as a net
amount but rather total section 987 gains for the year are
reported on line 17. Total section 987 losses for the year are
reported on line 47.
Lines 18 and 48. Section 988 gain and loss. The source of
foreign currency gain or loss on section 988 transactions is
generally determined by reference to the residence of the

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taxpayer or QBU on whose books the asset, liability, or item of Classification Manual (SIC code) available at OSHA.gov/data/
income or expense is properly reflected. If the source is sic-manual.
determined by reference to the residence of the taxpayer
Line 38. Charitable contributions. Charitable contribution
shareholder, the section 988 gain and loss would be reported in
deductions are apportioned solely to U.S. source gross income.
column (f).
See Regulations section 1.861-8(e)(12). Therefore, this
Line 19. Section 951(a) inclusions. Report section 951(a) deduction should be reported in column (a).
inclusions if the S corporation takes into account such income.
Lines 39 and 40. Interest expense specifically allocable un-
An S corporation may not have subpart F income inclusions with
der Regulations sections 1.861-10 and -10T. Apart from
respect to a foreign corporation for tax years of the foreign
interest expense entered on line 39, enter on line 40 interest
corporation beginning on or after January 25, 2022, under
expense that is directly allocable under Temporary Regulations
Regulations section 1.958-1(d)(1) if the S corporation has not section 1.861-10T to income from specific S corporation
made an election to be treated as owning stock of the foreign
property. Such interest expense is treated as directly allocable to
corporation within the meaning of section 958(a) under income generated by such S corporation property. See
Proposed Regulations section 1.958-1(e)(2). An S corporation
Temporary Regulations section 1.861-9T(e)(1).
may not have subpart F income inclusions with respect to a
foreign corporation for tax years of the foreign corporation Lines 41 through 43. Other interest expense. A
beginning before January 25, 2022, if the S corporation has not shareholder's share of an S corporation's interest expense that
made an election to be treated as owning stock of a foreign is not directly allocable to income from specific S corporation
corporation within the meaning of section 958(a) under property is generally allocated and apportioned by the
Proposed Regulations section 1.958-1(e)(2) and, pursuant to shareholder, subject to certain exceptions, and included in
Regulations section 1.958-1(d)(4)(i), applies Regulations section column (f). See Temporary Regulations section 1.861-9T(e)(1).
1.958-1(d)(1) through (3) to such tax years. Interest expense incurred by certain individuals, estates, and
Line 20. Other income. Attach a statement to the Schedules trusts is characterized based on the categories of interest
K-2 and K-3 describing the amount and type of other income. expense in sections 163 and 469: active trade or business
interest, investment interest, or passive activity interest, adjusted
Line 21. Section 951A(a) inclusions. Report section 951A(a) for any interest expense directly allocated under Temporary
inclusions if the S corporation takes into account such income. Regulations section 1.861-10T. See Regulations section
An S corporation will not have an income inclusion under section 1.861-9T(d). The amounts in each category of interest expense
951A unless it made an election under Proposed Regulations are reported on lines 41 through 43. See Example 10, later.
section 1.958-1(e)(2) to be treated as owning stock of a CFC Exception. See Regulations section 1.861-9(e)(8) and (9) for
within the meaning of section 958(a). a special rule for S corporation loans. See also the instructions
Line 24. Total gross income. Enter the total gross income for box 10 of Part I.
received from all sources on line 24. Then add the gross income
on lines 1 through 23 by country or possession and enter the Note. Interest expense is always included on lines 39 to 43 and
total by country in rows A, B, and C (and additional rows if more not on other lines.
than three countries). The sum of the amounts in rows A, B, C, Line 45. Foreign taxes not creditable but deductible. See
etc., do not need to equal the amount on line 24 given that not the instructions for Forms 1116 and 1118 for examples of foreign
every gross income amount is required to be reported by taxes that are deductible, but not creditable.
country.
Note. Foreign taxes that are creditable (even if a shareholder
Section 2. Deductions chooses to deduct such taxes) are not reported as expenses in
Lines 25 through 54. Deductions of the S corporation must be Part II. Creditable taxes are reported in Part III, Section 3.
allocated and apportioned according to certain rules. See, for Lines 49 and 50. Other deductions. Attach a statement to the
example, Regulations sections 1.861-8 through -20 and Schedules K-2 and K-3 describing the amount and type of other
Temporary Regulations sections 1.861-8T and -9T. See also deductions. The statement must conform to the format of Part II.
section 1366. For purposes of allocating and apportioning
expenses, in general, a shareholder adds the share of the S Schedule K-2, Part III, and
corporation's deductions to its other deductions incurred directly
by the shareholder. See Regulations section 1.861-8(e)(15). The Schedule K-3, Part III (Other
shareholder reports such deductions on Form 1116, Part I, lines Information for Preparation of Form
2 through 5. Section 2 also generally corresponds to the
deductions separately reported on Form 1120-S, Schedule K. 1116)
Line 28. Net long-term capital loss. Do not include losses
reported on line 29. Section 1. R&E Expenses Apportionment
Factors
Line 29. Collectibles loss. Report collectibles loss on line 29
and not on line 28. This section requires the S corporation to report information that
a shareholder will use to allocate and apportion its R&E expense
Line 32. R&E expenses. In general, R&E expenses are for foreign tax credit limitation purposes.
allocated and apportioned by the shareholder and reported in
column (f). See Regulations section 1.861-17(f). R&E expenses, An S corporation is not required to complete Section 1 of Part
as described in section 174, are ordinarily definitely related to III unless either (1) the S corporation incurs R&E expense, or (2)
gross intangible income reasonably connected with relevant the shareholder is expected to license, sell, or transfer its
broad product categories of the taxpayer and are allocable to intangible property to the S corporation (as provided in
gross intangible income as a class related to such product Regulations section 1.861-17(f)(3)).
categories. The product categories are determined by reference
to the three-digit classification of the Standard Industrial Deductible R&E expenses, as described in section 174, are
ordinarily definitely related to gross intangible income
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reasonably connected with relevant broad product categories of book value of its assets. See Regulations section 1.861-9(i).
the taxpayer and are allocable to gross intangible income as a When reporting the asset that is the basis of stock in
class related to such product categories. The product categories nonaffiliated 10%-owned corporations, adjust such amount for
are determined by reference to the three-digit classification of earnings and profits (E&P). See Regulations section 1.861-12(c)
the SIC code. In general, R&E expenses are apportioned based (2)(i)(A).
on gross receipts.
Note. Attach to Form 1120-S, a second Part III, Section 2, if the
R&E expenses are allocated and apportioned by the S corporation reports both the tax book value and the alternative
shareholder. See Regulations section 1.861-17(f)(1). The tax book value of its assets to the shareholders.
regulations require the S corporation to report to its shareholders
the gross receipts by SIC code according to source and Column (b). The S corporation characterizes its pro rata share
separate category of income. They also require the S of the S corporation assets that give rise to foreign branch
corporation to report the amount of R&E expense performed in category income as assets in the foreign branch category. See
the United States and outside the United States to apply Regulations section 1.861-9(e)(10).
exclusive apportionment. See Regulations section 1.861-17(f) Line 1. On Schedule K-2, report the average of the
(2). beginning-of-year and end-of-year basis in the S corporation's
Column (e). As of the date of these instructions, the only assets. See Regulations section 1.861-9(g)(2)(i)(A). On
separate category that could be included in column (e) is the Schedule K-3, report the shareholder's share of the assets
section 901(j) category of income. See the Instructions for Form reported on Schedule K-2. Include on line 1, assets without
1116 for the potential countries to be listed with the section directly identifiable yield referred to in Temporary Regulations
901(j) category of income. section 1.861-9T(g)(3)(iii).
Line 1. Enter the gross receipts by SIC code for each grouping. Lines 3 and 4. On Schedule K-2, report reductions in the S
Such gross receipts include both the S corporation's gross corporation's asset values to reflect the S corporation's directly
receipts and certain other parties' gross receipts. See allocable interest under Regulations section 1.861-10(e) and
Regulations section 1.861-17(d)(3) and (4). Sales of parties Temporary Regulations section 1.861-10T. See also Temporary
controlled by the S corporation should be included on line 1 if Regulations section 1.861-9T(e)(1). On Schedule K-3, report the
such controlled parties can reasonably be expected to benefit shareholder's share of the reduction in the S corporation's
from the R&E expense connected with the product categories. assets reported on Schedule K-2.
This includes sales that benefit from the shareholder's R&E Line 5. On Schedule K-2, report the average value of assets
expenses if licensed through the S corporation. Sales of excluded from the apportionment formula. See section 864(e)
uncontrolled parties are also taken into account if such sales (3). On Schedule K-3, report the shareholder's share of the
involve intangible property that was licensed or sold to the excluded assets reported on Schedule K-2. Include on line 5,
uncontrolled party if the uncontrolled party can reasonably be assets without directly identifiable yield referred to in Temporary
expected to benefit from the R&E expense. Regulations section 1.861-9T(g)(3)(iii).
Line 2. Report the amount of R&E expense related to activity Line 6. Shareholders must generally apportion interest expense
performed in the United States and the amount of R&E expense by reference to the shareholder's assets, including the
related to activity performed outside the United States by SIC shareholder's pro rata share of S corporation assets. See
code. The total of the amounts on Schedule K-2, Part III, Section Regulations section 1.861-9(e)(3) and Temporary Regulations
1, line 2, must equal Schedule K-2, Part II, line 32. Similarly, the section 1.861-9T(d). Interest expense must be apportioned
total of the amounts on Schedule K-3, Part III, Section 1, line 2, according to the interest expense classifications under sections
must equal Schedule K-3, Part II, line 32. 163 and 469. This includes reporting the assets according to
such classifications.
Note. Line 2 is not reported according to source or separate
category. Line 6a is the sum of lines 1 and 2 less the sum of lines 3, 4,
and 5. Line 6a is divided into the types of assets on lines 6b, 6c,
Note. The SIC code for line 2B(i) does not need to be the same and 6d.
SIC code for line 2A(i). Example 10. A, a U.S. citizen, has a 10% interest in S
corporation. S corporation is engaged in the active conduct of a
Section 2. Interest Expense Apportionment U.S. trade or business. S corporation’s business generates only
Factors domestic source income. S corporation has an investment
This section requires the S corporation to report information that portfolio consisting of several less-than-10% stock investments.
a shareholder will use to allocate and apportion its interest S corporation has a bank loan. The proceeds of the bank loan
expense for foreign tax credit limitation purposes. were divided equally between the business and the investment
portfolio. A’s only assets attracting interest expense are those
Complete this Section 2 only if the S Corporation or the owned by S corporation. A’s only interest expense is that from
shareholders have interest expense or stewardship expense. A’s pro rata share of the S corporation loan.
Stewardship expenses. In the case of the shareholder's A’s share of the interest expense for the loan with respect to
stewardship expenses incurred to oversee the S corporation, the S corporation’s business is $2,000. It is apportioned on the basis
S corporation's value is determined and characterized under the of business assets. Because all business income is domestic
asset method in Regulations section 1.861-9. See Regulations source, the business assets are domestic assets and reported
section 1.861-8(e)(4)(ii)(C). Therefore, the reporting later with on Schedules K-2 and K-3, Part III, Section 2, column (a),
respect to Part III, Section 2, for interest expense apportionment line 6b. A’s $2,000 share of the interest expense is reported on
factors generally applies to the shareholder's stewardship Schedule K-3, Part II, column (f), line 41. It is apportioned to U.S.
expense apportionment. source gross income by the shareholder.
Interest expense is apportioned based on the average value The interest expense for A’s share of the loan with respect to
of assets. See Regulations section 1.861-9(g)(2)(i)(A). A S corporation’s investments is $2,000 and is reported on
taxpayer can use either the tax book value or the alternative Schedule K-3, Part II, column (f), line 42. The investment interest

