1120-S Schedules K S Corporation Instructions for Schedules K-2 and K-3 (Fo

2021

S Corporation Instructions
for Schedules K-2 and K-3
(Form 1120-S)

Department of the Treasury
Internal Revenue Service

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

.... 9

Foreign Transactions; and Schedule K-1
(Form 1120-S), Part III, Shareholder's
Share of Income, Deductions, Credits,
etc., line 14, Foreign Transactions.
Schedules K-2 and K-3 also replace,
supplement, and clarify the reporting of
certain amounts formerly reported on
Form 1120-S, Schedule K, line 17d, Other
items and amounts; and Schedule K-1,
Part III, line 17, Other information. The
new schedules assist S corporations in
providing shareholders with the
information necessary to complete their
returns with respect to the international tax
provisions of the Internal Revenue Code.
For example, the new Schedule K-3
provides information necessary for
shareholders who make an election under
section 962 to figure their foreign tax credit
on Form 1118, Foreign Tax
Credit—Corporations, and other
shareholders to figure their foreign tax
credit on Form 1116, Foreign Tax Credit
(Individual, Estate or Trust), respectively.

. . . 11

General Instructions

. . . 12

The Instructions for Form 1120-S and the
Instructions for Schedule K-1 (Form
1120-S) generally apply to the Schedules
K-2 and K-3. These instructions provide
additional instructions with respect to the
Schedules K-2 and K-3.

Section references are to the Internal Revenue
Code unless otherwise noted.

Contents
What’s New . . . . . . . . . . . . . .
General Instructions . . . . . . . . .
Purpose of Schedules K-2
and K-3 . . . . . . . . . . . .
Who Must File . . . . . . . . .
When and Where To File . .
How To Complete
Schedules K-2 and K-3 . .
Specific Instructions . . . . . . . . .
Schedule K-2 Identifying
Information . . . . . . . . .
Schedule K-3 Identifying
Information . . . . . . . . .
Part I. Corporation’s Other
Current Year International
Information . . . . . . . . .
Part II. Foreign Tax Credit
Limitation . . . . . . . . . .
Part III. Other Information for
Preparation of Form 1116
or 1118 . . . . . . . . . . . .
Part IV. Distributions From
Foreign Corporations to
Corporation . . . . . . . . .
Part V. Information on
Shareholders' Section
951(a)(1) and Section
951A Inclusions . . . . . .
Part VI. Information To
Complete Form 8621 . . .
Part VII. Corporation's
Interest in Foreign
Corporation Income
(Section 960) . . . . . . . .
Index . . . . . . . . . . . . . . . . . .

Page
.... 1
.... 1
.... 1
.... 1
.... 2
.... 2
.... 2
.... 2
.... 3
.... 3
.... 7

. . . 14

. . . 17
. . . 20

Future Developments

For the latest information about
developments related to Schedule K-2
(Form 1120-S) and Schedule K-3 (Form
1120-S), and their instructions, such as
legislation enacted after they were
published, go to IRS.gov/Form1120S.

What’s New

Schedules K-2 and K-3 are new for the
2021 tax year. These schedules replace,
supplement, and clarify the reporting of
certain amounts formerly reported on
Form 1120-S, U.S. Income Tax Return for
an S Corporation, Schedule K, line 14,
Aug 26, 2021

Purpose of Schedules K-2
and K-3

Schedule K-2 is an extension of Form
1120-S, Schedule K, and is used to report
items of international tax relevance from
the operation of an S corporation.
Schedule K-3 is an extension of
Schedule K-1 (Form 1120-S) and is
generally used to report to shareholders
their share of the items reported on
Schedule K-2. Shareholders must include
the information reported on Schedule K-3
on their tax or information returns.

Who Must File

The S corporation need not complete
these schedules if the S corporation does
not have items of international tax
Cat. No. 74486Y

relevance (typically, international
activities). Any S corporation that is
required to file Form 1120-S and that has
items relevant to the determination of the
U.S. tax or reporting obligations of its
shareholders under the international
provisions of the Internal Revenue Code
must complete the 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 and section.
Penalties may apply for filing Form 1120-S
without all required information or for
furnishing Schedule K-3 to shareholders
without all required information. The
penalties that apply with respect to Form
1120-S and Schedule K-1 apply with
respect to the Schedules K-2 and K-3,
respectively. See the Penalties section of
the Instructions for Form 1120-S.
Note. Except as otherwise required by
statute, regulations, or other IRS
guidance, an S corporation is not required
to obtain information from its shareholders
to determine if it needs to file each of
these parts.
Note. An S corporation is only required to
complete the relevant portions of
Schedules K-2 and K-3, as applicable. For
example, if the S corporation does not
own (within the meaning of section 958)
an interest in a foreign corporation other
than solely by reason of applying section
318(a)(3) (providing for downward
attribution) as provided in section 958(b),
it is not required to complete
Schedule K-2, Parts IV, V, VI, and VII or
the corresponding Schedule K-3 parts.
Note. Schedules K-2 and K-3 consist of
the most common international tax
provisions of the Internal Revenue Code.
However, not all provisions are specifically
identified on these schedules. To the
extent that an international provision is
implicated that is not otherwise specifically
identified, the S corporation should check
box 12 on Schedules K-2 and K-3, Part I,
and attach a statement to both Schedules
K-2 and K-3 (for shareholder's share).

When and Where To File

Attach Schedules K-2 and K-3 to your
Form 1120-S and file both by the due date
(including extensions) for that return.
Provide Schedule K-3 to your
shareholders according to the timeline for
providing the Schedule K-1. See the
Instructions for Form 1120-S.
See the Instructions for Form 1120-S
for requirements with respect to
recordkeeping.
See the Instructions for Form 1120-S
for instructions concerning amendments
or adjustments to Schedules K-2 and K-3.

Computer-Generated
Schedules K-2 and K-3
Generally, all computer-generated forms
must receive prior approval from the IRS
and are subject to an annual review.
However, see the Exception below.
Requests for approval may be submitted
electronically to [email protected];
or requests may be mailed to:
Internal Revenue Service
Attn: Substitute Forms Program
SE:W:CAR:MP:P:TP
1111 Constitution Ave. NW, Room
6554
Washington, DC 20224
Exception. If computer-generated
Schedules K-2 and K-3 conform to and do
not deviate from the official form and
schedules, they may be filed without prior
approval from the IRS.
Important. Be sure to attach the approval
letter to computer-generated Schedules
K-2 and K-3. However, if the
computer-generated form is identical to
the IRS prescribed form, it does not need
to go through the approval process, and
an attachment is not necessary.
Every year, the IRS issues a revenue
procedure to provide guidance for filers of
computer-generated forms. In addition,
every year the IRS issues Pub. 1167,
General Rules and Specifications for
Substitute Forms and Schedules, which
reprints the most recent applicable
revenue procedure. Pub. 1167 is available
at IRS.gov/Pub1167. The procedures
relevant to Form 1120-S and the
Schedule K-1 (Form 1120-S) apply for
purposes of the Schedules K-2 and K-3.

How To Complete Schedules
K-2 and K-3
Reporting currency. Report all amounts
in U.S. dollars except where specified
otherwise.
Form references. These instructions
refer to other forms. If the referenced form

has been succeeded by another form, the
references to those prior forms
encompass any successor forms.
References in these instructions to
Form 1040, U.S. Individual Income Tax
Return, are intended, if applicable, to
include Form 1040-SR, U.S. Tax Return
for Seniors, as well as other tax returns for
noncorporate shareholders such as Form
1041, U.S. Income Tax Return for Estates
and Trusts.
Uses of the parts of Schedules K-2 and
K-3, in general.
Part I of Schedule K-2 (and Part I of
Schedule K-3). Used to report
international tax items not reported
elsewhere on Schedule K-2 or K-3.
Part II of Schedule K-2 (and Part II
of Schedule K-3). Used to figure the S
corporation's income or loss by source
and separate category of income and to
report the shareholder's share of such
income or loss. Shareholders will use the
information to figure and claim a foreign
tax credit on Form 1116 or 1118.
Part III of Schedule K-2 (and Part III
of Schedule K-3). Used to report
information necessary for the shareholder
to determine the allocation and
apportionment of research and
experimental (R&E) expense and interest
expense for the foreign tax credit
limitation. Also used to report foreign taxes
paid or accrued by the S corporation and
the shareholder's share of such taxes.
Shareholders will use the information to
figure and claim a foreign tax credit on
Form 1116 or 1118.
Part IV of Schedule K-2 (and Part IV
of Schedule K-3). Used to report
information the shareholder needs, in
combination with other information known
to the shareholder, to determine the
amount of each distribution from a foreign
corporation that is treated as a dividend or
excluded from gross income because the
distribution is attributable to previously
taxed earnings and profits (PTEP) in the
shareholder’s annual PTEP accounts with
respect to the foreign corporation, and the
amount of foreign currency gain or loss on
the PTEP that the shareholder is required
to recognize under section 986(c).
Shareholders will report the dividends
and foreign currency gain or loss on Form
1040.
Part V of Schedule K-2 (and Part V
of Schedule K-3). Used to provide
information the shareholder needs to
determine any inclusions under sections
951(a)(1) and 951A. Shareholders will use
the information to complete Form 8992,
U.S. Shareholder Calculation of Global
Intangible Low-Taxed Income (GILTI), and
-2-

Form 1040, with respect to subpart F
income inclusions, section 951(a)(1)(B)
inclusions, and section 951A inclusions.
Part VI of Schedule K-2 (and Part VI
of Schedule K-3). Used to provide
information needed by shareholders to
complete Form 8621, Information Return
by a Shareholder of a Passive Foreign
Investment Company or Qualified Electing
Fund, and to provide shareholders with
information to determine income
inclusions with respect to the passive
foreign investment company (PFIC).
Part VII of Schedule K-2 (and Part
VII of Schedule K-3). Used to provide
the foreign corporation's net income in the
income groups for purposes of the
shareholder's deemed paid taxes
computation with respect to inclusions
under sections 951A and 951(a)(1).
Shareholders will use the information to
figure and claim a deemed paid foreign tax
credit on Form 1118.

Specific Instructions
If the information required in a
given section exceeds the space
CAUTION provided within that section, do
not write “See attached” in the section,
leave the section otherwise blank, and
attach all of the information on additional
sheets. Instead, if the information required
in a given section exceeds the space
provided within that section, complete all
entry spaces in the section and attach the
remaining information on additional
sheets. For all attachments, include the
part, section, line number, and column of
the relevant portion of the Schedules K-2
and K-3. The additional sheets must
conform with the IRS version of that
section.

!

Schedule K-2, Identifying
Information
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, enter the EIN of the S corporation
as it appears on the Form 1120-S.
Item A—Part applicability. Check the
“Yes” box to indicate the applicable parts
of Schedules K-2 and K-3. Complete and
attach each applicable part to Form
1120-S and Schedule K-1 (Form 1120-S).
Check the “No” box to indicate the
inapplicable parts of Schedules K-2 and
K-3. Do not complete and attach the
inapplicable parts.

Instructions for Schedule K-2 (Form 1120-S) (2021)

Schedule K-3, Identifying
Information
Items A and B. Items A and B should be
the same as reported on Schedule K-1
(Form 1120-S), Part I, Items A and B.
Items C and D. Items C and D should be
the same as reported on Schedule K-1
(Form 1120-S), Part II, Items E and F.
Item E. Item E should correspond to
Schedule K-2, Identifying Information,
Item A.

