Form 8804 Schedule A Penalty for Underpayment of Estimated Section 1446 Tax by Partnerships

2010

Instructions for Schedule A
(Form 8804)
Section references are to the Internal
Revenue Code unless otherwise noted.

General Instructions
Purpose of Form
Partnerships that have effectively
connected taxable income (ECTI)
allocable to foreign partners use
Schedule A (Form 8804) to determine:
• Whether they are subject to the penalty
for underpayment of estimated tax and, if
so,
• The amount of the underpayment
penalty.

Who Must File
Generally, the partnership does not have
to file this schedule because the IRS will
figure the amount of the penalty and
notify the partnership of any amount due.
However, even if the partnership does not
owe a penalty, complete and attach this
schedule to the partnership’s Form 8804
if the Part II, line 1 amount on page 1 is
$500 or more and either of the following
applies:
1. The adjusted seasonal installment
method is used.
2. The annualized income installment
method is used.

Who Must Pay the
Underpayment Penalty
Generally, a partnership is subject to the
penalty if it did not timely pay in
installments at least the smaller of:
1. The tax shown on line 5e of its
2010 Form 8804 or
2. The total section 1446 tax that
would have been due for 2009, without
regard to reductions for certified foreign
partner-level items, on the ECTI allocable
to foreign partners for 2009, provided that
(1) this amount is at least 50% of the sum
of the amounts shown on lines 4d, 4h, 4l,
and 4p of its 2010 Form 8804 and (2) the
tax year was for a full 12 months. See the
instructions for line 2 below for more
details.
In these instructions, “Form 8804”
generally refers to the partnership’s
original Form 8804. However, an
amended Form 8804 is considered the
original Form 8804 if the amended Form
8804 is filed by the due date (including
extensions) of the original Form 8804.
Also, for purposes of determining a
required installment, if an amended Form
8804 is filed for the prior tax year, then

“prior tax year” includes the amended
Form 8804, but only if the amended Form
8804 is filed before the applicable
installment due date.
The penalty is figured separately for
each installment due date. Therefore, the
partnership may owe a penalty for an
earlier due date even if it paid enough tax
later to make up the underpayment. This
is true even if the partnership is due a
refund when its return is filed. However,
the partnership may be able to reduce or
eliminate the penalty by using the
annualized income installment method or
the adjusted seasonal installment
method. See the instructions for Parts IV
and V for details.

Department of the Treasury
Internal Revenue Service

Complete this schedule as follows:
• Check one or both of the boxes in Part
I that apply. If the partnership checks a
box in Part I, attach Schedule A (Form
8804) to Form 8804. Be sure to check the
box on Form 8804, line 8.
• If Part II, line 1 is $500 or more,
complete the rest of page 1 to determine
the underpayment for any of the
installment due dates.
• If there is an underpayment on line 12
(column (a), (b), (c), or (d)), go to Part VII
to figure the penalty.
• Complete Parts IV through VI as
appropriate if the partnership uses the
adjusted seasonal installment method
and/or the annualized income installment
method.

both of these methods to figure its
required installments. The annualized
income installment or adjusted seasonal
installment may be less than the required
installment under the current year safe
harbor (increased by any reduction
recaptured under section 6655(e)(1)(B))
for one or more due dates. Using one or
both of these methods may reduce or
eliminate the penalty for those due dates.
Use Parts IV through VI on pages 2
through 4 of Schedule A (Form 8804) to
figure one or more required installments.
If Parts IV through VI are used for any
payment due date, those Parts must be
used for all subsequent payment due
dates. To arrive at the amount of each
required installment, Part VI uses the
smallest of:
• The adjusted seasonal installment (if
applicable),
• The annualized income installment (if
applicable), or
• The current year safe harbor
(increased by any reduction recaptured
under section 6655(e)(1)(B)).
Follow the steps below to determine
which parts of the form have to be
completed:
• If the partnership is using only the
adjusted seasonal installment method,
check the applicable box in Part I and
complete Parts IV and VI of Schedule A
(Form 8804).
• If the partnership is using only the
annualized income installment method,
check the applicable box in Part I and
complete Parts V and VI of Schedule A
(Form 8804).
• If the partnership is using both
methods, check both of the boxes in Part
I and complete all three parts (Parts IV
through VI) of Schedule A (Form 8804).

Specific Instructions

Part II. Current Year and
Prior Year Safe Harbors

Exception to the Penalty
A partnership will not have to pay a
penalty if the tax shown on line 5e of its
2010 Form 8804 is less than $500.

