A corporate partner of a partnership use Part IX of Schedules K-2 and K-3 to determine its BEAT liability, if any. The BEAT is generally levied on certain large corporations that have deductions and certain other similar items paid or accrued to foreign related parties that are 3% of their total deductions or higher (2% in the case of certain banks or registered securities dealers) a determination referred to as the "base erosion percentage test."
To access Part IX of the Schedule K-2 and Schedule K-3, from the main menu of the partnership tax return (Form 1065) select;
- Schedule K
- Foreign Transactions (K-2)
- Part IX
Section 1 - Applicable Taxpayer
Line 1. Gross receipts for section 59A(e) - The amounts shown on lines 1 through 4 reflect the partner's distributive share of gross receipts from the partnership's business or rental activities. The partner should use the information from lines 2 through 4 to complete line 1b of Part I, Form 8991.
Line 5. Amounts included in the denominator of the base erosion percentage pursuant to Regulations section 1.59A-2(e)(3)(i)(B) - This is the partner's distributive share of the partnership's deductions to be included in the denominator of the partner's base erosion percentage.
Section 2. Base Erosion Payments and Base Erosion Tax Benefits
Purchase or creations of property rights for intangibles (patents, trademarks, etc.) -
- Total - Enter the amount paid or accrued by the partnership in connection with the acquisition or creation of intangible property rights (patents, copyrights, trademarks, trade secrets, etc.) that is subject to the allowance for depreciation (or amortization in lieu of depreciation) for the tax year.
- Total Base Erosion Payments - Enter the amount paid or accrued to all foreign persons that are a related party of any of the partners in connection with the acquisition or creation of intangible property rights (patents, copyrights, trademarks, trade secrets, etc.) that is subject to the allowance for depreciation (or amortization in lieu of depreciation).
- Total Base Erosion Tax Benefits - Enter the amount of the partners' base erosion tax benefits attributable to deductions allowed under chapter 1 for the tax year for depreciation (or amortization in lieu of depreciation) with respect to intangible property rights acquired in the current or prior years from all foreign persons that are a related party of any of the partners.
Rents, royalties, and license fees
- Total - Enter the amount paid or accrued by the partnership for the tax year for the use or right to use tangible or intangible property resulting in rents, royalties, and/or license fees.
- Total Base Erosion Payments - Enter the amount paid or accrued to all foreign persons that are a related party of any of the partners for the use or right to use tangible or intangible property resulting in rents, royalties, and/or license fees
- Total Base Erosion Tax Benefits - Enter the amount of the partners’ base erosion tax benefits attributable to amounts paid or accrued to all foreign persons that are a related party of any of the partners for the use or right to use tangible or intangible property that results in rents, royalties, and/or license fees.
Compensation/consideration paid for services NOT excepted by section 59A(d)(5)
- Total - Enter the amount paid or accrued by the partnership for the tax year as compensation or consideration for services, excluding any amount that qualifies for the services cost method exception in section 59A(d)(5).
- Total Base Erosion Payments - Enter the amount paid or accrued to all foreign persons that are a related party of any of the partners as compensation or consideration for services, excluding any amount that qualifies for the services cost method exception in section 59A(d)(5).
- Total Base Erosion Tax Benefits - Enter the amount of the partners’ base erosion tax benefits attributable to amounts paid or accrued to all foreign persons that are a related party of any of the partners representing compensation or consideration paid for services, excluding amounts qualifying for the services cost method exception in section 59A(d)(5).
Compensation/consideration paid for services excepted by section 59A(d)(5)
- Enter the amounts paid or accrued by the partnership to any foreign person that is a related party of any of the partners for services qualifying for the services cost method exception in section 59A(d)(5).