Schedule K-2, Part I
(Corporation’s Other Current
Year International Information),
and Schedule K-3, Part I
(Shareholder's Share of
Corporation's Other Current
Year International Information)
Note. Shareholders will use the
information reported in the attachments
with respect to boxes 1 through 5 and 10
to claim and figure a foreign tax credit on
Form 1116 or 1118. Section 1373(a) treats
an S corporation as a partnership for
purposes of sections 901 through 909 and
sections 951 through 965.
Note. Shareholders will also use the
information reported in attachments with
respect to box 6 to prepare their tax
returns (Form 1040) by taking into account
that under section 267A they are not
allowed deductions for the amounts listed
in the statement with respect to box 6.
Note. Shareholders will use the
information reported in attachments with
respect to boxes 7 through 9 to identify
any international tax information reporting
forms or other international tax forms that
may impact the shareholders tax returns.
This part is used to report information
for international tax items not reported
elsewhere on the Schedule K-2. Check
the box to indicate whether any of the
following international tax items are
applicable in the tax year. If applicable,

attach statements, as described below, to
the Schedule K-2.
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 below with the
shareholder's share of the amounts.
Box 1. Gain on personal property sale.
In general, income from the sale of
personal property is sourced according to
the residence of the seller. See section
865. For sourcing purposes, personal
property sold by the S corporation is
treated as sold by the shareholders. See
section 865(i)(5). A U.S. citizen or resident
alien individual with a tax home (section
911(d)(3)) in a foreign country is treated
as a nonresident with respect to the sale
of personal property only if an income tax
of at least 10% of the gain derived from
the sale is actually paid to a foreign
country, with respect to that gain. See
section 865(g). In addition, if a U.S.
resident maintains an office or other fixed
place of business in a foreign country,
income from the sale of personal property
attributable to such office or other fixed
place of business is foreign source only if
an income tax of at least 10% of the
income from the sale is actually paid to a
foreign country with respect to such
income.
If the S corporation has income from
the sale of personal property (other than
inventory, depreciable personal property,
and certain intangible property excepted
from the general rule of section 865(a)), it
must check box 1 and attach a statement
to both Schedules K-2 and K-3 (for
shareholder’s share) with Table 1,
Information on Personal Property Sold. Do
not combine sales of property. Each item
of property sold must be listed separately
with Table 1 completed. For column (g),
enter the two-letter code from the list at
IRS.gov/CountryCodes. Do not enter
“various” or “OC” for the country code. If
the property sale is taxed by more than
one country, complete a separate line for
that country, but denote in some manner
(for example, a footnote) that the property

Table 1

Information on Personal Property Sold (for use with Sch. K-2 (Form
1120-S), Part I, box 1; also for use with Sch. K-3 (Form 1120-S), Part I,
box 1)

(a) Property
description

(b) Date of
sale

(c) Proceeds

(d) Basis

(e) Amount (f) Amount of
of tax paid in
tax paid
local currency in U.S. dollars

Instructions for Schedule K-2 (Form 1120-S) (2021)

-3-

(g) Taxing
country
(enter
two-letter
country code)

entered on both lines is the same
property.
Box 2. Foreign oil and gas taxes. A
separate foreign tax credit limitation is
applied with respect to foreign oil and gas
taxes. See section 907(a) and Regulations
section 1.907(a)-1 for details. If the S
corporation has such taxes, it must check
box 2 and attach a completed Schedule I
(Form 1118), Reduction of Foreign Oil and
Gas Taxes, to the Schedules K-2 and K-3
(with the shareholder’s share). The S
corporation need not complete Schedule I
(Form 1118), Part I, column 12; Part II,
lines 2 through 4; or Part III, lines 1 and 3.
The S corporation must attach Schedule I
(Form 1118) because the limitation
applies to individuals eligible to claim a
foreign tax credit.
Note. The S corporation attaches a
partially completed Schedule I (Form
1118), so that the shareholder has the
information it needs to complete Form
1116. The S corporation is not attaching
Schedule I (Form 1118), as a form
required to be filed by the S corporation
for purposes of the S corporation
determining creditable taxes because an
S corporation cannot claim a foreign tax
credit.
Box 3. Splitter arrangements. Foreign
taxes with respect to a foreign tax credit
splitting event are suspended until the
related income is taken into account by
the taxpayer. See section 909. There is a
foreign tax credit splitting event with
respect to foreign taxes of a payor if in
connection with a splitter arrangement the
income is or will be taken into account by
a covered person. See Regulations
section 1.909-2(a). A covered person, as
defined in Regulations section 1.909-1(a)
(4), includes, for example, any entity in
which the payor holds, directly or
indirectly, at least a 10% ownership
interest (determined by vote or value). A
payor, as defined in Regulations section
1.909-1(a)(3), includes, for example, a
person that takes foreign income taxes
paid or accrued by a partnership into
account pursuant to section 702(a)(6).
The S corporation must report foreign
taxes that are potentially suspended on
Schedule K-2, Part III, Section 3, line 2E,
and each shareholder's share of such
taxes on Schedule K-3, Part III, Section 3,
line 2E. An S corporation may not be able
to determine whether taxes are
suspended and whether related income is
taken into account. However, where the S
corporation is able to determine that taxes
are potentially suspended, or potentially
unsuspended, it must report such taxes
and the information requested in these
instructions for box 3.

For example, where an S corporation
owns a reverse hybrid and the foreign
country assesses tax on the S corporation
with respect to income earned by the
reverse hybrid, the S corporation should
report such taxes as potentially
suspended taxes.
Report foreign taxes that are potentially
suspended on Schedule K-2, Part III,
Section 3, line 2E, and each shareholder's
share of such taxes on Schedule K-3, Part
III, Section 3, line 2E.
Check box 3 and attach a statement to
both Schedules K-2 and K-3 that includes
the following for each splitter arrangement
in which the S corporation participates that
would qualify as a splitter arrangement
under section 909 if one or more
shareholders are covered persons with
respect to an entity that took into account
related income from the arrangement.
Section 1 of attached
statement—Potentially suspended
taxes.
1. Explanation of the splitter
arrangement (for example, reverse hybrid
owned by S corporation).
2. Amount of taxes paid or accrued by
the S corporation in connection with the
splitter arrangement.
3. Amount of related income on which
such taxes were paid or accrued.
4. The two-letter code for the country
to which the taxes were paid or accrued
from the list at IRS.gov/CountryCodes. Do
not enter “various” or “OC” for the country
code.
5. The separate category and source
of income to which the taxes are assigned
if determinable by the S corporation.

Section 2 of attached
statement—Potentially unsuspended
taxes. Include a separate section that
reports the following with respect to each
splitter arrangement for which the S
corporation has taken into account any
related income.
1. Origin year of the splitter
arrangement.
2. Explanation of the splitter
arrangement (for example, reverse hybrid
owned by the S corporation).
3. Amount of taxes paid or accrued by
the S corporation in connection with the
splitter arrangement in the origin year of
the splitter arrangement.
4. Amount of related income on which
such taxes were paid or accrued in the
origin year of the splitter arrangement.
5. The two-letter code for the country
to which the taxes were paid or accrued
from the list at IRS.gov/CountryCodes. Do
not enter “various” or “OC” for the country
code.
6. The separate category and source
of income to which the taxes are assigned
if determinable by the S corporation.
7. Amount of related income taken
into account in the current tax year and the
amount of taxes originally paid that relate
to that portion of the related income if
determinable by the S corporation.
Box 4. Foreign tax translation. If the S
corporation reports any foreign taxes on
Schedules K-2 and K-3, Part III, Section 3,
it must check the box for item 4 and attach
to Schedules K-2 and K-3 the statement
described in the instructions for those
sections.

Box 5. High-taxed income. If the S
corporation has passive income, the S
corporation must check the box for item 5
and attach a statement to Schedules K-2
and K-3 with Attachment 1 or 2, or both,
completed. These attachments will
provide the shareholder with the
information to determine whether its
passive income is high-taxed passive
income.
Income received or accrued by a U.S.
person that would otherwise be passive
income is not treated as passive income if
the income is determined to be high-taxed
income. See section 904(d)(2)(B)(iii)(II).
To determine if income is high-taxed
income, a shareholder must group its
shares of passive income from an S
corporation according to the rules in
Regulations section 1.904-4(c)(3), except
that the portion, if any, of the share of
income attributable to income earned by
an S corporation through a foreign
qualified business unit (QBU) is separately
grouped under the rules of Regulations
section 1.904-4(c)(4). See also
Regulations section 1.904-4(c)(5)(ii). For
this purpose, a foreign QBU is a qualified
business unit (as defined in section
989(a)), other than a controlled foreign
corporation (CFC) or noncontrolled
10%-owned foreign corporation, that has
its principal place of business outside the
United States.
Note. Passive income is not treated as
subject to a withholding tax or other
foreign tax when a credit is disallowed in
full for such foreign tax, for example, under
section 901(k).

Attachment 1
Reference: Regulations section 1.904-4(c)(3)
I. Passive Income Net of Allocable Expenses
A

Passive income subject to withholding tax of 15%
or more

B

Passive income subject to withholding tax of less
than 15% but greater than zero

C

Passive income not subject to any foreign tax

D

Passive income subject to no withholding tax, but
subject to other foreign tax

-4-

II. Taxes

Instructions for Schedule K-2 (Form 1120-S) (2021)

Attachment 2
Reference: Regulations section 1.904-4(c)(4)
A

Name of foreign QBU:
(Complete a separate Attachment 2 for each
foreign QBU.)

I. Passive Income Net of Allocable Expenses

B

Passive income subject to withholding tax of 15%
or more

C

Passive income subject to withholding tax of less
than 15% but greater than zero

D

Passive income not subject to any foreign tax

E

Passive income subject to no withholding tax, but
subject to other foreign tax

Example 1. USC is an S corporation,
with two U.S. citizen individual
shareholders with equal interests in the S
corporation. In Year 1, USC receives $100
of passive dividend income from a
noncontrolled 10%-owned foreign
corporation subject to a 15% withholding
tax. USC also receives $150 of passive
interest income from an unrelated person
subject to a 30% withholding tax. USC
incurs $80 of expenses that are allocable

to the interest income. USC also receives
$50 of passive dividend income from a
CFC, which is not subject to tax. No
expenses are allocable to the dividend
income. USC's branch operation in
Country X that is treated as a QBU under
section 989(a) receives $100 of passive
dividend income subject to a 15%
withholding tax. Finally, USC earns $400
of passive income with respect to its
branch operation in Country X that is

II. Taxes

treated as a QBU under section 989(a).
Such income is subject to foreign tax (but
not withholding tax) of $40. Expenses of
$120 are allocable to the share of branch
income. No expenses are allocable to the
dividend income.
For Year 1, USC checks box 5 on Part I
of Schedule K-2 (Form 1120-S) and
attaches Attachments 1 and 2 to Form
1120-S, Schedule K-2.

Attachment 1 for Example 1
Reference: Regulations section 1.904-4(c)(3)
I. Passive Income Net of Allocable Expenses

II. Taxes

A

Passive income subject to withholding tax of 15%
or more

$170

$60

B

Passive income subject to withholding tax of less
than 15% but greater than zero

0

0

C

Passive income not subject to any foreign tax

50

0

D

Passive income subject to no withholding tax, but
subject to other foreign tax

0

0

I. Passive Income Net of Allocable Expenses

II. Taxes

Attachment 2 for Example 1
Reference: Regulations section 1.904-4(c)(4)
A

Name of foreign QBU: Country X QBU
(Complete a separate Attachment 2 for each
foreign QBU.)

B

Passive income subject to withholding tax of 15%
or more

$100

$15

C

Passive income subject to withholding tax of less
than 15% but greater than zero

0

0

D

Passive income not subject to any foreign tax

0

0

E

Passive income subject to no withholding tax, but
subject to other foreign tax

280

40

USC completes the same attachments
with the shareholder shares and attaches
those attachments to each Schedule K-3
provided to the shareholders.
Box 6. Section 267A disallowed deduction. Shareholders will also use the
information from box 6 to prepare their tax

returns (Form 1040) by taking into account
that under section 267A they are not
allowed deductions for the amounts listed
in the statement with respect to box 6.
Check box 6 if the S corporation paid or
accrued any interest or royalty for which
the S corporation knows, or has reason to

Instructions for Schedule K-2 (Form 1120-S) (2021)

-5-

know, that one or more of its shareholders
is not allowed a deduction under section
267A. See the instructions for Form 1065,
Schedule B, line 22, and FAQs for section
267A at IRS.gov/businesses/partnerships/
faqs-for-Form-1065-Schedule-B-OtherInformation-Question-22 for additional
information regarding section 267A. In

addition, for each shareholder that is
disallowed a deduction under section
267A, the corporation should, on the
Schedule K-3 as to the specific
shareholder, 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 on other parts of the
Schedule K-3 (for example, a line in Part
II, Section 2) reflects interest or royalty for
which the shareholder is not allowed a
deduction under section 267A.
When completing other parts of
Schedules K-2 and K-3 (for
CAUTION example, a line in Part II, Section
2), list an amount without regard to
whether the shareholder is disallowed a
deduction under section 267A for the
amount.

!

Box 7. Form 8858 information. If the S
corporation filed one or more Forms 8858,
Information Return of U.S. Persons With
Respect to Foreign Disregarded Entities
(FDEs) and Foreign Branches (FBs),
check box 7 and attach such form(s) to the
Schedules K-2 and K-3.
Box 8. Form 5471 information. If the S
corporation filed one or more Forms 5471,
Information Return of U.S. Persons With
Respect to Certain Foreign Corporations,
check box 8 and attach such form(s) to the
Schedules K-2 and K-3.
Box 9. Other forms. If the S corporation
filed any other international tax forms,
check box 9, and attach such form(s) to
the Schedules K-2 and K-3. This includes,
but is not limited to, the Form 5713,
International Boycott Report.
See Other Forms and Statements That
May Be Required in the Instructions for
Form 1120-S.
Box 10. Shareholder loan transactions.
An S corporation will need to check this
box and complete the attachment if either
the S corporation knows or has reason to
know that it (i) received a loan from its
shareholder (“downstream loan”), as
described in Regulations section
1.861-9(e)(8), or (ii) loaned an amount to
its shareholder (“upstream loan”), as
described in Regulations section
1.861-9(e)(9).