How To Use Schedule A

Part I. Reasons for Filing
Adjusted seasonal installment method
and/or annualized income installment
method. If the partnership’s income
varied during the year because, for
example, it operated its business on a
seasonal basis, it may be able to lower or
eliminate the amount of one or more
required installments by using the
adjusted seasonal installment method
and/or the annualized income installment
method.
Example. A ski shop, which receives
most of its income during the winter
months, may benefit from using one or
Cat. No. 36325U

Line 2 (prior year safe harbor). Enter
the total section 1446 tax that would have
been due for 2009, without regard to
reductions for certified foreign
partner-level items on the ECTI allocable
to foreign partners for 2009.
The partnership may generally use the
prior year safe harbor only if it paid the
required amount using that method for
each of its installment payments of
section 1446 tax during the tax year.
However, see Regulations section
1.1446-3(b)(3)(ii) for an exception. Also,
see the Note below. In addition, the
partnership may only use the prior year
safe harbor if all of the following apply:

• Each installment payment that was

made during the tax year, when averaged
with all prior installment payments, must
have been 25% of the partnership’s total
section 1446 tax liability under the prior
year safe harbor,
• The prior tax year consisted of 12
months,
• The partnership timely files (including
extensions) a U.S. return of partnership
income (e.g., Form 1065) for the prior tax
year, and
• The amount of ECTI for the prior tax
year is not less than 50% of the ECTI
shown on the current year Form 8804 that
is (or will be) timely filed.
If the partnership is not permitted to
use the prior year safe harbor method
because any of the necessary conditions
described above is not met, skip line 2
and enter on line 3 the amount from line
1.
Note. If the partnership qualifies for and
uses the exception under Regulations
section 1.1446-3(b)(3)(ii) to switch to the
standard option annualization method
during the tax year, the partnership
should include on line 2 the total of all
installment payments that were made
during the tax year under both the prior
year safe harbor method and the
standard option annualization method.
Attach a schedule that explains the
computation.

Part III. Figuring the
Underpayment
Line 6. Enter the estimated tax
payments made by the partnership for its
tax year as indicated below. Include any
overpayment from line 13 of the
partnership’s 2009 Form 8804 that was
credited to the partnership’s first
installment period on its 2010 Form 8804.
If an installment is due on a Saturday,
Sunday, or legal holiday, payments made
on the next day that is not a Saturday,
Sunday, or legal holiday are considered
made on the due date to the extent the
payment is applied against that required
installment.
Also include on line 6 any:
• Section 1446 tax paid or withheld by
another partnership in which the
partnership filing this Schedule A (Form
8804) was a partner during the tax year.
See the instructions for Form 8804, line
6b, in the Instructions for Forms 8804,
8805, and 8813.
• Section 1445(a) or 1445(e)(1)(B) tax
withheld from or paid by the partnership
filing this Schedule A (Form 8804) during
the tax year for a disposition of a U.S. real
property interest. See the instructions for
Form 8804, line 6c, in the Instructions for
Forms 8804, 8805, and 8813.
Column (a). Enter payments made by
the date on line 4, column (a).
Columns (b), (c), and (d). Enter
payments made on or before the date on
line 4 for that column and after the date
on line 4 of the preceding column.

Line 12. If any of the columns in line 12
shows an underpayment, complete Part
VII to figure the penalty.

Parts IV Through VI
Extraordinary items. Generally, under
the annualized income installment
method, extraordinary items must be
taken into account after annualizing the
ECTI for the annualization period. Similar
rules apply in determining ECTI under the
adjusted seasonal installment method. An
extraordinary item includes:
• Any item identified in Regulations
section 1.1502-76(b)(2)(ii)(C)(1), (2), (3),
(4), (7), and (8);
• A section 481(a) adjustment; and
• Net gain or loss from the disposition of
25% or more of the fair market value of
the partnership’s business assets during
the tax year.
These extraordinary items must be
accounted for in the appropriate
annualization period. However, a section
481(a) adjustment (unless the partnership
makes the alternative choice under
Regulations section 1.6655-2(f)(3)(ii)(C))
is treated as an extraordinary item
occurring on the first day of the tax year in
which the item is taken into account in
determining ECTI.
For more information regarding
extraordinary items, see Regulations
section 1.6655-2(f)(3)(ii) and the
examples in Regulations section
1.6655-2(f)(3)(vii). Also see Regulations
section 1.6655-3(d)(3).
De minimis rule. Extraordinary items
identified above resulting from a particular
transaction that totals less than $1 million
(other than a section 481(a) adjustment)
may be annualized using the general
rules of Regulations section 1.6655-2(f),
or, if the partnership chooses, may be
taken into account after annualizing the
ECTI for the annualization period.