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must be apportioned on the basis of investment assets. Applying • The exchange rates used.
the asset method, $80,000 of S corporation’s adjusted basis in • The amounts in both foreign currency and U.S. dollars. See
its investment portfolio stock generates domestic source income section 986(a).
and $120,000 of S corporation’s adjusted basis in the stock
Column (a). Enter the code for the type of tax.
generates foreign source passive income. S corporation reports
these amounts on Schedule K-2, Part III, Section 2, line 6c,
columns (a) and (c), respectively. A’s share of the adjusted basis Codes for Types of Tax
in S corporation’s stock is $8,000 with respect to the stock
generating domestic source income and $12,000 with respect to Code Type of Tax
the stock generating foreign source passive income. Such WHTD Withholding tax on dividends
amounts are reported on Schedule K-3, Part III, Section 2,
line 6c, columns (a) and (c), respectively. With respect to the WHTP Withholding tax on distributions of PTEP
interest expense on the loan for S corporation’s investments, WHTB Withholding tax on branch remittances
$800 ($8,000 / $20,000 x $2,000) is apportioned to domestic WHTR Withholding tax on rents, royalties, and license fees
source income and $1,200 ($12,000 / $20,000 x $2,000) is
apportioned to foreign source passive income. WHTI Withholding tax on interest
Lines 7 and 8. The amounts reported on lines 7 and 8 are ECI Taxes paid or accrued to foreign countries or possessions
on certain effectively connected income
subsets of the amounts reported on line 6 representing the value
of stock held by the S corporation in certain foreign corporations. OTHS Other foreign taxes paid or accrued on sales income
With respect to an S corporation-owned specified 10% OTHR Other foreign taxes paid or accrued on services income
foreign corporation that is not a CFC, the S corporation will OTH Other foreign taxes paid or accrued
report on line 7, columns (a) through (e), the total value of the
stock in all such foreign corporations. The value of the stock is If there are multiple types of tax for the same country,
the S corporation’s basis in the stock adjusted to take into generate multiple alpha rows for the same country, one row for
account the E&P of the foreign corporations as explained in each type of tax. For example, see below.
Regulations section 1.861-12(c)(2). The S corporation must
attach a statement to the Schedules K-2 and K-3 with the
Description (a) Type of tax
following information for each foreign corporation for which
adjusted basis is reported on line 7. A AA WHTD
• Name of foreign corporation. B AA OTH
• EIN or reference ID number. Do not enter “FOREIGNUS” or
“APPLIED FOR.”
• Percentage of voting and value of stock owned by the S Column (b). Taxes assigned to section 951A category.
corporation in such foreign corporation. Taxes assigned to section 951A category income are taxes paid
• Value of the stock in such corporation included in each of the or accrued on distributions of PTEP assigned to the reclassified
groupings in 6b through d (denoting separately each of those section 951A PTEP and section 951A PTEP groups. An S
groupings). corporation might not be able to complete this column due to
With respect to S corporation-owned CFCs, the S corporation lack of information regarding the treatment of the current year
will report on line 8, column (f), the total value of its stock in all distributions.
such foreign corporations. The value of the stock is the S
corporation's basis in the stock adjusted to take into account the Note. An S corporation may have an income inclusion under
E&P of the foreign corporations as explained in Regulations section 951A if it made an election under Proposed Regulations
section 1.861-12(c)(2). The S corporation must attach a section 1.958-1(e)(2) to be treated as owning stock of a CFC
statement to the Schedules K-2 and K-3 with the following within the meaning of section 958(a).
information for each foreign corporation for which basis is Column (f). Other category.
reported on line 8. Foreign taxes paid or accrued to sanctioned countries.
• Name of foreign corporation. No credit is allowed for foreign taxes paid or accrued to certain
• EIN or reference ID number. Do not enter “FOREIGNUS” or sanctioned countries.
“APPLIED FOR.”
Foreign taxes related to PTEP resourced by treaty. If the
• Percentage of voting and value of stock owned by S
S corporation pays or accrues foreign taxes on receipt of a
corporation in such foreign corporation.
distribution of PTEP that is sourced from an annual PTEP
• Value of the stock in such corporation.
account that corresponds to the separate category relating to
U.S. source income included under section 951(a)(1) and
Section 3. Foreign Taxes resourced as foreign source income under a treaty, such taxes
Do not complete this Section 3 if the S corporation does are included in column (f).
TIP not pay or accrue foreign taxes. On the line after “category code,” enter one of the following
codes:
In Part III, Section 3, the S corporation assigns foreign taxes Code “RBT PAS.” If an applicable income tax treaty treats
paid or accrued (including on U.S. source income) to a separate any U.S. source passive category income as foreign source
category and source. Include taxes paid or accrued to foreign passive category income, and there is an election to apply the
countries or to U.S. possessions. treaty, enter code “RBT PAS.”
Attachment. As previously mentioned in the instructions for Code “RBT GEN.” If an applicable income tax treaty treats
Schedules K-2 and K-3, Part I, box 4, for each of the amounts any U.S. source general category income as foreign source
listed on lines 1 through 3, attach a statement to the Schedules general category income, and there is an election to apply the
K-2 and K-3 reporting the following information. treaty, enter code “RBT GEN.”
• The dates on which the taxes were paid or accrued.

