U. S. Business Income Tax return

2013

Instructions for Schedule A
(Form 8804)

Department of the Treasury
Internal Revenue Service

Penalty for Underpayment of Estimated Section 1446 Tax for Partnerships
Section references are to the Internal
Revenue Code unless otherwise noted.

2. The annualized income
installment method is used.

Future Developments

Who Must Pay the
Underpayment Penalty

For the latest information about
developments related to Schedule A
(Form 8804) and its instructions, such
as legislation enacted after they were
published, go to www.irs.gov/uac/
About-Schedule-A-Form-8804.

What's New

For tax years beginning after
December 31, 2012, the American
Taxpayer Relief Act of 2012,
increased the maximum tax rate for
individuals to 39.6%, and the
maximum tax rate on capital gains to
20%. Therefore, under Regulations
section 1.1446-3(a)(2), Schedule A
(Form 8804) has been modified to
reflect the highest tax rates for these
two types of income. As a result,
substantial changes have been made
to the 2013 Schedule A (Form 8804).

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 any of the following apply:
1. The adjusted seasonal
installment method is used.

Dec 18, 2013

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 5f of its
2013 Form 8804 or
2. The total section 1446 tax that
would have been due for 2012,
without regard to reductions for
certified foreign partner-level items,
on the ECTI allocable to foreign
partners for 2012, provided that (1)
this amount is at least 50% of the sum
of the amounts shown on lines 4d, 4h,
4l, 4p, and 4t of its 2013 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.
Cat. No. 36325U

Exception to the Penalty

A partnership will not have to pay a
penalty if the tax shown on line 5f of
its 2013 Form 8804 is less than $500.

How To Use Schedule A

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.

Specific Instructions
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 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 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).

Part II. Current Year and
Prior Year Safe Harbors
Line 2 (prior year safe harbor).
Enter the total section 1446 tax that
would have been due for 2012,
without regard to reductions for
certified foreign partner-level items on
the ECTI allocable to foreign partners
for 2012.
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
statement 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 2012 Form 8804
that was credited to the partnership's
first installment period on its 2013
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, lines 6b and 6c, in the
Instructions for Forms 8804, 8805,
and 8813.
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Section 1445(a) or 1445(e) 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, lines 6d and 6e, 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

Instructions for Schedule A (Form 8804) (2013)

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 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
2013 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 2010,
2011, and 2012. 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 2010,
74% (.74) for May–October 2011, and
67% (.67) for May–October 2012.
Because the average of 69%, 74%,
and 67% is 70%, the base period

percentage for May through October
2013 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,
earlier.
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,
earlier.
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
CAUTION
elected to do so by filing
Form 8842, Election To Use Different
Annualization Periods for Corporate
Estimated Tax, by the due date of the
first required installment payment.
Once made, the election is
irrevocable for the particular tax year.

!

Instructions for Schedule A (Form 8804) (2013)

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1st
Installment

2nd
Installment

3rd
Installment

4th
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
31e 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, 31d, or 31e the de minimis
extraordinary items that the
partnership chooses to include on
line 33a, 33e, 33i, 33m, or 33q,
respectively. See Extraordinary items,
earlier.
With respect to lines 31b through
31e, enter the specified types of
income allocable to non-corporate
partners if (a) the 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,
31d, and 31e, 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
Installment

2nd
Installment

3rd
Installment

4th
Installment

Standard
Option

4

Option 1

6

4

2

1.33333

3

1.71429

Option 2

4

1.2

2.4

1.5

1.09091

Lines 33a, 33e, 33i, 33m, and 33q.
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, 33m, or 33q,
depending on the type of income
against which the item applies, for the
appropriate period. Also include on
line 33a, 33e, 33i, 33m, or 33q the de
minimis extraordinary items that the
partnership chooses to exclude from
line 31a, 31b, 31c, 31d, or 31e,
respectively. See Extraordinary items,
earlier.
If the partnership has included on
line 33a, 33e, 33i, 33m, or 33q 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 statement 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.

determining the category of income
the reduction amounts offset.

Lines 33b, 33f, 33j, 33n, and 33r.
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

Part VII. Figuring the
Penalty

Lines 33c, 33g, 33k, 33o, and 33s.
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.

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.

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 2013 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 denoted by an
asterisk, 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 States. You are required to give us the information. We need it to ensure that you are complying with these laws
and to allow us to 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) (2013)