Part IV. Adjusted Seasonal
Installment Method
Note. Part IV does not reflect the lower
preferential rates permitted under
Regulations section 1.1446-3(a)(2).
These were omitted because, for most
taxpayers, the income reported in Part IV
will be predominantly (or exclusively)
ordinary income. If the partnership wishes
to consider lower preferential rates for
Part IV (and if the requirements outlined
in the third paragraph of the line 31
instructions are met), it must attach a
schedule which appropriately expands
lines 15 and 22 through 25 to show the
applicable special types of income or gain
and the applicable percentages (see, for
example, lines 33 and 34 of this
schedule).
The partnership may use the adjusted
seasonal installment method only if the
partnership’s base period percentage for
any 6 consecutive months of the tax year
is 70% or more. The base period
percentage for any period of 6

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consecutive months is the average of the
three percentages figured by dividing the
ECTI for the corresponding 6 consecutive
month period in each of the 3 preceding
tax years by the ECTI for each of their
respective tax years. Figure the base
period percentage using the 6-month
period in which the partnership normally
receives the largest part of its ECTI.
Example. An amusement park with a
2010 calendar tax year receives the
largest part of its taxable income during a
6-month period, May through October. To
compute its base period percentage for
this 6-month period, the amusement park
figures its ECTI for each May – October
period in 2007, 2008, and 2009. It then
divides the ECTI for each May – October
period by the total ECTI for that particular
tax year. The resulting percentages are:
69% (.69) for May – October 2007, 74%
(.74) for May – October 2008, and 67%
(.67) for May – October 2009. Because the
average of 69%, 74%, and 67% is 70%,
the base period percentage for May
through October 2010 is 70%. Therefore,
the amusement park qualifies for the
adjusted seasonal installment method.
Line 15. If the partnership has certain
extraordinary items, special rules apply.
Do not include on line 15 the de minimis
extraordinary items that the partnership
chooses to include on line 22b. See
Extraordinary items above.
Line 22b. If the partnership has certain
extraordinary items of $1 million or more
from a transaction, or a section 481(a)
adjustment, special rules apply. Include
these amounts on line 22b for the
appropriate period. Also include on line
22b the de minimis extraordinary items
that the partnership chooses to exclude
from line 15. See Extraordinary items
above.
Line 23. Enter the amount by which line
22c is being reduced for state and local
taxes under Regulations section
1.1446-6(c)(1)(iii) and for certified foreign
partner-level items submitted using Form
8804-C. See Reductions for State and
Local Taxes and Certification of
Deductions and Losses in the Instructions
for Forms 8804, 8805, and 8813 for
additional information.

Part V. Annualized Income
Installment Method
Line 30. Annualization periods. Enter
on line 30, columns (a) through (d),
respectively, the annualization periods for
the option listed below. For example, if
the partnership elected Option 1, enter on
line 30 the annualization periods 2, 4, 7,
and 10, in columns (a) through (d),
respectively.
Use Option 1 or Option 2 only if
the partnership elected to do so by
CAUTION
filing Form 8842, Election To Use
Different Annualization Periods for
Corporate Estimated Tax, by the due date
of the first required installment payment.

!

Instructions for Schedule A (Form 8804) (2010)

Once made, the election is irrevocable for
the particular tax year.
1st
2nd
3rd
4th
Installment Installment Installment Installment
Standard
Option

3

3

6

9

Option 1

2

4

7

10

Option 2

3

5

8

11

Line 31. Enter on lines 31a through 31d
the ECTI allocable to all foreign partners
for the months entered for each
annualization period in columns (a)
through (d) on line 30.
If the partnership has certain
extraordinary items, special rules apply.
Do not include on line 31a, 31b, 31c, or
31d the de minimis extraordinary items
that the partnership chooses to include on
line 33a, 33e, 33i, and 33m, respectively.
See Extraordinary items on page 2.
With respect to lines 31b through 31d,
enter the specified types of income
allocable to noncorporate partners if (a)
such partners would be entitled to use a
preferential rate on such income or gain
(see Regulations section 1.1446-3(a)(2))
and (b) the partnership has sufficient
documentation to meet the requirements
of Regulations section 1.1446-3(a)(2)(ii).
If the partnership has net ordinary loss,
net short-term capital loss, or net 28%
rate loss, each net loss should be netted
against the appropriate categories of
income and gain to determine the
amounts of income and gain to be
entered on lines 31b, 31c, and 31d,
respectively. See section 1(h) and Notice
97-59, 1997-45 I.R.B. 7, for rules for
netting gains and losses.
Line 32. Annualization amounts. Enter
on line 32, columns (a) through (d),
respectively, the annualization amounts
shown in the tables below for the option
used for line 30. For example, if the
partnership elected Option 1, enter on line
32 the annualization amounts 6, 3,
1.71429, and 1.2, in columns (a) through
(d), respectively.