Downstream loan. On the attachment
to both the Schedules K-2 and K-3,
provide the details with respect to any
downstream loans from its shareholder,
including the amount of interest expense
paid or accrued by the S corporation.
Report the information separately for each
separate loan. The reporting should be as
follows.

Table 2. Downstream Loans
Name of
lender

Lender’s
TIN

Date of
loan

Amount of
loan

Interest
expense
for year

Upstream loan. On the attachment to
both the Schedules K-2 and K-3, provide
the details with respect to any upstream
loans to its shareholder, including the
amount of interest income received or
accrued by the S corporation. Report the
information separately for each separate
loan. The reporting should be as follows.

Table 3. Upstream Loans
Name of
borrower

Borrower’s
TIN

Date of
loan

Amount of
loan

Interest
expense
for year

Box 11. Entity treatment for certain S
corporations. If the S corporation has
made an election described in Notice
2020-69, 2020-39 I.R.B. 604, to be treated
as owning stock of a CFC within the
meaning of section 958(a) for purposes of
applying section 951A, check box 11.
Box 12. Other international transactions. If the S corporation has
transactions, income, deductions,
payments, or anything else that implicates
the international tax provisions of the
Internal Revenue Code and such events
are not otherwise reported on this part or
other parts of Schedules K-2 and K-3,
report that information on an attachment to
the Schedules K-2 and K-3 and check
box 12.

Schedule K-2, Parts II and III,
and Schedule K-3, Parts II and
III
Note. Shareholders will use the following
information to claim and figure a foreign
tax credit on Form 1116 or 1118.
Schedules K-2 and K-3, Parts II and III,
must be completed if the S corporation
has at least one shareholder who is
eligible to claim a foreign tax credit and
such shareholder would have to file a
Form 1116 or Form 1118 to claim a credit.
This requirement applies regardless of
whether the S corporation pays or accrues
foreign taxes because other information,
-6-

such as the source of the S corporation’s
income and the value of its assets, are
relevant in determining the shareholder’s
foreign tax credit. See section 901.
On Schedules K-2 and K-3, Parts II and
III, the S corporation reports its gross
income, gross receipts, cost of goods
sold, certain deductions, and taxes by
source and separate category. The S
corporation also reports information that
the shareholders will need to allocate and
apportion expenses and determine the
source of certain items of gross income.
Unless specifically noted below, the S
corporation reports on Schedule K-3,
Parts II and III, the shareholder's share of
the S corporation's gross receipts, gross
income, cost of goods sold, certain
deductions, and taxes by source and
separate category. The shareholder adds
its share of the S corporation's foreign
source gross receipts, gross income, cost
of goods sold, certain deductions, and
taxes by separate category to its other
foreign source gross receipts, gross
income, cost of goods sold, certain
deductions, and taxes in that separate
category to figure its foreign tax credit.
The S corporation also reports on the
Schedule K-3 the share of expenses and
the allocation and apportionment factors
so that the shareholder may determine
expenses allocated and apportioned to
foreign source income.
S corporation determination. The
source and separate category of certain
gross income, gross receipts, cost of
goods sold, as well as the allocation and
apportionment of certain deductions, can
be determined by the S corporation. This
includes deductions that are definitely
related to certain gross income and gross
receipts of the S corporation. See
Regulations section 1.861-8(b)(1). See
Schedule K-2, Part II, columns (a) through
(e), and Part III, Section 1, columns (a)
through (e). In Part III, Section 2, columns
(a) through (e), some S corporation assets
may be characterized by source and
separate category by the S corporation.
This includes certain assets that attract
directly allocated interest expense under
Temporary Regulations section
1.861-10T(b) and (c). See Temporary
Regulations section 1.861-10T(d)(2).
In Part III, Section 3, in the U.S. and
foreign columns, the S corporation
assigns foreign taxes paid or accrued to a
separate category and source.
The shareholder's share of the
amounts determined by the S corporation
are reported on equivalent columns in
Schedule K-3, Parts II and III.
Certain gross income, gross receipts,
cost of goods sold, assets, deductions,
and taxes are not assigned to a source or

Instructions for Schedule K-2 (Form 1120-S) (2021)

separate category by the S corporation.
See Shareholder determination, later.
Exception. If the S corporation knows
that its only shareholders are
less-than-10% shareholders that do not
hold their interest in the ordinary course of
the shareholder's active trade or business,
the S corporation's foreign source gross
income should be reported as passive
category income and its deductions
allocated and apportioned to foreign
source income should be reported as
reducing passive category income. See
Schedule K-2, Part II, column (c), and Part
III, Section 1, column (c). Report the
assets as generating passive category
income in Schedule K-2, Part III, Section
2, column (c). Similarly, any foreign taxes
paid or accrued on foreign source income
should be assigned to passive category
income. See Schedule K-2, Part III,
Section 3, column (d). The shareholder's
share of the amounts determined by the S
corporation are reported on equivalent
columns in Schedule K-3, Parts II and III.
See Regulations section 1.904-4(n)(1)(ii).
Schedule K-3. If the S corporation
knows or has reason to know that some
shareholders are less-than-10%
shareholders (and their S corporation
interest is not held in the ordinary course
of the shareholder's active trade or
business), but not all shareholders meet
this description, when completing the
Schedule K-3 for the less-than-10%
shareholders, report the shareholder's
foreign source income as passive
category income. See Part II, column (c),
and Part III, Section 1, column (c). Report
the assets as generating passive category
income in Part III, Section 2, column (c).
Similarly, report the foreign taxes paid or
accrued on foreign source income as
passive category income in Part III,
Section 3, column (d).
Foreign branch category income. An S
corporation itself does not have foreign
branch category income. However, report
all amounts that would be foreign branch
category income of its shareholders as if
all shareholders were U.S. persons that
were not pass-through entities. See
Schedule K-2, Part II, column (b); Part III,
Sections 1 and 2, column (b); and Part III,
Section 3, column (c). The shareholder's
share of the amounts determined by the S
corporation are reported on equivalent
columns in Schedule K-3, Parts II and III.
Section 901(j) income. Income derived
from each sanctioned country is subject to
a separate foreign tax credit limitation. If
the S corporation derives such income,
enter code “901j” on the line after
“category code.” See Schedule K-2, Part
II, column (e); Part III, Sections 1 and 2,
column (e); Part III, Section 3, column (f).

The shareholder's share of the amounts
determined by the S corporation are
reported on equivalent columns in
Schedule K-3, Parts II and III. See the
Instructions for Form 1116 for the potential
countries to be listed with the section
901(j) category of income.
Note. At the time these instructions went
to print, section 901(j) is the only category
reported in Part II, Sections 1 and 2,
column (e), and Part III, Sections 1 and 2,
column (e).
Section 951A category income.
Section 951A category income is any
amount of Global Intangible Low-Taxed
Income (GILTI) includible in gross income
under section 951A (other than passive
category income). (Section 951A category
income does not include passive category
income.) If the S corporation pays or
accrues tax on the receipt of a distribution
of PTEP assigned to the reclassified
section 951A PTEP or section 951A PTEP
groups, the S corporation must assign
those taxes to section 951A category
income. The S corporation will enter these
taxes on Part III, Section 3, column (b).
Section 951A category income is not
otherwise reported on the Schedules K-2
and K-3.
Note. An S corporation may have an
income inclusion under section 951A if it
made an election described in Notice
2020-69, 2020-39 I.R.B. 604, to be treated
as owning stock of a CFC within the
meaning of section 958(a) for purposes of
applying section 951A.
Note. Do not report as taxes assigned to
section 951A category income taxes on a
distribution that is attributable to PTEP in a
shareholder’s (as opposed to the S
corporation’s) annual PTEP accounts.
Income resourced by treaty. If a
sourcing rule in an applicable income tax
treaty treats any U.S. source income as
foreign source, and there is an election to
apply the treaty, the income will be treated
as foreign source. This category applies if
the S corporation pays or accrues foreign
taxes on receipt of a distribution of PTEP
that is sourced from an annual PTEP
account of the S corporation that
corresponds to the separate category
relating to U.S. source income included
under section 951(a)(1) and resourced as
foreign source income under a treaty.
The designations below are only
relevant for Part III, Section 3, column (f).
Code “RBT PAS.” If an applicable
income tax treaty treats any U.S. source
passive category income as foreign
source passive category income, and
there is an election to apply the treaty,
enter code “RBT PAS.”

Instructions for Schedule K-2 (Form 1120-S) (2021)

-7-

Code “RBT GEN.” If an applicable
income tax treaty treats any U.S. source
general category income as foreign
source general category income, and
there is an election to apply the treaty,
enter code “RBT GEN.”
Code “RBT 951A.” If an applicable
income tax treaty treats any U.S. source
section 951A category income as foreign
source section 951A category income,
and there is an election to apply the treaty,
enter code “RBT 951A.”
Shareholder determination. In
Schedule K-2, Part II, column (f), and Part
III, Section 1, column (f), enter the gross
income, income adjustments, and gross
receipt of the S corporation that is required
to be sourced by the shareholder. This
includes income from the sale of most
personal property other than inventory,
depreciable property, and certain
intangible property sourced under section
865. See section 1366. This also includes
certain foreign currency gain on section
988 transactions. See the Instructions for
Form 1116 and Pub. 514, Foreign Tax
Credit for Individuals, for additional details.
Schedule K-2, Part II, column (f), includes
deductions that are allocated and
apportioned by the shareholder. This
includes most interest and R&E expense.
See Regulations sections 1.861-9(e) and
1.861-17(f). In Schedule K-2, Part III,
Section 2, column (f), enter the assets that
are assigned to a source and separate
category by the shareholder. In
Schedule K-2, Part III, Section 3, in the
shareholder column, enter the foreign
taxes that are assigned to a source of
income by the shareholder. This includes
taxes imposed on certain sales income.
The shareholder's share of the amounts
determined by the S corporation are
reported on equivalent columns in
Schedule K-3, Parts II and III.

Schedule K-2, Part II, and
Schedule K-3, Part II (Foreign
Tax Credit Limitation)
Section 1. Gross Income
Lines 1 through 24. Form 1116 requires
a corporation to separately report gross
income by source and separate category.
See sections 861 through 865 (and
section 904(h) and, in some cases, U.S.
income tax treaties). See also section
1366. Therefore, shareholders will report
line 24 by country on their Form 1116, Part
I, line 1a. Section 1 generally also follows
the types of gross income separately
reported on Form 1120-S, Schedule K.
Shareholders making a section 962
election, in addition to completing the
Form 1116, complete the Form 1118
solely with respect to the deemed paid

credit for inclusions under sections 951(a)
and 951A.
For each line, report the total for each
country in column (g).
Country code. Forms 1116 and 1118
require the taxpayer to report the foreign
country or U.S. possession with respect to
which the gross income is sourced. On
lines 1 through 24, for each gross income
item, enter on a separate line (A, B, or C)
the two-letter code from the list at the
foreign country or U.S. possession within
which the gross income is sourced. If a
type of income is sourced from more than
three countries, attach a statement to
expand Schedules K-2 and K-3, Part II, for
that type of income to report the additional
countries.
Note. Do not enter “various” for the
country code. If the country code is U.S. or
sourced at the shareholder level, enter
“OC.”
Example 2. In Year 1, USC, an S
corporation, has employees who perform
services in Country X and Country Y. USC
earns $25,000 of general category
services income, $10,000 with respect to
Country X, and $15,000 with respect to
Country Y. The two-letter code for Country
X is XX and the two-letter country code for
Country Y is YY. USC makes the following
entries on the first two lines of
Schedule K-2, Part II, under line 2.