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Code “RBT 951A.” If an applicable income tax treaty treats G. Other. Attach a statement to the Schedules K-2 and K-3
any U.S. source section 951A category income as foreign indicating the reason for the reduction.
source section 951A category income, and there is an election to There is no need to report the amounts on line 2 by country.
apply the treaty, enter code “RBT 951A.”
Line 3. Enter in U.S. dollars the change in foreign tax as a result
Line 1. Enter in U.S. dollars the total foreign taxes (described in of a foreign tax redetermination. See section 905(c) and
section 901 or section 903) that were paid or accrued by the S Regulations sections 1.905-3 through -5. If the amount is less
corporation (according to its method of accounting for such than the original foreign tax, report the change as a negative
taxes). Do not reduce the amount that you report on line 1 by the amount. If the amount is more than the original foreign tax, report
reductions reported on line 2. Do not report redetermined taxes the change as a positive amount.
on line 1. Report such taxes on line 3.
If the S corporation uses the cash method of accounting for Note. Payment of additional foreign taxes that relate to an
foreign taxes, check the “Paid” box and enter foreign taxes paid earlier tax year by an S corporation that has the cash method of
during the tax year on line 1. Report each shareholder's share on accounting does not result in a foreign tax redetermination. See
line 1 of Section 3 of Schedule K-3, Part III. Regulations section 1.905-3(a). Such amounts should be
If the S corporation uses the accrual method of accounting for reported on line 1 as foreign taxes paid by the S corporation in
foreign taxes, check the “Accrued” box and enter foreign taxes the current year. Report the U.S. tax year to which the foreign tax
accrued on line 1. Report each shareholder's share on line 1 of relates. This is the U.S. tax year that includes the close of the
Section 3 of Schedule K-3, Part III. foreign tax year to which the tax relates. Report the date on
which the tax was paid. If there is more than one date tax is paid,
Note. Check only one box “Paid” or “Accrued” depending on the enter one of the dates paid on the schedule itself and then attach
method of accounting the S corporation uses to account for a statement to the Schedules K-2 and K-3, including all of the
foreign taxes. information reported on the schedule with the other dates paid.
Enter on a separate line (that is, after A, B, and C), taxes paid If there is more than one redetermination in a year with
or accrued to each country. Enter the two-letter code from the list respect to different countries, report such redeterminations on
at IRS.gov/CountryCodes. Do not enter “various” or “OC” for the separate lines. Enter the two-letter code from the list at IRS.gov/
country code. CountryCodes.
Exceptions. The instructions for Forms 1116 and 1118 Exceptions. The instructions for Forms 1116 and 1118
specify exceptions from the requirement to report gross income specify exceptions from the requirement to report gross income
and gross receipts by foreign country or U.S. possession with and gross receipts by foreign country or U.S. possession with
respect to regulated investment companies and section 863(b). respect to regulated investment companies and section 863(b).
Do not enter “various” or “OC” for the country code.
Example 11. The facts are the same as in Example 8,
earlier. USC has the cash method of accounting and pays taxes Similarly, if there is more than one redetermination in a year
of $1,000 and $3,000 to Countries AA and YY, respectively. with respect to the same country, but the redeterminations are
USC completes Part III, Section 3, line 1, as follows. related to different years, report such redeterminations on
separate lines.
Example 11 Table In addition, attach a statement that includes the information in
Form 1116, Schedule C, Parts I and II, as applicable, with
respect to each foreign tax redetermination.
(a) (e)
Contested taxes. In general, a contested foreign income tax
Direct (901/903) Paid Type of tax Foreign liability does not accrue until the contest is resolved and the
foreign taxes amount of the liability has been finally determined. In addition, a
A AA OTHR 1,000 contested foreign income tax liability is not a reasonable
B YY OTHR 3,000 approximation of the final foreign income tax liability and,
therefore, is not considered an amount of tax paid for purposes
of section 901 until the contest is resolved. Thus, an S
Line 2. Enter on line 2 a negative number for the sum of the corporation generally does not take into account a contested
taxes in the following categories. liability as a creditable foreign tax expenditure until the contest is
A. Taxes on foreign mineral income (section 901(e)). resolved and the liability has been paid. See Regulations section
B. Reserved. 1.905-1(f)(1). However, to the extent that an S corporation has
C. Taxes attributable to boycott operations (section 908). remitted a contested foreign income tax liability to a foreign
D. Reduction in taxes for failure to timely file (or furnish all of country, shareholders may elect to claim a provisional foreign
the information required on) Forms 5471 and 8865 (section tax credit for the shareholder's pro rata share of such contested
6038(c)). foreign income tax liability. See Regulations section 1.905-1(f)
E. Foreign income taxes paid or accrued during the current (2).
tax year with respect to splitter arrangements under section 909. S corporations that are contesting a foreign income tax
F. Foreign taxes on foreign corporate distributions. For liability with a foreign country but that have remitted all or a
example, include taxes on distributions of PTEP assigned to the portion of such contested liability should report information about
following PTEP groups: reclassified section 965(a) PTEP, the contested tax on line 3, and check the “Contested tax” box.
reclassified section 965(b) PTEP, section 965(a), and section In addition, S corporations should attach a statement and
965(b) PTEP, a portion of which are not creditable. The S include information necessary for shareholders to complete
corporation may be unable to determine the amount of a Form 7204 and Schedule C (Form 1116), including a description
distribution that is attributable to non-previously taxed E&P or of the contest and a description of the contested foreign income
PTEP for which a foreign tax credit may be partially or entirely tax.
disallowed. However, it is important to track this amount as a tax
on a distribution.

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Attachment 3 (Schedule K-2)

                                                                 (d) Functional 
(a) Name of          (b) EIN or reference (c) Date of            currency of     (e) Amount of NII    (f) Spot rate        (g) Amount of NII 
distributing foreign    ID number         distribution      distributing foreign PTEP in functional   (functional currency PTEP in U.S. dollars
corporation                                                      corporation         currency         to U.S. dollars)

Attachment 4 (Schedule K-3)

                                                                 (d) Functional 
(a) Name of          (b) EIN or reference (c) Date of            currency of     (e) Shareholder’s    (f) Spot rate        (g) Shareholder’s 
distributing foreign    ID number         distribution      distributing foreign share of NII PTEP in (functional currency share of NII PTEP in 
corporation                                                      corporation     functional currency  to U.S. dollars)        U.S. dollars

                                                                        of the ownership interests in a pass-through entity that (directly 
Schedule K-2, Part IV, and                                              or through other pass-through entities) owns (within the meaning 
Schedule K-3, Part IV (Distributions                                    of section 958) stock in the foreign corporation other than solely 
                                                                        by reason of applying section 318(a)(3) (providing for downward 
From Foreign Corporations to S                                          attribution) as provided in section 958(b). For example, if an S 
                                                                        corporation directly owns 50% of the foreign corporation's stock 
Corporation)                                                            and owns 50% of the foreign corporation's stock through a 
Note. Shareholders will use the following information, in               partnership, then distributions by the foreign corporation to the S 
combination with other information known to the shareholders,           corporation and partnership are to be reported on separate rows 
including Schedule P (Form 5471), to exclude from gross                 in Part IV of the S corporation’s Schedule K-2 (Form 1120-S). If 
income distributions to the extent that they are attributable to        the S corporation owns stock of a foreign corporation through a 
PTEP in their annual PTEP accounts and report foreign currency          partnership from which it receives a Part V of Schedule K-3 
gain or loss with respect to the PTEP on Form 1040.                     (Form 1065 or 8865), the S corporation must replicate each line 
Use Part IV of Schedule K-2 to report the distributions made            of Part V, Schedule K-3 (Form 1065 or 8865) in Part IV of its 
by foreign corporations to the S corporation.                           Schedule K-2 (Form 1120-S). Rows for distributions with respect 
                                                                        to an S corporation’s direct ownership of foreign corporation 
Use Part IV of Schedule K-3, to report the shareholder's                stock should be listed before rows for distributions with respect 
share of the amounts reported in Part IV of Schedule K-2.               to an S corporation's ownership of foreign corporation stock 
Exception. Part IV of the Schedule K-2 is not required to be            through a pass-through entity.
completed with respect to distributions by a foreign corporation if          The S corporation may have annual PTEP accounts with 
the S corporation knows that none of the distributions by the           respect to the foreign corporation, or the foreign corporation may 
foreign corporation are attributable to PTEP in annual PTEP             have E&P that, when distributed, is excludable from the S 
accounts of any direct or indirect shareholder. Nevertheless, the       corporation’s gross income under section 1293(c). Do not report 
S corporation may be required to append Attachment 3 to the             distributions to the extent that they are attributable to PTEP in 
Schedule K-2 (discussed later).                                         annual PTEP accounts of the S corporation or to E&P that is 
Exception. Part IV of the Schedule K-3 for a shareholder                excludable from the S corporation’s gross income under section 
does not need to be completed with respect to distributions by a        1293(c). Distributions by the foreign corporation to the S 
foreign corporation if the S corporation knows that none of the         corporation that are attributable to PTEP in annual PTEP 
distributions by the foreign corporation are attributable to PTEP       accounts of the S corporation should be properly reflected on 
in annual PTEP accounts of the shareholder or any U.S. person           the Schedules J (Form 5471) for the foreign corporation. The S 
that is treated as indirectly owning stock of the foreign               corporation should provide this information to its shareholders, 
corporation through the shareholder. Nevertheless, the S                as appropriate.
corporation may be required to append Attachment 4 to the                    However, to the extent a distribution is attributable to PTEP in 
Schedule K-3 for the shareholder (discussed later). If this             an annual PTEP account of the S corporation with respect to a 
exception is applicable with respect to a foreign corporation, the      foreign corporation, or attributable to E&P that is excludable from 
sum of the amounts reported in Part IV of the Schedules K-3 with        the S corporation’s gross income under section 1293(c), that 
respect to the foreign corporation may not equal the amounts            corresponds to a tax year of the foreign corporation that ended 
reported in Part IV of the Schedule K-2 with respect to the             with or within a tax year of the S corporation (i) that began after 
foreign corporation.                                                    December 31, 2012, and (ii) for which an election under 
Rows A through O.    Use rows A through O to report information         Regulations section 1.1411-10(g) was not made by the S 
with respect to each distribution by a foreign corporation with         corporation (“NII PTEP”), append Attachment 3 to Schedule K-2 
respect to its stock that the S corporation (directly or through        and an Attachment 4 to each K-3 in the following format, adding 
pass-through entities) owns (within the meaning of section 958)         additional rows as necessary for each distribution by a foreign 
other than solely by reason of applying section 318(a)(3)               corporation. For more information about net investment income 
(providing for downward attribution) as provided in section             and net investment income tax relating to CFCs and QEFs, see 
958(b). Each row should relate the S corporation's direct               Regulations section 1.1411-10.
ownership of stock in the foreign corporation or direct ownership 
Inst. for Schedules K-2 and K-3 (Form 1120-S) (2022)                -17-