1st
2nd
3rd
4th
Installment Installment Installment Installment
Standard
Option

4

4

2

1.33333

Option 1

6

3

1.71429

1.2

Option 2

4

2.4

1.5

1.09091

Lines 33a, 33e, 33i, and 33m. If the
partnership has extraordinary items that
total $1 million or more from a particular
transaction, or a section 481(a)
adjustment, special rules apply. Include
these amounts on line 33a, 33e, 33i, or
33m, depending on the type of income
against which the item applies, for the
appropriate period. Also include on line
33a, 33e, 33i, or 33m the de minimis
extraordinary items that the partnership
chooses to exclude from line 31a, 31b,
31c, or 31d, respectively. See
Extraordinary items on page 2.
If the partnership has included on line
33a, 33e, 33i, or 33m any of the items
referred to in the previous paragraph,
write “EI” and the dollar amount of the
item next to the affected line. Attach a
schedule which shows the income for that
line before the extraordinary item, the
amount of the extraordinary item, and the
net amount. Also include an explanation
of the item, including the authority under
which it is being claimed.
Lines 33b, 33f, 33j, and 33n. Enter the
reduction amounts for state and local
taxes under Regulations section
1.1446-6(c)(1)(iii). The netting rules under
section 1(h) and Notice 97-59 must be
considered in determining the category of
income the reduction amounts offset.
Lines 33c, 33g, 33k, and 33o. Enter the
reduction amounts resulting from certified
partner-level items received from foreign
partners using Form 8804-C. See
Certification of Deductions and Losses in
the Instructions for Forms 8804, 8805,
and 8813 for additional information. The
netting rules of section 1(h) and Notice
97-59 must be considered in determining
the category of income the reduction
amounts offset.

Instructions for Schedule A (Form 8804) (2010)

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Part VI. Required
Installments
Line 38. Before completing line 38 in
columns (b) through (d), complete lines
39 through 43 in each of the preceding
columns. For example, complete lines 39
through 43 in column (a) before
completing line 38 in column (b).
Line 43. For each installment, enter the
smaller of line 39 or line 42 on line 43.
Also enter the result on line 5.

Part VII. Figuring the
Penalty
Complete Part VII to determine the
amount of the penalty. The penalty is
figured for the period of underpayment
using the underpayment rate determined
under section 6621(a)(2). The period of
underpayment runs from the installment
due date to the earlier of the date the
underpayment is actually paid or the 15th
day of the fourth month after the close of
the 2010 tax year (the 15th day of the
sixth month if the partnership keeps its
books and records outside the United
States and Puerto Rico). For information
on obtaining the interest rate on
underpayments paid after March 31,
2011, see the footnote on page 5 of the
schedule.
Example. A partnership underpaid the
April 15 installment by $1,000. The June
15 installment requires a payment of
$2,500. On June 11, the partnership
deposits $2,500 to cover the June 15
installment. However, $1,000 of this
payment is applied against the April 15
installment. The penalty for the April 15
installment is figured to June 11 (57
days). The remaining $1,500 is applied to
the June 15 installment as if it were made
on June 15.
If the partnership has made more than
one payment for a required installment,
attach a separate computation for each
payment.

Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United
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figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the
form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their
contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are
confidential, as required by section 6103.
The time needed to complete and file this form may vary depending on individual circumstances. The estimated average time is:
Form

Recordkeeping

Learning about the law or
the form

Preparing the form

Schedule A (Form 8804), Parts II, III, and VII

29 hr., 53 min.

47 min.

1 hr., 19 min.

Schedule A (Form 8804), Part IV

20 hr., 5 min.

24 min.

44 min.

Schedule A (Form 8804), Part V

24 hr., 52 min.

42 min.

1 hr., 7 min.

Schedule A (Form 8804), Part VI

5 hr., 58 min.

6 min.

12 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be
happy to hear from you. See the instructions for the tax return with which this form is filed.

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Instructions for Schedule A (Form 8804) (2010)