Example 2 Table
Description

(d)

A

XX

$10,000

B

YY

$15,000

Exceptions. The instructions for
Forms 1116 and 1118 specify exceptions
from the requirement to report gross
income by foreign country or U.S.
possession with respect to regulated
investment companies and section 863(b).
Do not enter a foreign country or U.S.
possession (to report on a
country-by-country basis) for lines 16
through 18.
Lines 3 and 4. Rental income. These
lines are reported separately because
they are reported separately on Form
1120-S, Schedule K. The sourcing rule
may be the same for both types of rental
income.
Lines 7 and 8. Ordinary dividends and
qualified dividends. Enter only ordinary
dividends on line 7 and only qualified
dividends on line 8. Do not include as
ordinary dividends or qualified dividends
the amount of any distributions received to

the extent that they are attributable to
PTEP in annual PTEP accounts of the S
corporation. See the instructions for
line 19 for when an S corporation might
have an income inclusion with respect to a
foreign corporation.
Note. The amount by which distributions
are attributable to PTEP in annual PTEP
accounts of a person other than the S
corporation (for example, a shareholder) is
not determined by the S corporation and
therefore is not taken into account for
purposes of determining the ordinary
dividends to be entered on line 7 or the
qualified dividends to be entered on line 8.
Lines 11 through 15 and 27 through
30. Capital gains and losses. These
lines generally match the types of gains
and losses reported separately on Form
1120-S, Schedule K. Further, section
904(b)(2)(B) contains rules regarding
adjustments to account for capital gain
rate differentials (as defined in section
904(b)(3)(D)) for any tax year.
Lines 16 and 46. Section 986(c) gain
and loss. Include the S corporation’s
share of a lower-tier pass-through entity’s
section 986(c) gain or loss, and the
amount of section 986(c) gain or loss on
distributions of PTEP sourced from the S
corporation’s annual PTEP accounts.
Note. An S corporation is only
responsible for figuring and reporting
foreign currency gain or loss under section
986(c) with respect to distributed PTEP
sourced from an annual PTEP account of
the S corporation. It is not responsible for
figuring or reporting foreign currency gain
or loss under section 986(c) with respect
to distributed PTEP sourced from an
annual PTEP account of a person other
than the S corporation (for example, a
shareholder).
Lines 17 and 47. Section 987 gain and
loss. The source of 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.
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 taxpayer or QBU on
whose books the asset, liability, or item of
income or expense is properly reflected. If
the source is determined by reference to
the residence of the taxpayer shareholder,
the section 988 gain and loss would be
reported in column (f).
Line 19. Section 951(a) inclusions.
Report section 951(a) inclusions if the S
corporation takes into account such
-8-

income. An S corporation may not have
subpart F income if, pursuant to Proposed
Regulations section 1.958-1(d)(4), it
applies Proposed Regulations section
1.958-1(d)(1), which treats an S
corporation as not owning stock of a
foreign corporation within the meaning of
section 958(a) for purposes of section
951, and for purposes of any other
provision that applies by reference to
section 951.
Line 20. Other income. Attach a
statement to the Schedules K-2 and K-3
describing the amount and type of other
income.
Line 21. Section 951A(a) inclusions.
Report section 951A(a) inclusions if the S
corporation takes into account such
income. An S corporation will not have an
income inclusion under section 951A
unless it made an election described in
Notice 2020-69, 2020-39 I.R.B. 604, to be
treated as owning stock of a CFC within
the meaning of section 958(a) for
purposes of applying section 951A.
Line 24. Total gross income. Enter the
total gross income received from all
sources on line 24. Then add the gross
income on lines 1 through 23 by country or
possession and enter the total by country
in rows A, B, and C (and additional rows if
more than three countries).

Section 2. Deductions
Lines 25 through 54. Deductions of the
S corporation must be allocated and
apportioned according to certain rules.
See, for example, Regulations sections
1.861-8 through -20 and Temporary
Regulations sections 1.861-8T and -9T.
See also section 1366. For purposes of
allocating and apportioning expenses, in
general, a shareholder adds the share of
the S corporation's deductions to its other
deductions incurred directly by the
shareholder. See Regulations section
1.861-8(e)(15). The shareholder reports
such deductions on Form 1116, Part I,
lines 2 through 5. Section 2 generally also
corresponds to the deductions separately
reported on Form 1120-S, Schedule K.
Line 32. R&E expenses. In general,
R&E expenses are allocated and
apportioned by the shareholder and
reported in column (f). See Regulations
section 1.861-17(f). R&E expenses, as
described in section 174, are ordinarily
definitely related to gross intangible
income reasonably connected with
relevant broad product categories of the
taxpayer and are allocable to gross
intangible income as a class related to
such product categories. The product
categories are determined by reference to
the three-digit classification of the

Instructions for Schedule K-2 (Form 1120-S) (2021)

Standard Industrial Classification Manual
(SIC code).
Line 38. Charitable contributions.
Charitable contribution deductions are
apportioned solely to U.S. source gross
income. See Regulations section
1.861-8(e)(12). Therefore, this deduction
should be reported in column (a).
Lines 39 and 40. Interest expense specifically allocable under Regulations
sections 1.861-10 and -10T. Apart from
interest expense entered on line 39, enter
on line 40 interest expense that is directly
allocable under Temporary Regulations
section 1.861-10T to income from specific
S corporation property. Such interest
expense is treated as directly allocable to
income generated by such S corporation
property. See Temporary Regulations
section 1.861-9T(e)(1).
Lines 41 through 43. Other interest expense. A shareholder's share of an S
corporation's interest expense that is not
directly allocable to income from specific
S corporation property is generally
allocated and apportioned by the
shareholder, subject to certain exceptions,
and included in column (f). See
Temporary Regulations section
1.861-9T(e)(1).
Interest expense incurred by certain
individuals, estates, and trusts is
characterized based on the categories of
interest expense in sections 163 and 469:
active trade or business interest,
investment interest, or passive activity
interest, adjusted for any interest expense
directly allocated under Temporary
Regulations section 1.861-10T. See
Regulations section 1.861-9T(d). The
amounts in each category of interest
expense are reported on lines 41 through
43.
Exception. If an S corporation's only
shareholders are less-than-10%
shareholders that do not hold their S
corporation interest in the ordinary course
of the shareholder's active trade or
business, the S corporation's interest
expense is directly allocated to S
corporation gross income based on
source of income. All such income is
passive category income. See
Regulations section 1.861-9(e)(4)(i) for
further guidance. However, if the
shareholder is not a less-than-10%
shareholder or the S corporation interest is
held in the ordinary course of the
shareholder’s active trade or business,
follow the aforementioned rules.
Exception. See Regulations section
1.861-9(e)(8) and (9) for a special rule for
S corporation loans. See also the
instructions for box 10 of Part I.

Line 45. Foreign taxes not creditable
but deductible. See the instructions for
Forms 1116 and 1118 for examples of
foreign taxes that are deductible, but not
creditable.
Note. Foreign taxes that are creditable
(even if a shareholder chooses to deduct
such taxes) are not reported as expenses
on Part II. Creditable taxes are reported on
Part III, Section 3.
Lines 49 and 50. Other deductions.
Attach a statement to the Schedules K-2
and K-3 describing the amount and type of
other deductions. The statement must
conform to the format of Part II.

Schedule K-2, Part III, and
Schedule K-3, Part III (Other
Information for Preparation of
Form 1116 or 1118)
Section 1. R&E Expenses
Apportionment Factors
This section requires the S corporation to
report information that a shareholder will
use to allocate and apportion its R&E
expense for foreign tax credit limitation
purposes.
Deductible R&E expenses, as
described in section 174, are ordinarily
definitely related to gross intangible
income reasonably connected with
relevant broad product categories of the
taxpayer and are allocable to gross
intangible income as a class related to
such product categories. The product
categories are determined by reference to
the three-digit classification of the SIC
code. In general, R&E expenses are
apportioned based on gross receipts.
R&E expenses are allocated and
apportioned by the shareholder. See
Regulations section 1.861-17(f)(1). The
regulations require the S corporation to
report to its shareholders the gross
receipts by SIC code according to source
and separate category of income. They
also require the S corporation to report the
amount of R&E expense performed in the
United States and outside the United
States to apply exclusive apportionment.
See Regulations section 1.861-17(f)(2).
Column (e). As of the date of these
instructions, the only separate category
that could be included in column (e) is the
section 901(j) category of income. See the
Instructions for Form 1116 for the potential
countries to be listed with the section
901(j) category of income.
Line 1. Enter the gross receipts by SIC
code for each grouping. Such gross
receipts include both the S corporation's
gross receipts and certain other parties'

Instructions for Schedule K-2 (Form 1120-S) (2021)

-9-

gross receipts. See Regulations section
1.861-17(d)(3) and (4). Sales of parties
controlled by the S corporation should be
included on line 1 if such controlled parties
can reasonably be expected to benefit
from the R&E expense connected with the
product categories. This includes sales
that benefit from the shareholder's R&E
expenses if licensed through the S
corporation. Sales of uncontrolled parties
are also taken into account if such sales
involve intangible property that was
licensed or sold to the uncontrolled party if
the uncontrolled party can reasonably be
expected to benefit from the R&E
expense.
Line 2. Report the amount of R&E
expense related to activity performed in
the United States and the amount of R&E
expense related to activity performed
outside the United States by SIC code.
The total of the amounts on Schedule K-2,
Part III, Section 1, line 2, must equal
Schedule K-2, Part II, line 32. Similarly, the
total of the amounts on Schedule K-3, Part
III, Section 1, line 2, must equal
Schedule K-3, Part II, line 32.
Note. Line 2 is not reported according to
source or separate category.
Note. The SIC code for line 2B(i) does
not need to be the same SIC code for
line 2A(i).

Section 2. Interest Expense
Apportionment Factors
This section requires the S corporation to
report information that a shareholder will
use to allocate and apportion its interest
expense for foreign tax credit limitation
purposes.
Interest expense is apportioned based
on the average value of assets. See
Regulations section 1.861-9(g)(2)(i)(A). A
taxpayer can use either the tax book value
or the alternative book value of its assets.
See Regulations section 1.861-9(i). When
reporting the asset that is the basis of
stock in nonaffiliated 10%-owned
corporations, adjust such amount for
earnings and profits (E&P). See
Regulations section 1.861-12(c)(2)(i)(A).
Column (b). The S corporation
characterizes its pro rata share of the S
corporation assets that give rise to foreign
branch category income as assets in the
foreign branch category. See Regulations
section 1.861-9(e)(10).
Column (e). As of the date of these
instructions, the only separate category
that could be included in column (e) is the
section 901(j) category of income. See the
Instructions for Form 1116 for the potential

countries to be listed with the section
901(j) category of income.
Line 1. Report the average of the
beginning-of-year and end-of-year basis in
the S corporation’s assets. See
Regulations section 1.861-9(g)(2)(i)(A).
Lines 3 and 4. Report reductions in the S
corporation's asset values to reflect the S
corporation's directly allocable interest
under Regulations section 1.861-10(e)
and Temporary Regulations section
1.861-10T. See also Temporary
Regulations section 1.861-9T(e)(1).
Line 5. Report the average value of
assets excluded from the apportionment
formula. See section 864(e)(3).
Line 6. Shareholders with an interest in
the S corporation of 10% or more
apportion interest expense by reference to
the shareholder's assets, including the
shareholder's pro rata share of S
corporation assets. See Regulations
section 1.861-9(e)(2). Interest expense
must be apportioned according to the
interest expense classifications under
sections 163 and 469. This includes
reporting the assets according to such
classifications.
Lines 7 and 8. The amounts reported on
lines 7 and 8 are subsets of the amounts
reported on line 6 representing the value
of stock held by the S corporation in
certain foreign corporations.
With respect to an S
corporation-owned specified 10% foreign
corporation that is not a CFC, the S
corporation will 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 the S corporation’s basis in
the stock adjusted to take into account the
E&P of the foreign corporations as
explained in Regulations section
1.861-12(c)(2). The S corporation must
attach a statement to the Schedules K-2
and K-3 with the following information for
each foreign corporation for which
adjusted basis is reported on line 7.
• Name of foreign corporation.
• EIN or reference ID number. Do not
enter “FOREIGNUS” or “APPLIED FOR.”
• Percentage of voting and value of stock
owned by the S corporation in such
foreign corporation.
• Value of the stock in such corporation
included in each of the groupings in 6b
through d (denoting separately each of
those groupings).
With respect to S corporation-owned
CFCs, the S corporation will report on
line 8, column (f), the total value of its
stock in all such foreign corporations. The
value of the stock is the S corporation's
basis in the stock adjusted to take into
account the E&P of the foreign

corporations as explained in Regulations
section 1.861-12(c)(2). The S corporation
must attach a statement to the Schedules
K-2 and K-3 with the following information
for each foreign corporation for which
basis is reported on line 8.
• Name of foreign corporation.
• EIN or reference ID number. Do not
enter “FOREIGNUS” or “APPLIED FOR.”
• Percentage of voting and value of stock
owned by S corporation in such foreign
corporation.
• Value of the stock in such corporation.

Section 3. Foreign Taxes
In Part III, Section 3, the S corporation
assigns foreign taxes paid or accrued
(including on U.S. source income) to a
separate category and source. Include
taxes paid or accrued to foreign countries
or to U.S. possessions.
Attachment. As previously mentioned in
the instructions for Schedules K-2 and
K-3, Part I, box 4, for each of the amounts
listed in lines 1 through 3, attach a
statement to the Schedules K-2 and K-3
reporting the following information.
• The dates on which the taxes were paid
or accrued.
• The exchange rates used.
• The amounts in both foreign currency
and U.S. dollars. See section 986(a).
Column (a). Enter the code for the type
of tax.