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Note. If additional rows are required, attach statements to the     (providing for downward attribution) as provided in section 
Schedules K-2 and K-3 that look like the current version of         958(b).
Schedules K-2 and K-3, Part IV, respectively.                            Generally, a foreign corporation is a CFC if more than 50% of 
Column (b).  Enter the EIN or reference ID number of the            either the total combined voting power of all classes of stock 
distributing foreign corporation. Do not enter “FOREIGNUS” or       entitled to vote or the total value of the stock of the corporation is 
“APPLIED FOR.” For basic information about reference ID             owned (within the meaning of section 958(a)) or is considered as 
numbers (including the requirements as to the characters            owned by applying the rules of section 958(b) by U.S. 
permitted), see the Instructions for Form 1118.                     shareholders. For this purpose, a U.S. shareholder is a U.S. 
                                                                    person (as defined in section 957(c)) who owns (within the 
Column (c).  Enter the year, month, and day in which the 
                                                                    meaning of section 958(a)), or is considered as owning by 
distribution was made using the format YYYYMMDD.
                                                                    applying the rules of ownership of section 958(b), 10% or more 
Column (d).  Enter the applicable three-character alphabet          of the total combined voting power of all classes of stock entitled 
code for the foreign corporation’s functional currency using the    to vote, or 10% or more of the total value of shares of all classes 
ISO 4217 standard. These codes are available at ISO.org/            of stock of such foreign corporation.
ISO-4217-currency-codes.html.                                            If the S corporation is treated as not owning stock of a foreign 
Note. Columns (e) and (f) are reported in functional currency.      corporation within the meaning of section 958(a) for a tax year of 
                                                                    the foreign corporation (because the S corporation has not made 
Column (e).  This represents the S corporation’s share of the       an election under Proposed Regulations section 1.958-1(e)(2) 
amount distributed in functional currency. See Schedule R           and, in the case of a tax year beginning before January 25, 
(Form 5471), Distributions From a Foreign Corporation, column       2022, the S corporation, pursuant to Regulations section 
(c).                                                                1.958-1(d)(4)(i), applies Regulations section 1.958-1(d)(1) 
Column (f).  This represents the S corporation’s share of the       through (3) to such tax year), or the S corporation is not a U.S. 
amount of E&P distributed in functional currency. See               shareholder of the foreign corporation during such tax year, the 
Schedule R (Form 5471), column (d). The total of the amounts        information regarding subpart F income inclusions and section 
reported in column (f) with respect to a distributing foreign       951(a)(1)(B) inclusions that are reported in Schedule K-2, Part 
corporation should equal the S corporation’s share of the total     V, columns (e) and (f) with respect to the foreign corporation for 
reported on line 9 of all Schedules J (Form 5471), Accumulated      such tax year, are not inclusions of the S corporation. 
Earnings and Profits (E&P) of Controlled Foreign Corporation, on    Schedule K-3, Part V, columns (e) and (f), report the information 
a separate category of income basis as reported in Schedule J       shareholders will need to figure and report their subpart F 
(Form 5471) TOTAL filed with respect to the distributing foreign    income inclusions and section 951(a)(1)(B) inclusions with 
corporation.                                                        respect to the CFC.
Column (g).  Enter the exchange rate on the date of distribution    Note.  If the S corporation is treated as owning stock of a foreign 
used to translate the amount of the distribution in functional      corporation within the meaning of section 958(a) for a tax year of 
currency to U.S. dollars. See section 989(b)(1). Report the         a foreign corporation (because the S corporation elected to be 
exchange rate using the “divide-by convention” specified under      so treated under Proposed Regulations section 1.958-1(e)(2) or, 
Reporting exchange rates on Form 5471 in the Instructions for       in the case of a tax year of the foreign corporation beginning 
Form 5471.                                                          before January 25, 2022, the S corporation, pursuant to 
Column (h).  Enter the amount of the distribution in U.S. dollars.  Regulations section 1.958-1(d)(4)(i), does not apply Regulations 
Translate column (e) using the spot rate reported in column (g).    section 1.958-1(d)(1) through (3)) to such tax year, and is a U.S. 
                                                                    shareholder of the foreign corporation during such tax year, then 
Column (i).  Enter the amount of E&P distributed in U.S. dollars.   any subpart F income inclusions and section 951(a)(1)(B) 
Translate column (f) using the spot rate reported in column (g).    inclusions with respect to the foreign corporation for such tax 
Column (j).  If the distributing foreign corporation is a qualified year are inclusions of the S corporation, which are therefore not 
foreign corporation, determined without regard to section 1(h)      reported in Schedules K-2 and K-3, columns (e) and (f), and are 
(11)(C)(iii)(I), check the box. See section 1(h)(11)(C).            instead reported in Schedules K and K-1, line 10, Other income 
                                                                    (loss).
Schedule K-2, Part V (Information on                                Note.  If the S corporation elects to be treated as owning stock 
Shareholders’ Section 951(a)(1) and                                 of a foreign corporation within the meaning of section 958(a) 
                                                                    under Proposed Regulations section 1.958-1(e)(2), and the S 
Section 951A Inclusions), and                                       corporation is a U.S. shareholder of the foreign corporation 
                                                                    during a tax year of the foreign corporation, then the S 
Schedule K-3, Part V (Information on                                corporation determines its GILTI inclusion for its tax year in 
Shareholder’s Section 951(a)(1) and                                 which or with which such tax year of the foreign corporation 
                                                                    ends, which it reports in Form 1120-S, Schedule K, line 10, 
Section 951A Inclusions                                             Other income (loss). Schedule K-1, line 10, Other income (loss), 
                                                                    reports the shareholders’ share of the S corporation’s GILTI 
Note. Shareholders will use the following information to            inclusion. An S corporation that has made an election under 
complete Form 8992 and Form 1040 with respect to income             Proposed Regulations section 1.958-1(e)(2), and is a U.S. 
inclusions under section 951(a) (subpart F income inclusions),      shareholder of the foreign corporation during a tax year of the 
section 951(a)(1)(B) inclusions, and section 951A inclusions.       foreign corporation, does not complete columns (g) through (n) 
Schedules K-2 and K-3, Part V, must be completed with               of Part V of Schedules K-2 and K-3 for such foreign corporation 
respect to a CFC if the S corporation owns (within the meaning      with respect to such tax year.
of section 958) stock of the CFC, unless the S corporation owns          Exception. Part V of Schedule K-2 does not need to be 
stock of the CFC solely by reason of applying section 318(a)(3)     completed with respect to a CFC if the S corporation knows that 
                                                                    it does not have a direct or indirect shareholder (through 
                                                                    pass-through entities only) that is a U.S. shareholder of the CFC 

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required to include in gross income a subpart F income inclusion income in column (i) is anticipated to be figured by multiplying
and/or section 951(a)(1)(B) inclusion with respect to the CFC, or the percentage in column (d) by the amount of tested income in
figure section 951A inclusions by taking into account GILTI items column (g).
(defined later) of the CFC.
Line a. Complete a separate Part V for each applicable
Exception. Part V of Schedule K-3 for a shareholder does separate category of income. However, all GILTI items must be
not need to be completed with respect to a CFC if the S reported in only one Part V. If GILTI items include passive
corporation knows that (i) the shareholder is not a U.S. category income, report all GILTI items in the Part V completed
shareholder of the CFC required to include in gross income a for passive category income; otherwise, report all GILTI items in
subpart F income inclusion and/or section 951(a)(1)(B) inclusion the Part V completed for general category income. Enter the
with respect to the CFC, or figure section 951A inclusions by appropriate code on line a.
taking into account GILTI items (defined later) of the CFC; and
(ii) no U.S. person that indirectly owns (through pass-through Note. The other reporting requirements of an S corporation with
entities only) an interest in the CFC through the shareholder is a respect to reporting income by separate category do not change
U.S. shareholder of the CFC required to include in gross income by reason of the S corporation reporting GILTI items that include
a subpart F income inclusion and/or section 951(a)(1)(B) general category income in a Part V completed for passive
inclusion with respect to the CFC, or figure section 951A category income.
inclusions by taking into account GILTI items (defined later) of
the CFC. If the S corporation does not complete Part V of
Codes for Categories of Income
Schedule K-3 for a shareholder with respect to a CFC, the sum
of each shareholder's share of the CFC's subpart F income,
section 951(a)(1)(B) inclusion with respect to the CFC, and Code Category of Income
share of the CFC's GILTI items (defined later) reported on all PAS Passive Category Income
Schedules K-3 may not equal the aggregate share of subpart F 901j Section 901(j) Income
income of the CFC, the aggregate section 951(a)(1)(B) inclusion
with respect to the CFC (defined later), and the aggregate share GEN General Category Income
of the CFC's GILTI items (defined later), respectively, reported
on the Schedule K-2.
Line b. If any portion of a CFC item is U.S. source, complete a
Use Schedule K-2, Part V, to report the information on the S separate Part V for U.S. source CFC items, and check the box
corporation’s share of the amounts its shareholders will need to on line b in such separate Part V.
figure their subpart F income inclusions, section 951(a)(1)(B)
inclusions, and their GILTI inclusions, with respect to CFCs Line 1. Use lines A through K to report information with respect
owned (within the meaning of section 958) by the S corporation. to each CFC owned (within the meaning of section 958) by the S
Use Schedule K-3, Part V, to report each shareholder’s share of corporation, and for which Part V of Schedules K-2 and K-3 must
the amounts needed to determine its subpart F income be completed. If the S corporation owns a CFC through a
inclusions, section 951(a)(1)(B) inclusions, and GILTI inclusion, partnership from which it receives a Part VI of Schedule K-3
with respect to CFCs owned (within the meaning of section 958) (Form 1065 or 8865), the S corporation must replicate each line
by the S corporation. of Part VI, Schedule K-3 (Form 1065 or 8865) that is related to
the CFC in its Part V, Schedule K-2 (Form 1120-S). For
If the S corporation must complete Part V of Schedules K-2 example, if an S corporation directly owns 50% of the CFC's
and K-3 with respect to a CFC because an exception described stock and owns 50% of the CFC's stock through a partnership,
earlier does not apply, then the S corporation must complete the CFC should be listed on two lines with one line related to the
Part V of Schedules K-2 and K-3 by assuming that each S corporation's direct ownership and the other line related to the
shareholder in the S corporation is a U.S. shareholder of the S corporation's ownership through the partnership. Lines related
CFC and is required to include in gross income its share of the to an S corporation's direct ownership of CFCs should be listed
CFC's subpart F income, section 951(a)(1)(B) inclusion, and its before lines related to an S corporation's non-direct ownership of
GILTI. CFCs. If additional lines are required, attach a statement to the
A shareholder's GILTI is figured based upon its share of the Schedules K-2 and K-3 that looks like the current version of Part
following amounts for each CFC with respect to which it is a U.S. V.
shareholder: tested income, tested loss, QBAI, tested loss QBAI Column (a). Enter the name of each CFC for which Part V must
amount, tested interest income, and tested interest expense be completed.
(collectively, GILTI items) (a CFC's subpart F income and GILTI
items, CFC items). Column (b). Enter the EIN or reference ID number of the CFC.
Do not enter “FOREIGNUS” or “APPLIED FOR.” For basic
A shareholder's share of a CFC's subpart F income, amounts information about reference ID numbers (including the
used to determine its section 956 amount with respect to a CFC, requirements as to the characters permitted), see the
and a CFC's GILTI items may not be limited to the shareholder's Instructions for Form 1118.
share of such income, amounts, or items through its ownership
in the S corporation. However, for purposes of completing Part V Column (c). Enter the end of the CFC’s tax year using the
of Schedules K-2 and K-3, use only the shareholder's share of a format YYYYMMDD.
CFC's subpart F income, amounts used to determine its section Column (d). Enter the shareholders' share of CFC items
956 amount with respect to a CFC, and a CFC's GILTI items through the shareholders' ownership in the S corporation
through the shareholder's ownership in the S corporation. (aggregate share). See Regulations sections 1.951-1(b),
A shareholder’s share through its ownership in the S 1.951-1(e), and 1.951A-1(d)(1) for rules on determining the
corporation of subpart F income and GILTI items is generally shareholders' share.
anticipated to be figured by multiplying the percentage in column
(d) by the amount of subpart F income or GILTI item, Note. An S corporation that has made an election to be treated
respectively. For example, in general, a shareholder’s share as owning stock of a CFC within the meaning of section 958(a)
through its ownership interest in the S corporation of tested under Proposed Regulations section 1.958-1(e)(2) (or, in the

