8804 Schedule A Instructions for Form 8804 Schedule A

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2018

Instructions for Schedule A
(Form 8804)

Department of the Treasury
Internal Revenue Service

DRAFT AS OF
September 11, 2018
Penalty for Underpayment of Estimated Section 1446 Tax for Partnerships
Section references are to the Internal Revenue
Code unless otherwise noted.

Future Developments

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 IRS.gov/Forms-Pubs/
About-Schedule-A-Form-8804.

What’s New
New tax rates for 2018. For tax years
beginning after December 31, 2017, the
maximum tax rate for non-corporate
foreign partners has decreased from
39.6% to 37%. Also, for tax years
beginning after December 31, 2017, the
maximum tax rate for corporate foreign
partners has decreased from 35% to
21%.

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 doesn’t 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
doesn’t 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.
2. The annualized income
installment method is used.

Sep 08, 2018

Who Must Pay the
Underpayment Penalty

Generally, a partnership is subject to the
penalty if it didn’t timely pay in
installments at least the smaller of:
1. The tax shown on line 5f of its
2018 Form 8804; or
2. The total section 1446 tax that
would have been due for 2017, without
regard to reductions for certified foreign
partner-level items, on the ECTI
allocable to foreign partners for 2017,
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 2018
Form 8804; and (2) the tax year was for
a full 12 months. See the instructions for
line 2, later, 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.

Exception to the Penalty

A partnership won’t have to pay a
penalty if the tax shown on line 5f of its
2018 Form 8804 is less than $500.

Cat. No. 36325U

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 the total section 1446 tax, shown on
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)).

If the partnership isn’t permitted to
use the prior year safe harbor method
because any of the necessary
conditions described above isn’t 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.

installment to which the payment
pertains. See the Example under Part
VII. Figuring the Penalty, later.
Line 12. If any of the columns in line 12
shows an underpayment, complete Part
VII to figure the penalty.

Parts IV Through VI

DRAFT AS OF
September 11, 2018
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 2017, without regard
to reductions for certified foreign
partner-level items on the ECTI
allocable to foreign partners for 2017.
The partnership can 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 can 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 (for example, Form 1065) for the
prior tax year.
• The amount of ECTI for the prior tax
year isn’t less than 50% of the ECTI
shown on the current year Form 8804
that is (or will be) timely filed.

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 2017 Form 8804 that was
credited to the partnership's first
installment period on its 2018 Form
8804. If an installment is due on a
Saturday, Sunday, or legal holiday,
payments made on the next day that
isn’t 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 of the
following.
• 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.
• 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.
Note. A payment of estimated tax is
applied against unpaid installments in
the order in which installments are
required to be paid, regardless of the
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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) can be annualized
using the general rules of Regulations
section 1.6655-2(f), or, if the partnership
chooses, can be taken into account
after annualizing the ECTI for the
annualization period.

Part IV. Adjusted Seasonal
Installment Method
Note. Part IV doesn't 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

Instructions for Schedule A (Form 8804) (2018)

line 31 instructions are met), it must
attach a statement 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). Also, Part IV,
lines 15 and 22 through 25 don’t provide
the separate entries for corporate and
non-corporate partners necessary to
apply the rates on lines 25a and b. A
partnership with corporate and
non-corporate partners completing Part
IV must attach a statement which
appropriately expands lines 15 and 22
through 25 to show the amounts
allocable to both types of partners.
The partnership can 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.

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.

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.

DRAFT AS OF
September 11, 2018
Example. An amusement park with
a 2018 calendar tax year receives the
largest part of its taxable income during
a 6-month period, May through October.
To figure its base period percentage for
this 6-month period, the amusement
park figures its ECTI for each May–
October period in 2015, 2016, and
2017. It then divides the ECTI for each
May–October period by the total ECTI
for that particular tax year. The resulting
percentages are 69% (0.69) for May–
October 2015, 74% (0.74) for May–
October 2016, and 67% (0.67) for May–
October 2017. Because the average of
69% (0.69), 74% (0.74), and 67% (0.67)
is 70% (0.70), the base period
percentage for May–October 2018 is
70% (0.70). Therefore, the amusement
park qualifies for the adjusted seasonal
installment method.
Line 15. If the partnership has certain
extraordinary items, special rules apply.
Don’t 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

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
CAUTION 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.

!

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.
Don’t 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

Instructions for Schedule A (Form 8804) (2018)

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Line 32. Annualization amounts.
Enter on line 32, columns (a) through
(d), respectively, the annualization
amounts shown in the table 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.
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

determining the category of income the
reduction amounts offset.
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.

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 3rd month
after the close of the 2018 tax year (the
15th day of the 6th 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.

A payment of estimated tax is applied
against unpaid required installments in
the order in which installments are
required to be paid, regardless of the
installment to which the payment
pertains.
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
pays $2,500 for its 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.

DRAFT AS OF
September 11, 2018
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).

If the partnership has made more
than one payment for a required
installment, attach a separate
computation for each payment.

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Instructions for Schedule A (Form 8804) (2018)