Codes for Types of Tax
Code

Type of Tax

WHTD

Withholding tax on dividends

WHTP

Withholding tax on distributions of
PTEP

WHTB

Withholding tax on branch
remittances

WHTR

Withholding tax on rents, royalties,
and license fees

WHTI

Withholding tax on interest

ECI

Taxes paid or accrued to foreign
countries or possessions on certain
effectively connected income

OTHS

Other foreign taxes paid or accrued
on sales income

OTHR

Other foreign taxes paid or accrued
on services income

OTH

Other foreign taxes paid or accrued

Column (b). Taxes assigned to section
951A category. Taxes assigned to
section 951A category income are taxes
paid or accrued on distributions of PTEP
assigned to the reclassified section 951A
PTEP and section 951A PTEP groups. An
S corporation might not be able to
complete this column due to lack of
-10-

information regarding the treatment of the
current year distributions.
Note. An S corporation may have an
income inclusion under section 951A if it
made an election described in Notice
2020-69, 2020-39 I.R.B. 604, to be treated
as owning stock of a CFC within the
meaning of section 958(a) for purposes of
applying section 951A.
Note. Do not report as taxes assigned to
section 951A category income taxes on a
distribution that is attributable to PTEP in a
shareholder’s (as opposed to the S
corporation’s) annual PTEP accounts.
Column (f). Other category.
Foreign taxes paid or accrued to
sanctioned countries. No credit is
allowed for foreign taxes paid or accrued
to certain sanctioned countries.
Foreign taxes related to PTEP
resourced by treaty. If the S corporation
pays or accrues foreign taxes on receipt of
a distribution of PTEP that is sourced from
an annual PTEP account of the S
corporation that corresponds to the
separate category relating to U.S. source
income included under section 951(a)(1)
and resourced as foreign source income
under a treaty, such taxes are included in
column (f).
On the line after “category code,” enter
one of the following codes:
Code “RBT PAS.” If an applicable
income tax treaty treats any U.S. source
passive category income as foreign
source passive category income, and
there is an election to apply the treaty,
enter code “RBT PAS.”
Code “RBT GEN.” If an applicable
income tax treaty treats any U.S. source
general category income as foreign
source general category income, and
there is an election to apply the treaty,
enter code “RBT GEN.”
Code “RBT 951A.” If an applicable
income tax treaty treats any U.S. source
section 951A category income as foreign
source section 951A category income,
and there is an election to apply the treaty,
enter code “RBT 951A.”
Line 1. Enter in U.S. dollars the total
foreign taxes (described in section 901 or
section 903) that were paid or accrued by
the S corporation (according to its method
of accounting for such taxes). Do not
reduce the amount that you report on
line 1 by the reductions reported on line 2.
Do not report redetermined taxes on
line 1. Report such taxes on line 3.
If the S corporation uses the cash
method of accounting for foreign taxes,
check the “Paid” box and enter foreign

Instructions for Schedule K-2 (Form 1120-S) (2021)

taxes paid during the tax year on line 1.
Report each shareholder's share on line 1
of Section 3 of Schedule K-3, Part III.
If the S corporation uses the accrual
method of accounting for foreign taxes,
check the “Accrued” box and enter foreign
taxes accrued on line 1. Report each
shareholder's share on line 1 of Section 3
of Schedule K-3, Part III.
Note. Check only one box “Paid” or
“Accrued” depending on the method of
accounting the S corporation uses to
account for foreign taxes.
Enter on a separate line (that is, after A,
B, and C), taxes paid or accrued to each
country. Enter the two-letter code from the
list at IRS.gov/CountryCodes. Do not enter
“various” or “OC” for the country code.
Example 3. The facts are the same as
in Example 2, earlier. USC has the cash
method of accounting and pays taxes of
$1,000 and $3,000 to Countries XX and
YY, respectively. USC completes Part III,
Section 3, line 1, as follows.

Example 3 Table

Direct
(901/903)
foreign
taxes

Paid

(a)

(e)

Type
of tax

Foreign

A

XX

OTHR

1,000

B

YY

OTHR

3,000

Line 2. Enter on line 2 a negative number
for the sum of the taxes in the following
categories.
A. Taxes on foreign mineral income
(section 901(e)).
B. Reserved.
C. Taxes attributable to boycott
operations (section 908).
D. Reduction in taxes for failure to
timely file (or furnish all of the information
required on) Forms 5471 and 8865
(section 6038(c)).
E. Foreign income taxes paid or
accrued during the current tax year with
respect to splitter arrangements under
section 909.
F. Foreign taxes on foreign corporate
distributions. For example, include taxes
on distributions of PTEP assigned to the
following PTEP groups: reclassified
section 965(a) PTEP, reclassified section
965(b) PTEP, section 965(a), and section
965(b) PTEP, a portion of which are not
creditable. The S corporation may be
unable to determine the amount of a
distribution that is attributable to

non-previously taxed E&P or PTEP for
which a foreign tax credit may be partially
or entirely disallowed. However, it is
important to track this amount as a tax on
a distribution.
G. Other. Attach a statement to the
Schedules K-2 and K-3 indicating the
reason for the reduction.
There is no need to report the amounts
on line 2 by country.
Line 3. Enter in U.S. dollars the change in
foreign tax as a result of a foreign tax
redetermination. See section 905(c) and
Regulations sections 1.905-3 through -5. If
the amount is less than the original foreign
tax, report the change as a negative
amount. If the amount is more than the
original foreign tax, report the change as a
positive amount.
Note. Payment of additional foreign taxes
that relate to an earlier tax year by an S
corporation that has the cash method of
accounting does not result in a foreign tax
redetermination. See Regulations section
1.905-3(a). Such amounts should be
reported on line 1 as foreign taxes paid by
the S corporation in the current year.
Report the U.S. tax year to which the
foreign tax relates. This would be the U.S.
tax year that includes the close of the
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,
enter one of the dates paid on the
schedule itself and then attach a
statement to the Schedules K-2 and K-3,
including all of the information reported on
the schedule with the other dates paid.
If there is more than one
redetermination in a year with respect to
different countries, report such
redeterminations on separate lines. Enter
the two-letter code from the list at IRS.gov/
CountryCodes. Similarly, if there is more
than one redetermination in a year with
respect to the same country, but the
redeterminations are related to different
years, report such redeterminations on
separate lines. Do not enter “various” or
“OC” for the country code.
Example 4. The facts are the same as
in Example 3, earlier. In Year 3, USC
resolves a contest with the Country YY
taxing authorities and reduces the Country
YY tax to $2,000. USC pays the tax liability
on April 30 of Year 3. In Year 3, USC
reports on its Schedule K-2, Part III,
Section 3, line 3, as follows.

Instructions for Schedule K-2 (Form 1120-S) (2021)

-11-

Example 4 Table

Foreign tax
redeterminations
A

(a)

(e)

Type of
tax

Foreign

OTHR

(1,000)

YY
Related tax
year

Year 1

Date tax paid

4/30/
Year 3

Schedule K-2, Part IV, and
Schedule K-3, Part IV
(Distributions From Foreign
Corporations to S Corporation)
Note. Shareholders will use the following
information, in combination with other
information known to the shareholders,
including Schedule P (Form 5471), to
exclude from gross income distributions to
the extent that they are attributable to
PTEP in their annual PTEP accounts and
report foreign currency gain or loss with
respect to the PTEP on Form 1040.
Use Part IV of Schedule K-2 to report
the distributions made by foreign
corporations to the S corporation.
Use Part IV of Schedule K-3, to report
the shareholder's share of the amounts
reported on Part IV of Schedule K-2.
Rows A through O. Use rows A through
O to report information with respect to
each distribution by a foreign corporation
with respect to its stock that the S
corporation (directly or through
pass-through entities) owns (within the
meaning of section 958) other than solely
by reason of applying section 318(a)(3)
(providing for downward attribution) as
provided in section 958(b). Each row
should relate the S corporation's direct
ownership of stock in the foreign
corporation or direct ownership of the
ownership interests in a pass-through
entity that (directly or through other
pass-through entities) owns (within the
meaning of section 958) stock in the
foreign corporation other than solely by
reason of applying section 318(a)(3)
(providing for downward attribution) as
provided in section 958(b). For example, if
an S corporation directly owns 50% of the
foreign corporation's stock and owns 50%
of the foreign corporation's stock through
a partnership, then distributions by the
foreign corporation to the S corporation
and partnership are to be reported on
separate rows in Part IV of the S
corporation’s Schedule K-2 (Form
1120-S). If the S corporation owns stock of
a foreign corporation through a
partnership from which it receives a Part V

Attachment 3 (Schedule K-2)
(a) Name of
distributing foreign
corporation

(b) EIN or reference
ID number

(c) Date of
distribution

(d) Functional
currency of
distributing foreign
corporation

(e) Amount of NII
PTEP in functional
currency

(f) Spot rate
(functional currency
to U.S. dollars)

(g) Amount of NII
PTEP in U.S. dollars

(c) Date of
distribution

(d) Functional
currency of
distributing foreign
corporation

(e) Shareholder’s
share of NII PTEP in
functional currency

(f) Spot rate
(functional currency
to U.S. dollars)

(g) Shareholder’s
share of NII PTEP in
U.S. dollars

Attachment 4 (Schedule K-3)
(a) Name of
distributing foreign
corporation

(b) EIN or reference
ID number

of Schedule K-3 (Form 1065 or 8865), the
S corporation must replicate each line of
Part V, Schedule K-3 (Form 1065 or 8865)
in Part IV of its Schedule K-2 (Form
1120-S). Rows for distributions with
respect to an S corporation’s direct
ownership of foreign corporation stock
should be listed before rows for
distributions with respect to an S
corporation's ownership through a
pass-through entity of foreign corporation
stock.
The S corporation may have annual
PTEP accounts with respect to the foreign
corporation, or the foreign corporation
may have E&P that, when distributed, is
excludable from the S corporation’s gross
income under section 1293(c). Do not
report distributions to the extent that they
are attributable to PTEP in annual PTEP
accounts of the S corporation or to E&P
that is excludable from the S corporation’s
gross income under section 1293(c).
Distributions by the foreign corporation to
the S corporation that are attributable to
PTEP in annual PTEP accounts of the S
corporation should be properly reflected
on the Schedules J (Form 5471) for the
foreign corporation. The S corporation
should provide this information to its
shareholders, as appropriate.
However, to the extent a distribution is
attributable to PTEP in an annual PTEP
account of the S corporation with respect
to a foreign corporation, or attributable to
E&P that is excludable from the S
corporation’s gross income under section
1293(c), that corresponds to a tax year of
the foreign corporation that ended with or
within a tax year of the S corporation (i)
that began after December 31, 2012, and
(ii) for which an election under Regulations
section 1.1411-10(g) was not made by the
S corporation (“NII PTEP”), append
Attachment 3 to Schedule K-2 and an
Attachment 4 to each K-3 in the following

format, adding additional rows as
necessary for each distribution by a
foreign corporation. For more information
about net investment income and net
investment income tax relating to CFCs
and QEFs, see Regulations section
1.1411-10.
Note. If additional rows are required,
attach statements to the Schedules K-2
and K-3 that look like the current version
of Schedules K-2 and K-3, Part IV,
respectively.
Column (b). Enter the EIN or reference
ID number of the distributing foreign
corporation. Do not enter “FOREIGNUS”
or “APPLIED FOR.” For basic information
about reference ID numbers (including the
requirements as to the characters
permitted), see the Instructions for Form
1118.
Column (c). Enter the year, month, and
day in which the distribution was made
using the format YYYYMMDD.
Column (d). Enter the applicable
three-character alphabet code for the
foreign corporation’s functional currency
using the ISO 4217 standard. These
codes are available at ISO.org/ISO-4217currency-codes.html.
Note. Columns (e) and (f) are reported in
functional currency.
Column (e). This represents the S
corporation’s share of the amount
distributed in functional currency. See
Schedule R (Form 5471), column (c).
Column (f). This represents the S
corporation’s share of the amount of E&P
distributed in functional currency. See
Schedule R (Form 5471), column (d). The
total of the amounts reported in column (f)
with respect to a distributing foreign
corporation should equal the S
corporation’s share of the total reported on
-12-

line 9 of all Schedules J on a separate
category of income basis as reported in
Schedule J (Form 5471) TOTAL filed with
respect to the distributing foreign
corporation.
Column (g). Enter the exchange rate on
the date of distribution used to translate
the amount of the distribution in functional
currency to U.S. dollars. See section
989(b)(1). Report the exchange rate using
the “divide-by convention” specified under
Reporting exchange rates on Form 5471
in the Instructions for Form 5471.
Column (h). Enter the amount of the
distribution in U.S. dollars. Translate
column (e) using the spot rate reported in
column (g).
Column (i). Enter the amount of E&P
distributed in U.S. dollars. Translate
column (f) using the spot rate reported in
column (g).
Column (j). If the distributing foreign
corporation is a qualified foreign
corporation, determined without regard to
section 1(h)(11)(C)(iii)(I), check the box.
See section 1(h)(11)(C).

Schedule K-2, Part V
(Information on Shareholders’
Section 951(a)(1) and Section
951A Inclusions), and
Schedule K-3, Part V
(Information on Shareholder’s
Section 951(a)(1) and Section
951A Inclusions)
Note. Shareholders will use the following
information to complete Form 8992 and
Form 1040 with respect to income
inclusions under section 951(a) (subpart F
income inclusions), section 951(a)(1)(B)
inclusions, and section 951A inclusions.