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case of a tax year of a CFC beginning before January 25, 2022, 
does not, pursuant to Regulations section 1.958-1(d)(4)(i), apply Schedule K-2, Part VI, and 
Regulations section 1.958-1(d)(1) through (3) to such tax year),  Schedule K-3, Part VI (Information To 
and is a U.S. shareholder of a CFC listed in column (a) during a 
tax year of the CFC, does not report amounts in columns (e) or    Complete Form 8621)
(f) with respect to the CFC for such tax year.
                                                                  Note. Shareholders will use the following information to 
Column (e). Enter the aggregate share of the amount of the        complete Form 8621 and/or determine income inclusions with 
CFC's subpart F income, if any. Note that an amount determined    respect to the PFICs reported in Schedules K-2 and K-3, Part VI.
under section 956(a) is not considered subpart F income. For 
guidance on figuring a CFC's subpart F income and the                  Except as otherwise provided, Schedules K-2 and K-3, Part 
shareholders' share of a CFC's subpart F income, see              VI, must be filed by every S corporation that owns PFIC stock, 
Worksheet A in the Instructions for Form 5471.                    directly or indirectly. However, the following exceptions apply.
Column (f). Enter the amount determined under section 956         •    An S corporation that has elected to treat a PFIC as a 
with respect to the shareholders that relate to the shareholders' pedigreed qualified electing fund (QEF) or made a 
ownership in the S corporation, as described in these             mark-to-market (MTM) election under section 1296 with respect 
instructions for column (f) (aggregate section 951(a)(1)(B)       to a PFIC applicable to the S corporation’s tax year (other than if 
inclusion). In determining the section 956 amount, use only the   the S corporation is making an MTM election under section 1296 
shareholders' share through their ownership in the S corporation  with respect to PFIC stock in the current tax year if the current 
of:                                                               tax year is not the first year of the S corporation’s holding period 
• The average of the amounts of U.S. property held (directly or   in such stock (“non-initial section 1296 MTM election”)) is not 
indirectly) by the CFC as of the close of each quarter of the     required to complete Schedules K-2 and K-3, Part VI, with 
CFC’s tax year, and                                               information regarding such PFIC if the S corporation files Form 
• The applicable earnings of the CFC.                             8621 for that PFIC. The term “pedigreed QEF” is defined in 
                                                                  Regulations section 1.1291-1(b)(2)(ii).
  For guidance on figuring the shareholders' share of a CFC's          An S corporation that satisfies the deemed election 
earnings invested in U.S. property, see Worksheet B in the        •
                                                                  requirements of Regulations section 1.1297-4(d)(5)(iv) with 
Instructions for Form 5471.
                                                                  respect to a foreign corporation eligible to be treated as a QIC 
Note. An S corporation that has made an election to be treated    (and that is not treated as a PFIC by reason of section 1298(b)
as owning stock of a CFC within the meaning of section 958(a)     (1)), is not required to complete Schedules K-2 and K-3, Part VI, 
under Proposed Regulations section 1.958-1(e)(2), and is a U.S.   with respect to such foreign corporation.
shareholder of the CFC during a tax year of the CFC, does not     •    An S corporation that knows that all of its direct and indirect 
complete columns (g) through (n) of Part V of Schedules K-2 and   shareholders that are U.S. persons are (i) not subject to the 
K-3 with respect to the CFC for such tax year.                    PFIC rules with respect to the corporation under section 1297(d) 
                                                                  because they are subject to the subpart F rules with respect to 
Column (g). Enter the CFC's tested income, if any, from line 6    the corporation; or (ii) tax-exempt entities that are not subject to 
of Schedule I-1 (Form 5471), Information for Global Intangible    the PFIC rules with respect to the corporation under Regulations 
Low-Taxed Income, for each CFC.                                   section 1.1291-1(e) is not required to complete Schedules K-2 
Column (h). Enter the CFC's tested loss, if any, from line 6 of   and K-3, Part VI, with respect to the corporation.
Schedule I-1 (Form 5471) for each CFC. The loss amounts           •    An S corporation that marks to market stock of a PFIC as 
should be shown as negative numbers.                              described in Regulations section 1.1291-1(c)(4) does not need 
                                                                  to report information about the PFIC in Schedules K-2 and K-3, 
Column (i). Enter the aggregate share of the tested income        Part VI. The S corporation should report its MTM gain or loss on 
listed in column (g) for each CFC with tested income.             Schedule K (Form 1120-S) and report the shareholders’ shares 
Column (j). Enter the aggregate share of the tested loss listed   of such amounts in Part III of Schedule K-1 (Form 1120-S). Note, 
in column (h) for each CFC with tested loss. The loss amounts     however, there may be instances in which the S corporation will 
should be shown as negative numbers.                              need to provide its shareholders with additional information to 
                                                                  meet their tax obligations with respect to a PFIC the stock of 
Column (k). If the CFC has a tested loss in column (h), enter     which the S corporation has marked to market as described in 
zero. If the CFC has tested income in column (g), enter the       Regulations section 1.1291-1(c)(4), such as when the section 
aggregate share of QBAI. A CFC's QBAI is reported on              1291 rules apply because the stock was not marked in the first 
Schedule I-1 (Form 5471), line 8.                                 year of the S corporation’s holding period. In such instances, the 
Column (l). If the CFC has tested income in column (g), enter     S corporation may use Part VI to provide the needed 
zero. If the CFC has a tested loss in column (h), enter as a      information.
negative number the aggregate share of the CFC's tested loss      •    An S corporation that has elected to be treated as an entity for 
QBAI amount. See Regulations section 1.951A-4(b)(1)(iv). A        purposes of applying section 951A as provided in Notice 
CFC's tested loss QBAI amount is reported on Schedule I-1         2020-69, 2020-39 I.R.B. 604, is not required to complete 
(Form 5471), line 9c, which must be translated to U.S. dollars.   Schedules K-2 and K-3, Part VI, with respect to any PFIC that 
                                                                  also constitutes a CFC (PFIC/CFC) with respect to which the S 
Column (m). Enter the aggregate share of the CFC's tested         corporation is a U.S. shareholder.
interest income. A CFC's tested interest income is reported on 
Schedule I-1 (Form 5471), line 10c.                                    Use Schedule K-2, Part VI, to report certain information with 
Column (n). Enter the aggregate share of the CFC's tested         respect to any PFIC owned, directly or indirectly, by the S 
interest expense. A CFC's tested interest expense is reported on  corporation for which reporting is required, including PFICs with 
Schedule I-1 (Form 5471), line 9d.                                respect to which no QEF or section 1296 MTM election has 
                                                                  been made and unpedigreed QEFs (section 1291 funds), and 
                                                                  PFICs with respect to which pedigreed QEF, section 1296 MTM, 
                                                                  or other elections have been, or may be, made and for which the 
                                                                  S corporation is not filing a Form 8621.