Interest expense
- Total - Enter the amount of interest paid or accrued by the partnership for the tax year (excluding interest paid or accrued in a prior year treated as paid or accrued in the current year under section 163(j) or similar provisions)
- Total Base Erosion Payments - Enter the amount of interest expense paid or accrued to all foreign persons that are a related party of any of the partners (excluding interest paid or accrued in a prior year treated as paid or accrued in the current year under section 163(j) or similar provisions)
- Total Base Erosion Tax Benefits - Enter the amount of the partners’ base erosion tax benefits attributable to interest expense paid or accrued by the partnership that is allowed as a deduction in the current tax year. If the partner is a foreign person, include the individual lines from column (c) of Worksheet A on the applicable Schedule K-3
Payments for the purchase of tangible personal property -
- Total - Enter the amount paid or accrued by the partnership for the tax year for reinsurance.
- Total Base Erosion Payments - Enter the amount of any premiums or other consideration paid or accrued to all foreign persons that are a related party of any of the partners for reinsurance taken into account under section 803(a)(1)(B)
- Total Base Erosion Tax Benefits - Enter the amount of the partners’ base erosion tax benefits attributable to premiums or other consideration as described in section 59A(c)(2)(A)(iii) paid or accrued to any foreign person that is a related party of any of the partners for reinsurance
Premiums and/or other consideration paid or accrued for reinsurance as covered by section 59A(d)(3) and section 59A(c)(2)(A)(iii) -
- Total - Enter the amount paid or accrued by the partnership for the tax year for reinsurance.
- Total Base Erosion Payments - Enter the amount of any premiums or other consideration paid or accrued to all foreign persons that are a related party of any of the partners for reinsurance taken into account under section 803(a)(1)(B) or section 832(b)(4)(A)
- Total Base Erosion Tax Benefits - Enter the amount of the partners’ base erosion tax benefits attributable to premiums or other consideration as described in section 59A(c)(2)(A)(iii) paid or accrued to any foreign person that is a related party of any of the partners for reinsurance.
Nonqualified derivative payments -
- Total - Enter the amount paid or accrued by the partnership for the tax year attributable to derivative contracts as defined in section 59A(h)(4)
- Total Base Erosion Payments - Enter the amount paid or accrued to all foreign persons that are a related party of any of the partners with respect to derivative contracts that are not eligible for the qualified derivative payment exception under section 59A(h) and Regulations section 1.59A-6.
- Total Base Erosion Tax Benefits -Enter the amount of base erosion tax benefits attributable to nonqualified derivative payments paid or accrued to any foreign person that is a related party of any of the partners.
Qualified derivative payments excepted by section 59A(h) -
- Enter the total amount of qualified derivative payments paid or accrued by the partnership.
Payments reducing gross receipts made to surrogate foreign corporation -
- Total - Enter the amount paid or accrued by the partnership for the tax year to certain expatriated entities described in section 59A(d)(4)(C)(i).
- Total Base Erosion Payments - Enter the amount paid or accrued to certain expatriated entities that results in a reduction of the gross receipts of the partnership.
- Total Base Erosion Tax Benefits - Enter the base erosion tax benefits attributable to amounts paid or accrued to certain expatriated entities described in column (b) resulting in a reduction of gross receipts of the partnership.
Other payments - Specify
- Total - Enter the amount paid or accrued for the tax year by the partnership that has not already been included
- Total Base Erosion Payments - Enter the amount paid or accrued to any foreign person that is a related party of any of the partners that is a base erosion payment that has not otherwise been included.
- Total Base Erosion Tax Benefits - Enter the amount of the partners’ base erosion tax benefits related to other specified base erosion payments not listed in any of the categories above.
Base erosion tax benefits related to payments
- Enter the aggregate amount of the partners’ base erosion tax benefits, reported on lines 8 through 16, on which tax is
Portion of base erosion tax benefits on which tax is imposed by section 871 or 881 -
- Complete Worksheet B to determine the portion of the base erosion tax benefits
Note: This is a guide on entering information in Schedule K-2 and Schedule K-3 Part IX. This is not intended as tax advice.
Additional Information:
Form 1065 - Schedule K-2 and Schedule K-3
Schedule K-2 and Schedule K-3 Part VII - Information to Complete Form 8621
Partnership Instructions for Schedules K-2 and K-3 (Form 1065)