Instructions for Schedule K-2 (Form 1120-S) (2021)

Schedules K-2 and K-3, Part V, must
be completed with respect to a CFC if the
S corporation owns (within the meaning of
section 958) stock of the CFC, unless the
S corporation owns stock of the CFC
solely by reason of applying section
318(a)(3) (providing for downward
attribution) as provided in section 958(b).
Generally, a foreign corporation is a
CFC if more than 50% of either the total
combined voting power of all classes of
stock entitled to vote or the total value of
the stock of the corporation is owned
(within the meaning of section 958(a)) or is
considered as owned by applying the
rules of section 958(b) by U.S.
shareholders. For this purpose, a U.S.
shareholder is a U.S. person (as defined
in section 957(c)) who owns (within the
meaning of section 958(a)), or is
considered as owning by applying the
rules of ownership of section 958(b), 10%
or more of the total combined voting
power of all classes of stock entitled to
vote, or 10% or more of the total value of
shares of all classes of stock of such
foreign corporation.
If the S corporation applies Proposed
Regulations section 1.958-1(d)(1) to treat
it as not owning stock of a foreign
corporation within the meaning of section
958(a) for purposes of section 951, or is
not a U.S. shareholder of the foreign
corporation, the information regarding
subpart F income inclusions and section
951(a)(1)(B) inclusions that are reported in
Schedule K-2, Part V, columns (e) and (f),
are not inclusions of the S corporation.
Schedule K-3, Part V, columns (e) and (f),
report the information shareholders will
need to figure and report their subpart F
income inclusions and section 951(a)(1)
(B) inclusions.
Note. If the S corporation does not apply
Proposed Regulations section 1.958-1(d)
(1) to treat it as not owning stock of a
foreign corporation, and is a U.S.
shareholder of the foreign corporation,
then any subpart F income inclusions and
section 951(a)(1)(B) inclusions are
inclusions of the S corporation, which are
therefore not reported in Schedules K-2
and K-3, columns (e) and (f), and are
instead reported in Schedules K and K-1,
line 10, Other income (loss).
Note. If the S corporation elects to be
treated as owning stock of a CFC within
the meaning of section 958(a) for
purposes of applying section 951A under
Notice 2020-69, 2020-39 I.R.B. 604, and
the S corporation is a U.S. shareholder of
the CFC, then the S corporation
determines its GILTI inclusion, which it
reports in Form 1120-S, Schedule K,
line 10, Other income (loss).
Schedule K-1, line 10, Other income

(loss), reports the shareholders’ share of
the S corporation’s GILTI inclusion. An S
corporation that has made an election
under Notice 2020-69, 2020-39 I.R.B. 604,
and is a U.S. shareholder of the CFC,
does not complete columns (g) through (n)
of Part V of Schedules K-2 and K-3.
Exception. Schedules K-2 and K-3,
Part V, do not need to be completed with
respect to a CFC if the S corporation
knows that it does not have a shareholder
(or a shareholder of an upper-tier S
corporation, if applicable) that is a U.S.
shareholder of the CFC required to include
in gross income a subpart F inclusion
and/or section 951(a)(1)(B) inclusion with
respect to the CFC, or figure section 951A
inclusions by taking into account GILTI
items (defined later) of the CFC.
Use Schedule K-2, Part V, to report the
information on the S corporation’s share of
the amounts its shareholders will need to
figure their subpart F income inclusions,
section 951(a)(1)(B) inclusions, and their
GILTI inclusions, with respect to CFCs
owned (within the meaning of section 958)
by the S corporation. Use Schedule K-3,
Part V, to report each shareholder’s share
of the amounts needed to determine its
subpart F income inclusions, section
951(a)(1)(B) inclusions, and GILTI
inclusion, with respect to CFCs owned
(within the meaning of section 958) by the
S corporation.
If the S corporation must complete Part
V of Schedules K-2 and K-3 with respect
to a CFC, then the S corporation must
complete Part V of Schedules K-2 and K-3
by assuming that each shareholder in the
S corporation is a U.S. shareholder of the
CFC and is required to include in gross
income its share of the CFC's subpart F
income, section 951(a)(1)(B) inclusion,
and its GILTI.
A shareholder's GILTI is figured based
upon its share of the following amounts for
each CFC with respect to which it is a U.S.
shareholder: tested income, tested loss,
QBAI, tested loss QBAI amount, tested
interest income, and tested interest
expense (collectively, GILTI items) (a
CFC's subpart F income and GILTI items,
CFC items).
A shareholder's share of a CFC's
subpart F income, amounts used to
determine its section 956 amount with
respect to a CFC, and a CFC's GILTI
items may not be limited to the
shareholder's share of such income,
amounts, or items through its ownership in
the S corporation. However, for purposes
of completing Part V of Schedules K-2 and
K-3, use only the shareholder's share of a
CFC's subpart F income, amounts used to
determine its section 956 amount with
respect to a CFC, and a CFC's GILTI

Instructions for Schedule K-2 (Form 1120-S) (2021)

-13-

items through the shareholder's ownership
in the S corporation.
A shareholder’s share through its
ownership in the S corporation of subpart
F income and GILTI items is generally
anticipated to be figured by multiplying the
percentage in column (d) by the amount of
subpart F income or GILTI item,
respectively. For example, in general, a
shareholder’s share through its ownership
interest in the S corporation of tested
income in column (i) is anticipated to be
figured by multiplying the percentage in
column (d) by the amount of tested
income in column (g).
Line a. Complete a separate Part V for
each applicable separate category of
income. However, all GILTI items must be
reported on only one Part V. If GILTI items
include passive category income, report
all GILTI items on the Part V completed for
passive category income; otherwise,
report all GILTI items on the Part V
completed for general category income.
Enter the appropriate code on line a.
Note. The other reporting requirements of
a S corporation with respect to reporting
income by separate category do not
change by reason of the S corporation
reporting GILTI items that include general
category income on a Part V completed
for passive category income.

Codes for Categories of Income
Code

Category of Income

PAS

Passive Category Income

901j

Section 901(j) Income

GEN

General Category Income

Line b. If any portion of a CFC item is
U.S. sourced, complete a separate Part V
for U.S.-sourced CFC items, and check
the box on line b on such separate Part V.
Line 1. Use lines A through K to report
information with respect to each CFC
owned (within the meaning of section 958)
by the S corporation, and for which Part V
of Schedules K-2 and K-3 must be
completed. If the S corporation owns a
CFC through a partnership from which it
receives a Part VI of Schedule K-3 (Form
1065 or 8865), the S corporation must
replicate each line of Part VI,
Schedule K-3 (Form 1065 or 8865) that is
related to the CFC on its Part V,
Schedule K-2 (Form 1120-S). For
example, if an S corporation directly owns
50% of the CFC's stock and owns 50% of
the CFC's stock through a partnership, the
CFC should be listed on two lines with one
line related to the S corporation's direct
ownership and the other line related to the

S corporation's ownership through the
partnership. Lines related to an S
corporation's direct ownership of CFCs
should be listed before lines related to an
S corporation's non-direct ownership of
CFCs. If additional lines are required,
attach a statement to the Schedules K-2
and K-3 that looks like the current version
of Part V.
Column (a). Enter the name of each CFC
for which Part V must be completed.
Column (b). Enter the EIN or reference
ID number of the CFC. Do not enter
“FOREIGNUS” or “APPLIED FOR.” For
basic information about reference ID
numbers (including the requirements as to
the characters permitted), see the
Instructions for Form 1118.
Column (c). Enter the end of the CFC’s
tax year using the format YYYYMMDD.
Column (d). Enter the shareholders'
share of CFC items through the
shareholders' ownership in the S
corporation (aggregate share). See
Regulations sections 1.951-1(b),
1.951-1(e), and 1.951A-1(d)(1) for rules
on determining the shareholders' share.
Note. An S corporation that does not
apply Proposed Regulations section
1.958-1(d)(1) and is a U.S. shareholder of
a foreign corporation listed in column (a)
does not report amounts in columns (e) or
(f).
Column (e). Enter the aggregate share of
the amount of the CFC's subpart F
income, if any. Note that an amount
determined under section 956(a) is not
considered subpart F income. For
guidance on figuring a CFC's subpart F
income and the shareholders' share of a
CFC's subpart F income, see Worksheet
A in the Instructions for Form 5471.
Column (f). Enter the amount determined
under section 956 with respect to the
shareholders that relate to the
shareholders' ownership in the S
corporation. Thus, in determining the
section 956 amount, use only the
shareholders' share through their
ownership in the S corporation of:
• The average of the amounts of U.S.
property held (directly or indirectly) by the
CFC as of the close of each quarter of the
CFC’s tax year, and
• The applicable earnings of the CFC.
For guidance on figuring the
shareholders' share of a CFC's earnings
invested in U.S. property, see Worksheet
B in the Instructions for Form 5471.
Note. An S corporation that has made an
election to be treated as owning stock of a
CFC within the meaning of section 958(a)
for purposes of applying section 951A

under Notice 2020-69, 2020-39 I.R.B. 604,
and is a U.S. shareholder of the CFC,
does not complete columns (g) through (n)
of Part V of Schedules K-2 and K-3.
Column (g). Enter the CFC's tested
income, if any, from line 6 of Schedule I-1
(Form 5471) for each CFC.
Column (h). Enter the CFC's tested loss,
if any, from line 6 of Schedule I-1 (Form
5471) for each CFC.
Column (i). Enter the aggregate share of
the tested income listed in column (g) for
each CFC with tested income.
Column (j). Enter the aggregate share of
the tested loss listed in column (h) for
each CFC with tested loss.
Column (k). If the CFC has a tested loss
in column (h), enter zero. If the CFC has
tested income in column (g), enter the
aggregate share of QBAI. A CFC's QBAI is
reported on Schedule I-1 (Form 5471),
line 8.
Column (l). If the CFC has tested income
in column (g), enter zero. If the CFC has a
tested loss in column (h), enter the
aggregate share of the CFC's tested loss
QBAI amount. See Regulations section
1.951A-4(b)(1)(iv). A CFC's tested loss
QBAI amount is reported on Schedule I-1
(Form 5471), line 9c, which must be
translated to U.S. dollars.
Column (m). Enter the aggregate share
of the CFC's tested interest income. A
CFC's tested interest income is reported
on Schedule I-1 (Form 5471), line 10c.
Column (n). Enter the aggregate share of
the CFC's tested interest expense. A
CFC's tested interest expense is reported
on Schedule I-1 (Form 5471), line 9d.

Schedule K-2, Part VI, and
Schedule K-3, Part VI
(Information To Complete Form
8621)
Note. Shareholders will use the following
information to complete Form 8621 and/or
determine income inclusions with respect
to the PFICs reported on Schedules K-2
and K-3, Part VI.
Except as otherwise provided,
Schedules K-2 and K-3, Part VI, must be
filed by every S corporation that owns
PFIC stock, directly or indirectly. However,
an S corporation that has elected to treat a
PFIC as a pedigreed qualified electing
fund (QEF), made a mark-to-market
(MTM) election with respect to a PFIC
applicable to the S corporation’s tax year,
or made a qualifying insurance
corporation (QIC) election with respect to
a PFIC for the S corporation’s tax year, is
not required to complete Schedules K-2
-14-

and K-3, Part VI, with information
regarding such PFIC if the S corporation
files Form 8621 for that PFIC. Additionally,
an S corporation that satisfies the deemed
election requirements of Regulations
section 1.1297-4(d)(5)(iv) with respect to a
PFIC eligible for a QIC election is not
required to complete Schedule K-2, Part
VI, or Schedule K-3, Part VI, with respect
to such PFIC.
Use Schedule K-2, Part VI, to report
certain information with respect to any
PFIC owned, directly or indirectly, by the S
corporation for which reporting is required,
including PFICs with respect to which no
QEF or MTM election has been made and
unpedigreed QEFs (section 1291 funds),
and PFICs with respect to which
pedigreed QEF, MTM, QIC, or other
elections have been, or may be, made and
for which the S corporation is not filing a
Form 8621. Use Schedule K-3, Part VI, to
report the shareholder’s share, through its
ownership in the S corporation, of the
amounts reported on Schedule K-2, Part
VI.
Complete only one line on both
Sections 1 and 2 for each PFIC for which
reporting on Schedules K-2 and K-3, Part
VI, is 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 with respect to a
PFIC for certain columns (for example,
scenarios where the S corporation may
have multiple different events with respect
to the PFIC in the same tax year, such as
multiple dates of acquisitions of, or
distributions with respect to, the PFIC
stock). In that case, complete Schedules
K-2 and K-3, Part VI, with the first of such
entries for a PFIC and attach a statement
including the remaining entries for each
such PFIC to Schedule K-2, Part VI, and
its corresponding Schedules K-3, Part VI,
with Attachments 5 and/or 6 completed.
If the S corporation has additional
PFICs for which to report information that
does not fit on single Schedules K-2 and
K-3, Part VI, it can attach additional Parts
VI of Schedules K-2 and K-3, as needed.