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S corporations must also use Schedule K-2, Part VI, to report acquired no shares in a particular PFIC during its tax year, leave
information for any PFIC with respect to which the S corporation this column blank with respect to that PFIC.
is making a non-initial section 1296 MTM election, and for any
Note. If the S corporation acquired shares in a PFIC on multiple
foreign corporation eligible to be treated as a QIC that is treated
dates during the tax year, append a completed Attachment 5 to
as a PFIC by reason of section 1298(b)(1), regardless of
Schedule K-2, Part VI, and its corresponding Schedules K-3,
whether it files Form 8621 for such PFIC. See section 1296(j)(1)
Part VI, providing such dates.
(A) and Regulations section 1.1296-1(i) for more information
related to non-initial section 1296 MTM elections.
Attachment 5
Use Schedule K-3, Part VI, to report the shareholder’s share,
through its ownership in the S corporation, of the amounts Additional Information for Part VI, Section 1
reported on Schedule K-2, Part VI. General Information Annual Information
Complete only one line in both Sections 1 and 2 for each (a) Name of PFIC (b) EIN or (g) Dates PFIC shares
reference ID acquired during tax year
PFIC for which reporting in Schedules K-2 and K-3, Part VI, is number (if applicable)
required. Each line completed for a PFIC in Section 1 should
correspond to the same line on Section 2. If there is no
information to report with respect to a PFIC in Section 2,
columns (c) through (o), only complete the name and EIN of the
PFIC in Section 2, columns (a) and (b), and leave columns (c)
through (o) blank for that PFIC. For additional information on
determining indirect ownership of PFICs, see Regulations
section 1.1291-1(b)(8).
The S corporation may have additional required information Column (h). Enter the total number of all classes of shares of
with respect to a PFIC for certain columns (for example, the PFIC the S corporation owned at the end of its tax year.
scenarios where the S corporation may have multiple different Column (i). Enter the total value of all shares in the PFIC held
events with respect to the PFIC in the same tax year, such as by the S corporation at the end of the tax year. If the PFIC shares
multiple dates of acquisitions of, or distributions with respect to, are not publicly traded, the S corporation may rely upon periodic
the PFIC stock). In that case, complete Schedules K-2 and K-3, account statements provided at least annually to determine the
Part VI, with the first of such entries for a PFIC and attach a value of a PFIC unless the S corporation has actual knowledge
statement including the remaining entries for each such PFIC to or reason to know based on readily accessible information that
Schedule K-2, Part VI, and its corresponding Schedules K-3, the statements do not reflect a reasonable estimate of the PFIC's
Part VI, with Attachments 5 and/or 6 completed. value and the information provides a more reasonable estimate
of the PFIC's value.
If the S corporation has additional PFICs for which to report
information that does not fit in single Schedules K-2 and K-3, Note. A shareholder may need additional information not
Part VI, it can attach additional Parts VI of Schedules K-2 and required to be reported in this Schedule K-2, Part VI (or the
K-3, as needed. shareholder’s Schedule K-3, Part VI), from the S corporation with
respect to the value of the PFIC shares as of a particular date to
Section 1. General Information on Passive aid the shareholder in making certain elections under
Foreign Investment Company (PFIC), Qualified Regulations section 1.1291-10, 1.1297-3, or 1.1298-3.
Electing Fund (QEF), or Qualifying Insurance Column (j). If the S corporation has made any of the following
Corporation (QIC) elections with respect to the PFIC, indicate which election was
made using the following codes. If the S corporation has not
Columns (a) through (c). Enter the name, U.S. EIN or
made an election with respect to the PFIC, leave this column
reference ID number, and address of each PFIC held directly or
blank with respect to that PFIC.
indirectly by the S corporation during its tax year. Do not enter
“FOREIGNUS” or “APPLIED FOR. ”
S Corporation Election Codes
For basic information about reference ID numbers (including
the requirements as to the characters permitted), see the
Instructions for Form 8621. Code S Corporation Election Type
Columns (d) and (e). Enter the beginning and end of the QEF Qualified Electing Fund Election
PFIC’s tax year using the format YYYYMMDD. MTM Section 1296 Mark-to-Market Election
Column (f). Enter each class of shares in the PFIC owned by
the S corporation using the following codes. Reminder. If the S corporation has made a pedigreed QEF
election or section 1296 MTM election (other than a non-initial
section 1296 MTM election) with respect to a PFIC, and the S
Codes for Classes of PFIC Shares corporation files Form 8621 for that PFIC, it is not required to
report information regarding that PFIC in Schedule K-2 or K-3,
Code Class of PFIC Shares Part VI. If the S corporation has marked stock in a PFIC to
COM Common or Ordinary Shares market as described in Regulations section 1.1291-1(c)(4), it is
PRE Preferred Shares not required to report information regarding that PFIC in
OTH Other Equity Interest Schedule K-2 or K-3, Part VI.
VAR Multiple Classes of Shares or Equity Interests
Column (k). Check the box if the foreign corporation has
indicated that it has documented eligibility to be treated as a
Column (g). If the S corporation acquired any PFIC shares
QIC. See section 1297(f) and Regulations section 1.1297-4 for
during the tax year, provide the date(s) of acquisition of such
additional information on QICs.
shares using the format YYYYMMDD. If the S corporation
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Column (l). Check the box if the PFIC has indicated that its PFIC ends in columns (c) and (d), respectively. The PFIC should
shares are “marketable stock” as defined in section 1296(e) and provide the S corporation with a statement that provides
Regulations section 1.1296-2. information to assist the S corporation in determining these
amounts. See Regulations section 1.1295-1(g) for additional
Column (m). Check the box if the PFIC is a PFIC/CFC. information on annual PFIC statements. The S corporation must
complete columns (c) and (d) only for PFICs with respect to
Note. If the PFIC is a PFIC/CFC, a shareholder may need which it has made a pedigreed QEF election but for which it
certain additional information with respect to the PFIC/CFC’s does not file Form 8621, and for any PFIC it has elected to treat
E&P not required to be reported in this Schedule K-2, Part VI (or as an unpedigreed QEF.
the shareholder’s Schedule K-3, Part VI), from the S corporation
to aid the shareholder in making certain elections under Reminder. If the S corporation has made a pedigreed QEF
Regulations sections 1.1291-9, 1.1297-3, or 1.1298-3. election with respect to a PFIC, and if the S corporation files
Form 8621 for that PFIC, the S corporation is not required to
Reminder. An S corporation that knows that all of its direct and report information regarding that PFIC in Schedule K-2, Part VI,
indirect shareholders that are U.S. persons are not subject to the or Schedule K-3, Part VI. The S corporation should report its
PFIC rules with respect to a PFIC/CFC under section 1297(d) inclusion of its share of the QEF’s ordinary earnings and net
because they are subject to the subpart F rules with respect to capital gain on Schedule K, and report the shareholders’ shares
the PFIC/CFC is not required to complete Schedules K-2 and of such amounts in Schedule K-1, Part III.
K-3, Part VI, with respect to the PFIC/CFC. Additionally, an S
corporation that has elected to be treated as an entity for
purposes of applying section 951A as provided in Notice MTM Information
2020-69 is not required to complete Schedules K-2 and K-3, Part Columns (e) and (f). Enter the fair market value of the PFIC
VI, for any PFIC that is a PFIC/CFC with respect to which the S stock at the beginning and end of the S corporation’s tax year in
corporation is a U.S. shareholder. columns (e) and (f), respectively. If any shares of the PFIC were
Column (n). Complete column (n) in the following manner. acquired during the tax year for which the Form 1120-S is being
filed, the fair market value in column (e) should reflect the fair
market value of those shares as of the date of acquisition. The S
IF... THEN...
corporation must complete columns (e) and (f) only for PFICs
• this is the first year of the S corporation’s holding check the box. with respect to which it has made a section 1296 MTM election
period in stock of the foreign corporation, and but for which it does not file Form 8621 and for any PFIC with
• the S corporation has determined (directly or respect to which it is making a non-initial section 1296 MTM
otherwise) that the foreign corporation is a PFIC under
the income test or asset test of section 1297(a), election.
• the foreign corporation was a PFIC in a prior tax year check the box. Reminder. If the S corporation has made an MTM election
of the S corporation’s holding period, and under section 1296 with respect to a PFIC (other than a
• the S corporation has not determined (directly or non-initial section 1296 MTM election), and if the S corporation
otherwise) the foreign corporation is a “former PFIC” files Form 8621 for that PFIC, the S corporation is not required to
within the meaning of Regulations section 1.1291-9(j)(2) report information regarding that PFIC in Schedule K-2, Part VI,
(iv), or Schedule K-3, Part VI. The S corporation should report its
• the foreign corporation was a PFIC in a prior tax year do not check the section 1296(a) MTM gain or loss on Schedule K, and report the
of the S corporation’s holding period, and box. shareholders’ shares of such amounts in Schedule K-1, Part III.
• the S corporation has determined (directly or
otherwise) the foreign corporation is a “former PFIC”
within the meaning of Regulations section 1.1291-9(j)(2)
(iv), If the S corporation has marked stock in a PFIC to market as
described in Regulations section 1.1291-1(c)(4), it is not
required to report information regarding that PFIC in
Schedule K-2 or K-3, Part VI, though it may use Part VI to
Note. If the foreign corporation is a “former PFIC” within the provide the shareholder with additional information to meet its
meaning of Regulations section 1.1291-9(j)(2)(iv), a shareholder tax obligations with respect to the PFIC in certain instances,
may need additional information not required to be reported in such as when the section 1291 rules apply because the stock
this Schedule K-2, Part VI (or the shareholder’s Schedule K-3, was not marked in the first year of the S corporation's holding
Part VI), from the S corporation with respect to the PFIC to aid period.
the shareholder in making certain elections under Regulations
section 1.1298-3. Note. If the S corporation has made an MTM election under
section 1296 with respect to a PFIC but does not file Form 8621
Section 2. Additional Information on PFIC or for that PFIC, a shareholder may need additional information not
QEF General Information required to be reported in this Schedule K-2, Part VI (or the
shareholder’s Schedule K-3, Part VI), regarding its share of the S
Columns (a) and (b). Enter the name and U.S. EIN (or corporation’s adjusted tax basis in the S corporation’s MTM
reference ID number) of each PFIC held directly or indirectly by PFIC stock in order to complete Form 8621.
the S corporation during its tax year. Do not enter “FOREIGNUS”
or “APPLIED FOR.” Section 1291 and Other Information
Note. Generally, the information in columns (g) through (o) is to
QEF Information assist shareholders of section 1291 funds in satisfying any
Columns (c) and (d). Enter the S corporation’s share of the information reporting obligations and in figuring income
total ordinary earnings and net capital gain (as defined in inclusions with respect to section 1291 funds. However, this
Regulations section 1.1293-1(a)(2)) of the PFIC for the S information may be relevant to PFICs with respect to which a
corporation’s tax year in which or with which the tax year of the pedigreed QEF election, section 1296 MTM election (including a
non-initial section 1296 MTM election), or other election has

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been made by the S corporation, shareholder, or other indirect Column (j). Enter the total creditable foreign taxes attributable
PFIC shareholder. Accordingly, the S corporation must complete to a distribution from the PFIC. See section 1291(g) and the
columns (g) through (o) with respect to each PFIC for which Instructions for Form 8621, Part V, line 16d, for additional
reporting in Schedule K-2, Part VI, and Schedule K-3, Part VI, is information on creditable foreign taxes attributable to PFIC
required. However, note the instructions for column (k) regarding distributions, including apportioning creditable foreign taxes to
reporting distributions from PFICs with respect to which the S the portion of a distribution that constitutes an excess
corporation has made a pedigreed QEF election or section 1296 distribution and certain rules related to creditable foreign taxes
MTM election (other than a non-initial section 1296 MTM on a disposition of PFIC stock.
election) and for which the S corporation does not file Form
8621. Column (k). Enter the total amount of distributions the S
corporation received from the PFIC in the 3 preceding tax years,
Reminder. If the S corporation has additional required or, if shorter, the total amount of distributions the S corporation
information with respect to a PFIC for any of columns (g) through received during its holding period of the PFIC stock. However,
(j) or (l) through (m) (for example, multiple distributions with do not enter any amount in this column with respect to a PFIC for
respect to the PFIC stock), it must complete such column with which the S corporation has made a pedigreed QEF election or
the first of such entries and attach a statement including the section 1296 MTM election (other than a non-initial section 1296
remaining entries to Schedule K-2, Part VI, and its MTM election) and for which the S corporation does not file
corresponding Schedules K-3, Part VI, with the information Form 8621.
contained in Attachment 6.
Column (l). Enter the date(s) on which the S corporation
Column (g). Enter the date(s) on which the S corporation disposed of any block of stock in the PFIC during the S
initially acquired each block of stock in the PFIC using the format corporation’s tax year, if any, using the format YYYYMMDD.
YYYYMMDD.
Column (m). If the S corporation disposed of any block of stock
Column (h). Enter the amount of each distribution of cash in the PFIC during the S corporation’s tax year, enter the amount
and/or the fair market value of any other property distributed to realized by the S corporation on each disposition.
the S corporation by the PFIC during the tax year, if any.
Column (n). If the S corporation disposed of any block of stock
Note. Deemed distributions by QEFs do not need to be in the PFIC during the S corporation’s tax year, enter the S
reported on this Schedule K-2 (or the shareholder’s corporation’s tax basis in the shares of the PFIC on the date of
Schedule K-3). However, shareholders that have made, or disposition.
intend to make, an election under section 1294, and that are Schedule K-3. Enter the shareholder’s share, through its
deemed to have received a distribution from the QEF, may need ownership in the S corporation, of the S corporation’s tax basis
this information to complete any computations under section in the PFIC shares.
1294 (including for Form 8621, if required). See section 1294(f)
Column (o). Enter the S corporation’s gain or loss on the
and Temporary Regulations section 1.1294-1T for additional
disposition of PFIC shares. This equals column (m) minus
information.
column (n).
Column (i). Enter the date(s) of distribution of the amounts
entered in column (h) using the format YYYYMMDD.

Attachment 6

Additional Information for Part VI, Section 2
General Information Section 1291 and Other Information
(a) Name of (b) EIN or (g) Dates (h) Amount of (i) Dates of (j) Total (l) Dates PFIC (m) Amount (n) Tax basis (o) Gain or
PFIC reference ID PFIC shares cash and fair distribution creditable shares realized on of PFIC (loss) on
number were acquired market value foreign taxes disposed of disposition of shares on disposition of
of property attributable to during tax PFIC shares date of PFIC shares
distributed by distribution by year (if disposition
PFIC during PFIC applicable)
the current tax
year (if
applicable)

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                                                                      (2) with respect to the PTEP groups. The PTEP groups are not 
Schedule K-2, Part VII (S                                             reported in this Part VII.
Corporation’s Interest in Foreign                                     Lines 1 through 4. The S corporation’s share of the CFC’s net 
Corporation Income (Section 960)),                                    income in each of the subpart F income groups, tested income 
                                                                      group, and residual income group by unit is reported on lines 1 
and Schedule K-3, Part VII                                            through 4.
(Shareholder’s Interest in Foreign                                      The CFC’s net income and taxes in each of these groups is 
                                                                      figured on Schedule Q (Form 5471), and the S corporation need 
Corporation Income (Section 960))                                     only report its share of the income on Schedule K-2 and the 
                                                                      shareholder’s share of such amounts on Schedule K-3. See the 
Note. Shareholders will use the following information to figure a     Instructions for Form 5471, Schedule Q, for the meaning of 
deemed paid foreign tax credit on Form 1118.                          “unit.”
Reporting currency.  Report all amounts in Part VII in                Note.  If an S corporation is reporting information with respect to 
functional currency.                                                  a PFIC with a QEF inclusion in this Part VII and there would be 
The S corporation must complete a separate Schedule K-2,              foreign income taxes deemed paid with respect to such 
Part VII, for each CFC with respect to which it has a direct or       inclusion, unless the S corporation knows that the shareholders 
indirect interest, unless the S corporation does not have a           are not claiming foreign tax credits or that the shareholder does 
shareholder that is eligible to make a section 962 election to        not need to complete Form 1116 to claim a credit (section 
claim a deemed paid foreign tax credit with respect to such CFC.      904(j)), attach a statement that includes the information on Form 
An indirect interest means that the CFC is owned by the S             5471, Schedule Q, with respect to the PFIC, including the 
corporation through one or more partnerships.                         functional currency of the PFIC. See section 1293(f) with respect 
Schedule K-3, Part VII, must be completed and provided to             to QEF inclusions from a PFIC.
shareholders who may be eligible to make a section 962 election         Do not include on line 1 (or lines 1(a) through 1(j), lines (1), 
to claim a deemed paid foreign tax credit.                            (2), etc., under line 1) any amounts excluded from subpart F 
An S corporation that does not have or receive sufficient             income under the high-tax exception in section 954(b)(4) 
information or notice regarding a shareholder must presume the        (“subpart F high-tax exception”); these amounts are reported on 
shareholder is eligible to claim the indirect credit and must         line 4 (and on lines (1), (2), etc., under line 4).
complete the Schedules K-2 and K-3, Part VII, accordingly.              Also do not include on line 3 (or lines (1), (2), etc., under 
Exception. Part VII is not required to be completed with              line 3) any amounts excluded under the GILTI high-tax exclusion 
respect to dormant foreign corporations (as defined in section 3      in Regulations section 1.951A-2(c) (7) (“GILTI high-tax 
of Rev. Proc. 92-70). See also Domestic Filing Exception,             exclusion”); these amounts are reported on line 4 (and on lines 
earlier.                                                              (1), (2), etc., under line 4).
In general, if a section 962 election is in effect, a U.S.              The PTEP groups are not reported in Part VII. Do not report 
shareholder of a CFC is deemed to pay all or a portion of the         by unit with respect to the following subpart F income groups (i) 
foreign income taxes paid or accrued by the CFC that are              international boycott income; (ii) bribes, kickbacks, and other 
properly attributable to subpart F income or tested income of the     payments; and (iii) section 901(j) income. Also do not report by 
CFC that the U.S. shareholder includes in its gross income. See       unit with respect to the recaptured subpart F income group.
section 960(a) and (d).                                                 Columns (i) and (ii).   In Schedule K-2, Part VII, the S 
To figure the foreign taxes deemed paid by the U.S.                   corporation reports in column (ii) its share of the CFC's net 
shareholder, the income, deductions, and taxes of the CFC must        income by income groups and by units as reported on 
be assigned to separate categories of income and then included        Schedule Q (Form 5471), column (xi). In column (i), consistent 
in income groups within those separate categories using               with the reporting requirement on Form 1118, enter the two-letter 
Schedule Q (Form 5471). See Regulations section 1.960-1(c)            code (from the list at IRS.gov/CountryCodes) of each foreign 
(1). The applicable separate categories of income are general         country and U.S. possession within which income is sourced 
category income, passive category income, and section 901(j)          and/or to which taxes were paid or accrued. Enter “US” for 
income. The income groups include the subpart F income                income sourced in the United States. Do not enter “various” or 
groups, the tested income group, and the residual income group.       “OC” for the country code. Do not enter a country in column (i) of 
Each single item of foreign base company income as defined in         line 5. See the instructions for line D for further information.
Regulations section 1.954-1(c)(1)(iii) is a separate subpart F          In Schedule K-3, Part VII, the S corporation reports each 
income group. See Regulations section 1.960-1(d)(2)(ii)(B).           shareholder's share of the net income in the income group by 
Note.    In tax year 2022, new line 1(f) is added to allow the S      unit and country.
corporation to report foreign personal holding company income         Line A. On line A, enter the EIN or reference ID number of the 
under section 954(c)(1)(F) (income from notional principal            CFC as listed on Form 5471. Do not enter “FOREIGNUS” or 
contracts); (G) (payments in lieu of dividends); and (H) (personal    “APPLIED FOR.” The S corporation must check box 8 in Part I 
service contracts). An S corporation must report a separate           and attach to the Schedules K-2 and K-3 a Form 5471, page 1, 
line 1(f) for income in each of section 954(c)(1)(F), (G) and (H).    and Schedule Q for each CFC with respect to which it has a 
Income within one of these income groups may need to be               direct or indirect interest. Form 5471, page 1, reports the 
further subdivided on separate lines to the extent it is attributable functional currency of the CFC. The Form 5471 page 1 and 
to more than one country, source of income, or passive                Schedule Q information must be attached even if the S 
grouping, etc. See the Instructions to Form 5471, Schedule Q.         corporation meets an exception, such as the multiple filer 
The tested income group consists of tested income within a            exception, to filing the Form 5471 with the IRS.
section 904 category. See Regulations section 1.960-1(d)(2)(ii)
(C). The residual income group consists of any income not in the      Line B. The S corporation must file separate Schedules K-2 
other income groups or in a PTEP group. See Regulations               and K-3, Part VII, to report the net income or loss of the CFC in 
section 1.960-1(d)(2)(ii)(D). See Regulations section 1.960-3(c)