Instructions for Schedule K-2 (Form 1120-S) (2021)

Section 1. General Information on
Passive Foreign Investment
Company (PFIC), Qualified
Electing Fund (QEF), or Qualifying
Insurance Corporation (QIC)
Columns (a) through (c). Enter the
name, U.S. EIN or reference ID number,
and address of each PFIC held directly or
indirectly by the S corporation during its
tax year. Do not enter “FOREIGNUS” or
“APPLIED FOR. ”
For basic information about reference
ID numbers (including the requirements as
to the characters permitted), see the
Instructions for Form 8621.
Columns (d) and (e). Enter the
beginning and end of the PFIC’s tax year
using the format YYYYMMDD.
Column (f). Enter each class of shares in
the PFIC owned by the S corporation
using the following codes.

Codes for Classes of PFIC Shares
Code

Class of PFIC Shares

COM

Common or Ordinary Shares

PRE

Preferred Shares

OTH

Other Equity Interest

VAR

Multiple Classes of Shares or Equity
Interests

Column (g). If the S corporation acquired
any PFIC shares during its tax year,
provide the date(s) of acquisition of such
shares using the format YYYYMMDD. If
the S corporation acquired no shares in a
particular PFIC during its tax year, leave
this column blank with respect to that
PFIC.
Note. If the S corporation acquired shares
in a PFIC on multiple dates during the tax
year, append a completed Attachment 5 to
Schedule K-2, Part VI, and its
corresponding Schedules K-3, Part VI,
providing such dates.

Attachment 5
Additional Information for Part VI, Section 1
General
Information
(a) Name of
PFIC

(b) EIN or
reference
ID number

Annual
Information
(g) Dates PFIC
shares acquired
during tax year (if
applicable)

Column (h). Enter the total number of all
classes of shares of the PFIC the S
corporation owned at the end of its tax
year.
Column (i). Enter the total value of all
shares in the PFIC held by the S
corporation at the end of its tax year. If the
PFIC shares are not publicly traded, the S
corporation may rely upon periodic
account statements provided at least
annually to determine the value of a PFIC
unless the S corporation has actual
knowledge or reason to know based on
readily accessible information that the
statements do not reflect a reasonable
estimate of the PFIC's value and the
information provides a more reasonable
estimate of the PFIC's value.
Note. A shareholder may need additional
information not required to be reported on
this Schedule K-2, Part VI (or the
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 aid the shareholder in making certain
elections under Regulations section
1.1291-10, 1.1297-3, or 1.1298-3.
Column (j). If the S corporation has
made any of the following elections with
respect to the PFIC, indicate which
election was made using the following
codes. If the S corporation has not made
an election with respect to the PFIC, leave
this column blank with respect to that
PFIC.

S Corporation Election Codes
Code

S Corporation Election Type

QEF

Qualified Electing Fund Election

MTM

Mark-to-Market Election

QIC

Qualifying Insurance Corporation Election

Note. If the S corporation has made a
pedigreed QEF, MTM, or QIC election
with respect to a PFIC, and the S
corporation files Form 8621 for that PFIC,
it is not required to report information
regarding that PFIC on Schedule K-2 or
K-3, Part VI.
Column (k). Check the box if the foreign
corporation has indicated that it has
documented eligibility to be treated as a
QIC. See section 1297(f) and Regulations
section 1.1297-4 for additional information
on QICs.
Column (l). Check the box if the PFIC
has indicated that its shares are
“marketable stock.” See section 1296(e)
and Regulations section 1.1296-2 for
additional information on “marketable
stock.”

Instructions for Schedule K-2 (Form 1120-S) (2021)

-15-

Column (m). Check the box if the PFIC
also constitutes a CFC within the meaning
of section 957 (PFIC/CFC).
Note. If the PFIC is a PFIC/CFC, a
shareholder may need certain additional
information with respect to the PFIC/
CFC’s E&P not required to be reported on
this Schedule K-2, Part VI (or the
shareholder’s Schedule K-3, Part VI) from
the S corporation to aid the shareholder in
making certain elections under
Regulations sections 1.1291-9, 1.1297-3,
or 1.1298-3.
Column (n). Complete column (n) in the
following manner.
IF...

THEN...

• this is the first year of the S

check the box.

corporation’s holding period in
stock of the foreign
corporation, and
• the S corporation has
determined (directly or
otherwise) that the foreign
corporation is a PFIC under the
income test or asset test of
section 1297(a),

• the foreign corporation was check the box.
a PFIC in a prior tax year of the
S corporation’s holding period,
and
• the S corporation has not
determined (directly or
otherwise) the foreign
corporation is a “former PFIC”
within the meaning of
Regulations section 1.1291-9(j)
(2)(iv),
• the foreign corporation was do not check the
a PFIC in a prior tax year of the box.
S corporation’s holding period,
and
• 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),

Note. If the foreign corporation is a
“former PFIC” within the meaning of
Regulations section 1.1291-9(j)(2)(iv), a
shareholder may need additional
information not required to be reported on
this Schedule K-2, Part VI (or the
shareholder’s Schedule K-3, Part VI) from
the S corporation with respect to the PFIC
to aid the shareholder in making certain
elections under Regulations section
1.1298-3.

Section 2. Additional Information
on PFIC or QEF
General Information
Columns (a) and (b). Enter the name
and U.S. EIN (or reference ID number) of
each PFIC held directly or indirectly by the
S corporation during its tax year. Do not
enter “FOREIGNUS” or “APPLIED FOR.”

QEF Information
Columns (c) and (d). Enter the S
corporation’s share of the total ordinary
earnings and net capital gain (as defined
in Regulations section 1.1293-1(a)(2)) of
the PFIC for the S corporation’s tax year in
which or with which the tax year of the
PFIC ends in columns (c) and (d),
respectively. The PFIC should provide the
S corporation with a statement that
provides information to assist the S
corporation in determining these amounts.
See Regulations section 1.1295-1(g) for
additional information on annual PFIC
statements. The S corporation must
complete columns (c) and (d) only for
PFICs with respect to which it has made a
pedigreed QEF election but for which it
does not file Form 8621, and for any PFIC
it has elected to treat as an unpedigreed
QEF.
Note. If the S corporation has made a
pedigreed QEF election with respect to a
PFIC, and if the S corporation files Form
8621 for that PFIC, the S corporation is not
required to report information regarding
that PFIC on Schedule K-2, Part VI, or
Schedule K-3, Part VI. The S corporation
should report its inclusion of its share of
the QEF’s ordinary earnings and net
capital gain on Schedule K, and report the
shareholders’ shares of such amounts on
Schedule K-1, Part III.

MTM Information
Columns (e) and (f). Enter the fair
market value of the PFIC stock at the
beginning and end of the S corporation’s
tax year in columns (e) and (f),
respectively. If any shares of the PFIC
were 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
corporation must complete columns (e)
and (f) only for PFICs with respect to
which it has made an MTM election but for
which it does not file Form 8621.
Note. If the S corporation has made an
MTM election with respect to a PFIC, and
if the S corporation files Form 8621 for that
PFIC, the S corporation is not required to
report information regarding that PFIC on
Schedule K-2, Part VI, or Schedule K-3,

Part VI. The S corporation should report its
MTM gain or loss on Schedule K, and
report the shareholders’ shares of such
amounts on Schedule K-1, Part III.
Note. If the S corporation has made an
MTM election with respect to a PFIC but
does not file Form 8621 for that PFIC, a
shareholder may need additional
information not required to be reported on
this Schedule K-2, Part VI (or the
shareholder’s Schedule K-3, Part VI)
regarding its share of the S corporation’s
adjusted tax basis in the S corporation’s
MTM PFIC stock in order to complete
Form 8621.

Section 1291 and Other
Information
Note. Generally, this information is to
assist shareholders of section 1291 funds
in satisfying any information reporting
obligations and in figuring income
inclusions with respect to section 1291
funds. However, this information may be
relevant to PFICs with respect to which a
pedigreed QEF, MTM, or other election
has been made by the S corporation,
shareholder, or other indirect PFIC
shareholder. Accordingly, the S
corporation must complete columns (g)
through (o) with respect to each PFIC for
which reporting on Schedule K-2, Part VI,
and Schedule K-3, Part VI, is required.
However, note the instructions for column
(k) regarding reporting distributions from
PFICs with respect to which the S
corporation has made a pedigreed QEF or
MTM election and for which the S
corporation does not file Form 8621.
Column (g). Enter the date(s) on which
the S corporation initially acquired each
block of stock in the PFIC using the format
YYYYMMDD.
Note. If the S corporation initially acquired
various blocks of stock in a PFIC on
multiple dates, append a completed
Attachment 6 to Schedule K-2, Part VI,
and its corresponding Schedules K-3, Part
VI, providing such dates.
Column (h). Enter the amount of each
distribution of cash and/or the fair market
value of any other property distributed to
the S corporation by the PFIC during the
tax year, if any.
Note. Deemed distributions by QEFs do
not need to be reported on this
Schedule K-2 (or the shareholder’s
Schedule K-3). However, shareholders
which have made, or intend to make, an
election under section 1294, and which
are deemed to have received a
distribution from the QEF, may require this
information to complete any computations
under section 1294 (including for Form
-16-

8621, if required). See section 1294(f) and
Regulations section 1.1294-1T for
additional information.
Note. If the S corporation received
distributions from a PFIC on multiple dates
during the tax year, append a completed
Attachment 6 to Schedule K-2, Part VI,
and its corresponding Schedules K-3, Part
VI, providing the amount and/or fair market
value of each distribution.
Column (i). Enter the date(s) of
distribution of the amounts entered in
column (h) using the format YYYYMMDD.
Note. If the S corporation received
distributions from a PFIC on multiple dates
during the tax year, append a completed
Attachment 6 to Schedule K-2, Part VI,
and its corresponding Schedules K-3, Part
VI, providing the dates of each
distribution.
Column (j). Enter the total creditable
foreign taxes attributable to a distribution
from the PFIC. See section 1291(g) and
the Instructions for Form 8621, Part V,
line 16d, for additional information on
creditable foreign taxes attributable to
PFIC distributions, including apportioning
creditable foreign taxes to the portion of a
distribution that constitutes an excess
distribution and certain rules related to
creditable foreign taxes on a disposition of
PFIC stock.
Note. If the S corporation received
distributions from a PFIC on multiple dates
during the tax year, attach a statement
with Attachment 6 completed to this
Schedule K-2, Part VI, and its
corresponding Schedules K-3, Part VI,
providing the amount of any foreign taxes
attributable to each distribution.
Column (k). Enter the total amount of
distributions the S corporation received
from the PFIC in the 3 preceding tax
years, or, if shorter, the total amount of
distributions the S corporation received
during its holding period of the PFIC stock.
However, do not enter any amount in this
column with respect to a PFIC for which
the S corporation has made a pedigreed
QEF or MTM election and for which the S
corporation does not file Form 8621.
Column (l). Enter the date(s) on which
the S corporation disposed of any block of
stock in the PFIC during the S
corporation’s tax year, if any, using the
format YYYYMMDD.
Note. If the S corporation disposed of
stock in a PFIC on multiple dates during
the tax year, attach a statement with a
completed Attachment 6 to Schedule K-2,
Part VI, and its corresponding Schedules
K-3, Part VI, providing the dates of each
disposition.

Instructions for Schedule K-2 (Form 1120-S) (2021)

Column (m). If the S corporation
disposed of any block of stock in the PFIC
during the S corporation’s tax year, enter
the amount realized by the S corporation
on each disposition.
Note. If the S corporation disposed of
stock in a PFIC on multiple dates during
the tax year, append a completed
Attachment 6 to Schedule K-2, Part VI,
and its corresponding Schedules K-3, Part
VI, providing the amount realized by the S
corporation on each disposition.
Column (n). If the S corporation
disposed of any block of stock in the PFIC

during the S corporation’s tax year, enter
the S corporation’s tax basis in the shares
of the PFIC on the date of disposition.
Schedule K-3. Enter the
shareholder’s share, through its ownership
in the S corporation, of the S corporation’s
tax basis in the PFIC shares.
Note. If the S corporation disposed of
stock in a PFIC on multiple dates during
the tax year, append a completed
Attachment 6 to Schedule K-2, Part VI,
and its corresponding Schedules K-3, Part
VI, providing the tax bases to the S

corporation and shareholders with respect
to each disposition.
Column (o). Enter the S corporation’s
gain or loss on the disposition of PFIC
shares. This equals column (m) minus
column (n).
Note. If the S corporation disposed of
stock in a PFIC on multiple dates during
the tax year, append a completed
Attachment 6 to Schedule K-2, Part VI,
and its corresponding Schedules K-3, Part
VI, providing the gain or loss to the S
corporation and shareholders on each
disposition.

Attachment 6
Additional Information for Part VI, Section 2
General Information
(a) Name of
PFIC

(b) EIN or
reference ID
number

Section 1291 and Other Information
(g) Dates
(h) Amount of
PFIC shares
cash and fair
were acquired market value
of property
distributed by
PFIC during
the current tax
year (if
applicable)

Schedule K-2, Part VII (S
Corporation’s Interest in
Foreign Corporation Income
(Section 960)), and
Schedule K-3, Part VII
(Shareholder’s Interest in
Foreign Corporation Income
(Section 960))
Note. Shareholders will use the following
information to figure a deemed paid
foreign tax credit on Form 1118.
Reporting currency. Report all amounts
on Part VII in functional currency.
The S corporation must complete a
separate Schedule K-2, Part VII, for each
CFC with respect to which it has a direct
or indirect interest, unless the S
corporation does not have a shareholder
that is eligible to make a section 962
election to claim a deemed paid foreign
tax credit with respect to such CFC. An
indirect interest means that the CFC is
owned by the S corporation through one
or more partnerships.

(i) Dates of
distribution

(j) Total
(l) Dates PFIC
creditable
shares
foreign taxes
disposed of
attributable to
during tax
distribution by
year (if
PFIC
applicable)

Schedule K-3, Part VII, must be
completed and provided to shareholders
who may be eligible to make a section 962
election to claim a deemed paid foreign
tax credit.
An S corporation that does not have or
receive sufficient information or notice
regarding a shareholder must presume the
shareholder is eligible to claim the indirect
credit and must complete the Schedules
K-2 and K-3, Part VII, accordingly.
In general, if a section 962 election is in
effect, a U.S. shareholder of a CFC is
deemed to pay all or a portion of the
foreign income taxes paid or accrued by
the CFC that are properly attributable to
subpart F income or tested income of the
CFC that the U.S. shareholder includes in
its gross income. See section 960(a) and
(d).
To figure the foreign taxes deemed
paid by the U.S. shareholder, the income,
deductions, and taxes of the CFC must be
assigned to separate categories of income
and then included in income groups within
those separate categories using
Schedule Q (Form 5471). See
Regulations section 1.960-1(c)(1). The

Instructions for Schedule K-2 (Form 1120-S) (2021)

-17-

(m) Amount
realized on
disposition of
PFIC shares

(n) Tax basis
of PFIC
shares on
date of
disposition

(o) Gain or
(loss) on
disposition of
PFIC shares

applicable separate categories of income
are general category income, passive
category income, and section 901(j)
income. The income groups include the
subpart F income groups, the tested
income group, and the residual income
group. Each single item of foreign base
company income as defined in
Regulations section 1.954-1(c)(1)(iii) is a
separate subpart F income group. See
Regulations section 1.960-1(d)(2)(ii)(B).
The tested income group consists of
tested income within a section 904
category. See Regulations section
1.960-1(d)(2)(ii)(C). The residual income
group consists of any income not in the
other income groups or in a PTEP group.
See Regulations section 1.960-1(d)(2)(ii)
(D). See Regulations section 1.960-3(c)(2)
with respect to the PTEP groups. The
PTEP groups are not reported on this Part
VII.
Lines 1 through 4. The S corporation’s
share of the CFC’s net income in each of
the subpart F income groups, tested
income group, and residual income group
by unit is reported on lines 1 through 4.
The CFC has already figured its net

income in each of these groups on
Schedule Q (Form 5471), and the S
corporation need only report its share of
such amount on Schedule K-2 and the
shareholder’s share of such amounts on
Schedule K-3.
Do not include on line 1 (or lines 1(a)
through 1(i), lines (1), (2), etc., under
line 1) any amounts excluded from subpart
F income under the high-tax exception in
section 954(b)(4) (“subpart F high-tax
exception”); these amounts are reported
on line 4 (and on lines (1), (2), etc., under
line 4).
Also do not include on line 3 (or lines
(1), (2), etc., under line 3) any amounts
excluded under the GILTI high-tax
exclusion in Regulations section
1.951A-2(c)(7) (“GILTI high-tax
exclusion”); these amounts are reported
on line 4 (and on lines (1), (2), etc., under
line 4).
The PTEP groups are not reported on
Part VII. Do not report by unit with respect
to the following subpart F income groups:
(i) international boycott income; (ii) bribes,
kickbacks, and other payments; and (iii)
section 901(j) income. Also do not report
by unit with respect to the recaptured
subpart F income group.
Columns (i) and (ii). On
Schedule K-2, Part VII, the S corporation
reports in column (ii) its share of the CFC's
net income by income groups and by units
as reported on Schedule Q (Form 5471),
column (xi). In column (i), consistent with
the reporting requirement on Form 1118,
enter the two-letter code (from the list at
IRS.gov/CountryCodes) of each foreign
country and U.S. possession within which
income is sourced and/or to which taxes
were paid or accrued. Do not enter
“various” or “OC” for the country code. Do
not enter a country in column (i) of line 5.
See the instructions for line D for further
information.
On Schedule K-3, Part VII, the S
corporation reports each shareholder's
share of the net income in the income
group by unit and country.
Column (iii). Do not enter amounts in
column (iii).

Example 5, Foreign Source
Income

Category of Income Codes
Code

Category of Income

PAS

Passive Category Income

901j

Section 901(j) Income

GEN

General Category Income

Tax

Line C. With respect to passive category
income, separate Schedules K-2 and K-3,
Part VII, must be completed for each
applicable grouping under Regulations
section 1.904-4(c). This includes the
groups in Regulations section 1.904-4(c)
(3) reported on the Schedule Q (Form
5471).
The S corporation should use the
following codes to report each of these
groupings for each QBU.

Passive Grouping Codes

ii

iii

iv

Net
Income

Country X
Foreign
Disregarded
Entity (FDE)
Passive Interest
Income

20%
withholding tax

XX

100u

CFC Passive
Rental Income

10%
withholding tax

YY

50u

CFC General
Category
Tested Income

No tax

ZZ

300u

USC completes Schedule K-2, Part VII,
as follows.

Example 5, USC’s 1st
Schedule K-2, Part VII

Code Passive Group
i

Country
Code

All passive income received during the tax
year that is subject to a withholding tax of
15% or greater must be treated as one
item of income. See Regulations section
1.904-4(c)(3)(i).
All passive income received during the tax
year that is subject to a withholding tax of
less than 15% (but greater than zero) must
be treated as one item of income. See
Regulations section 1.904-4(c)(3)(ii).
All passive income received during the tax
year that is subject to no withholding tax or
other foreign tax must be treated as one
item of income. See Regulations section
1.904-4(c)(3)(iii).
All passive income received during the tax
year that is subject to no 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 5. In Year 1, USC, an S
corporation, wholly owns foreign
corporation, CFC, with reference ID
number 1234. The CFC owns a foreign
disregarded entity organized in Country X.
CFC has two separate units, the foreign
disregarded entity and the CFC itself. For
the Year 1 tax year, the two units have the
following foreign source income.

A

1234

B

PAS

C

i
(i) Country
(ii) S
Code
corporation’s
Share of Net
Income

1

Subpart F
Income
Groups

a

Dividends,
Interest,
Rents,
Royalties, &
Annuities
(Total)

(1)

Country X
FDE

XX

100u

USC completes another Schedule K-2,
Part VII, as follows.

Line A. On line A, enter the EIN or
reference ID number of the CFC as listed
on Form 5471. Do not enter
“FOREIGNUS” or “APPLIED FOR.” The S
corporation must check box 8 on Part I
and attach to both Schedules K-2 and K-3
a Form 5471 for each CFC with respect to
which it has an interest.
Line B. The S corporation must file
separate Schedules K-2 and K-3, Part VII,
to report the net income or loss of the CFC
in each separate category. Use the
applicable code from the table below.
-18-

Instructions for Schedule K-2 (Form 1120-S) (2021)

check the box on line D, and attach a
statement to Schedules K-2 and K-3 to
indicate that you have expanded Part VII
to report these additional countries on
both Form 1120-S and Schedule K-3 (for
shareholder’s share).

Example 5, USC’s 2nd
Schedule K-2, Part VII
A

1234

B

PAS

C

ii
(i) Country
(ii) S
Code
corporation’s
Share of Net
Income

1

Subpart F
Income
Groups

a

Dividends,
Interest,
Rents,
Royalties, &
Annuities
(Total)

(1)

CFC

YY

50u

USC completes a third Schedule K-2,
Part VII, as follows.

Example 6. In Year 1, USC, an S
corporation, wholly owns foreign
corporation, CFC, with reference ID
number 1234. USC has two U.S. citizen
shareholders. CFC has only one QBU, 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.

Example 6 Table

Example 5, USC’s 3rd
Schedule K-2, Part VII

A

1234
GEN

A

1234

B

B

GEN

D
(i) Country
(ii) S
Code
corporation’s
Share of Net
Income

3

Tested
Income
Group (Total)

(1)

CFC

ZZ

300u

USC also completes Schedule K-3,
Part VII, with each shareholder’s share of
the S corporation’s net income in each
income group.
Line D. If net income in an income group
is sourced from more than one country,

(i) Country
(ii) S
Code
corporation’s
Share of Net
Income
1

Subpart F
Income
Groups

f

Foreign Base
Company
Sales Income
(Total)

(1)

CFC

AA

100u

(2)

CFC

BB

50u

Instructions for Schedule K-2 (Form 1120-S) (2021)

180u

-19-

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

Example 6 Attachment
(Expansion)
A

1234

B

GEN

D
(i) Country
(ii) S
Code
corporation’s
Share of Net
Income
1

Subpart F
Income
Groups

f

Foreign Base
Company
Sales Income
(Total)

(3)

CFC

180u

CC

30u

USC also completes Schedule K-3,
Part VII, with each shareholder's share of
the S corporation's net income in the
subpart F income group. USC attaches to
Schedule K-3 the same schedule it
attaches to Schedule K-2, with each
shareholder's share of the subpart F
income groups by country.
Line E. The S corporation should check
the box and complete a separate Part VII
for U.S. source income in each separate
category.
Line F. If the foreign corporation has
foreign oil and gas extraction income
(FOGEI) or foreign oil-related income
(FORI), the S corporation should check
the box and complete a separate Part VII
indicating the amount of FOGEI and FORI
in each grouping. The S corporation
should check box 2 on Part I and complete
Schedule I (Form 1118). See the
instructions for Part I, box 2.

Index
A
Attachment 1
Attachment 2
Attachment 3
Attachment 4
Attachment 5
Attachment 6

4
5
12
12
15
17

C
Capital gains and losses 8
Category of income codes 18
Charitable contributions 9
Codes for classes of PFIC
shares 15
Codes for types of tax 10
Computer-generated
schedules K-2 2
Country codes 8
Currency 2
D
Deductions 8
Distributions from foreign
corporations to S
corporation 11
Dividends, ordinary and
qualified 8
Downstream loan 6
E
EIN 2
Example 1
Example 2
Example 3
Example 4

5
8
11
11

Example 5 18
Example 6 19
F
Foreign branch category
income 7
Foreign oil and gas taxes 3
Foreign taxes deductible but
not creditable 9, 11
Foreign taxes paid or accrued
to sanctioned countries 10
Foreign taxes related to PTEP
resourced by treaty 10
Foreign tax translation 4
Form 5471 information 6
Form 8621information 14
Form 8858 information 6
G
Gains on sale of certain
personal property 3
Gross income 7
H
High-taxed income 4
I
Identifying information 2
Identifying information, S
corporation 2, 3
Identifying information,
shareholder 3
Income resourced by treaty 7
Interest expense, other 9

Interest expense
apportionment factors 9
Interest expense specifically
allocable under Regulations
section 1.861-10
and -10T 9
International transactions 6
L
Loan, downstream 6
Loan, upstream 6
N
Name of S corporation 2
O
Other deductions 9
Other income 8
P
Parts of Sch K-2, in general 2
Passive grouping codes 18
PFIC, QEF general
information 15
R
R&E expenses 8
R&E expenses apportionment
factors 9
Rental income 8
S
S corporation determination 6

-20-

S corporation election
codes 15
S corporation’s interest in
foreign corporation 17
Section 1291 and other
information 16
Section 267A disallowed
deduction 5
Section 901(j) income 7
Section 951(a)(1) and Section
951A Inclusions 12
Section 951(a) inclusions 8
Section 951A(a) inclusions 8
Section 951A category
income 7
Section 986(c) gain and loss 8
Section 987 gain and loss 8
Section 988 gain and loss 8
Shareholder determination 7
Splitter arrangements 3
T
Table 1. Information on
Personal Property Sold 3
Table 2. Downstream Loans 6
Table 3. Upstream Loans 6
Taxes assigned to section
951A category 10
Total gross income 8
U
Upstream loan 6
W
When to file 2
Where to file 2