                                                                   -24-      Inst. for Schedules K-2 and K-3 (Form 1120-S) (2022)

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each separate category. Use the applicable code from the table                     Example 12, USC’s 1st Schedule K-2, Part VII
below.
                                                                                   A        1234
Category of Income Codes
                                                                                   B        PAS
Code    Category of Income                                                         C        i
PAS     Passive Category Income                                                                                 (i) Country Code (ii) S corporation’s 
                                                                                                                                 Share of Net Income
901j    Section 901(j) Income
                                                                                   1       Subpart F Income 
GEN     General Category Income                                                            Groups
                                                                                   a       Dividends, Interest, 
Line C. With respect to passive category income, separate                                  Rents, Royalties, & 
Schedules K-2 and K-3, Part VII, must be completed for each                                Annuities (Total)
applicable grouping under Regulations section 1.904-4(c). This                     (1)     Country X FDE        XX               100u
includes the groups in Regulations section 1.904-4(c)(3) 
reported on the Schedule Q (Form 5471).
                                                                                   USC completes another Schedule K-2, Part VII, as follows.
The S corporation should use the following codes to report 
each of these groupings for each unit.
                                                                                   Example 12, USC’s 2nd Schedule K-2, Part VII

Passive Grouping Codes                                                             A        1234
Code                               Passive Group                                   B        PAS
i       All passive income received during the tax year that is subject to a       C        ii
        withholding tax of 15% or greater must be treated as one item of                                        (i) Country Code (ii) S corporation’s 
        income. See Regulations section 1.904-4(c)(3)(i).                                                                        Share of Net Income
ii      All passive income received during the tax year that is subject to a       1       Subpart F Income 
        withholding tax of less than 15% (but greater than zero) must be                   Groups
        treated as one item of income. See Regulations section 1.904-4(c)
        (3)(ii).                                                                   a       Dividends, Interest, 
                                                                                           Rents, Royalties, & 
iii     All passive income received during the tax year that is subject to no              Annuities (Total)
        withholding tax or other foreign tax must be treated as one item of 
        income. See Regulations section 1.904-4(c)(3)(iii).                        (1)     CFC                  YY               50u

iv      All passive income received during the tax year that is subject to no      USC completes a third Schedule K-2, Part VII, as follows.
        withholding tax but is subject to foreign tax other than a withholding 
        tax must be treated as one item of income. See Regulations 
        section 1.904-4(c)(3)(iv).                                                 Example 12, USC’s 3rd Schedule K-2, Part VII

Example 12.       In Year 1, USC, an S corporation, wholly owns                    A        1234
foreign corporation, CFC, with reference ID number 1234. The 
CFC owns a foreign disregarded entity organized in Country X.                      B        GEN
CFC has two separate units, the foreign disregarded entity and                                                  (i) Country Code (ii) S corporation’s 
the CFC itself. For the Year 1 tax year, the two units have the                                                                  Share of Net Income
following foreign source income.                                                   3       Tested Income 
                                                                                           Group (Total)
Example 12, Foreign Source Income                                                  (1)     CFC                  ZZ               300u
                                                                                   USC also completes Schedule K-3, Part VII, with each 
                     Tax              Country               Net Income
                                      Code                                         shareholder’s share of the S corporation’s net income in each 
Country X Foreign    20% withhold-     XX                   100u                   income group.
Disregarded          ing tax                                                       Line D. If net income in an income group is sourced from more 
Entity (FDE) Passive                                                               than one country, check the box on line D, and attach a 
Interest Income
                                                                                   statement to Schedules K-2 and K-3 to indicate that you have 
CFC Passive Rental   10% withhold-     YY                   50u                    expanded Part VII to report these additional countries on both 
Income               ing tax                                                       Form 1120-S and Schedule K-3 (for shareholder’s share).
CFC General Category No tax            ZZ                   300u                   Example 13.   In Year 1, USC, an S corporation, wholly owns 
Tested Income                                                                      foreign corporation, CFC, with reference ID number 1234. USC 
USC completes Schedule K-2, Part VII, as follows.                                  has two U.S. citizen shareholders. CFC has only one unit, the 
                                                                                   CFC itself, and no other separate units. CFC has general 
                                                                                   category foreign source foreign base company sales income 
                                                                                   (FBCSI) sourced in Country A of 100u and general category 
                                                                                   foreign source FBCSI sourced in Country B of 50u and general 
                                                                                   category foreign source FBCSI sourced in Country C of 30u. The 
                                                                                   country code for Country A is “AA,” the country code for Country 
                                                                                   B is “BB,” and the country code for Country C is “CC.”
                                                                                   USC completes Schedule K-2, Part VII, as follows.

Inst. for Schedules K-2 and K-3 (Form 1120-S) (2022)                           -25-

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Example 13 Table                                                     USC also completes Schedule K-3, Part VII, with each 
                                                                shareholder's share of the S corporation's net income in the 
A    1234                                                       subpart F income group. USC attaches to Schedule K-3 the 
                                                                same schedule it attaches to Schedule K-2, with each 
B    GEN                                                        shareholder's share of the subpart F income groups by country.
D                                                               Line E. The S corporation should check the box and complete a 
                     (i) Country Code      (ii) S corporation’s separate Part VII for U.S. source income in each separate 
                                           Share of Net Income  category.
1   Subpart F Income                                            Line F. If the foreign corporation has foreign oil and gas 
    Groups                                                      extraction income (FOGEI) or foreign oil-related income (FORI), 
f   Foreign Base                           180u                 the S corporation should check the box and complete a separate 
    Company Sales                                               Part VII indicating the amount of FOGEI and FORI in each 
    Income (Total)                                              grouping. The S corporation should check box 2 in Part I and 
                                                                complete Schedule I (Form 1118). See the instructions for Part I, 
(1) CFC              AA                    100u                 box 2.
(2) CFC              BB                    50u

USC attaches to Schedule K-2 the following schedule to 
expand 1f to include another line under 1f.

Example 13 Attachment (Expansion)

A    1234
B    GEN
D    
                     (i) Country Code      (ii) S corporation’s 
                                           Share of Net Income
1   Subpart F Income 
    Groups
f   Foreign Base                           180u
    Company Sales 
    Income (Total)
(3) CFC              CC                    30u

                                                                -26-  Inst. for Schedules K-2 and K-3 (Form 1120-S) (2022)

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Index
 
                                       Gross income  11
C                                                                       S
Capital gains and losses  12           H                                S corporation determination                      10
Category of income codes   25          High-taxed income 6              S corporation election codes                     21
Charitable contributions 13                                             S corporation’s interest in foreign 
Codes for classes of PFIC shares  21   I                                 corporation   24
Codes for types of tax 15              Identifying information  5       Section 1291 and other 
                                                                         information   22
Collectibles (28%) gain 12             Identifying information, S 
Collectibles loss 13                     corporation 5                  Section 267A disallowed deduction                    7
Computer-generated schedules K-2     4 Identifying information,         Section 901(j) income 11
Contested taxes   16                     shareholder 5                  Section 951(a) inclusions 13
Country codes 11                       Income resourced by treaty   11  Section 951(a)(1) and Section 951A 
Currency 4                             Interest expense apportionment    Inclusions   18
                                         factors 14                     Section 951A category income                       11
D                                      Interest expense specifically    Section 951A(a) inclusions                       13
                                         allocable under Regulations    Section 986(c) gain and loss                     12
Deductions 13                            section 1.861-10 and -10T   13 Section 987 gain and loss 12
Distributions from foreign             Interest expense, other  13      Section 988 gain and loss 12
  corporations to S corporation  17    International transactions 8     Shareholder determination                        11
Dividends, ordinary and qualified 12
                                                                        Splitter arrangements 6
Domestic Filing Exception  3           L                                Stewardship expenses   14
Downstream loan   8
                                       Loan, downstream  8
E                                      Loan, upstream 8                 T
                                                                        Table 1. Information on Personal 
EIN 5                                  N                                 Property Sold  5
Exception to filing Schedules K-2 and                                   Table 2. Downstream Loans                        8
  K-3 3                                Name of S corporation   5
                                       Net long-term capital gain 12    Table 3. Upstream Loans 8
F                                      Net long-term capital loss 13    Taxes assigned to section 951A 
                                                                         category    15
Foreign branch category income    10   Net section 1231 gain 12
                                                                        Total gross income 13
Foreign oil and gas taxes 5
Foreign tax translation 6              O
                                                                        U
Foreign taxes 15                       Other deductions 13
                                                                        Unrecaptured section 1250 gain                     12
Foreign taxes deductible but not       Other income 13
                                                                        Upstream loan  8
  creditable 13 16, 
Foreign taxes paid or accrued to       P
                                                                        W
  sanctioned countries  15             Parts of Sch K-2, in general 4
                                                                        When to file 4
Foreign taxes related to PTEP          Passive grouping codes   25
  resourced by treaty   15                                              Where to file 4
                                       PFIC, QEF general information 21
Form 5471 information   8                                               Who must file 2
Form 8621information   20              R
Form 8858 information   8
                                       R&E expenses  13
G                                      R&E expenses apportionment 
                                         factors 13
Gains on sale of certain personal      Rental income 12
  property 5

                                                      -27-

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