Part I. Shareholder’s — Instruction 1120-S (Schedule K-3)

This part reports your information for international tax items not reported elsewhere on the Schedule K-3.

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 purposes of section 904, if the S corporation sells non-depreciable personal property (other than inventory and certain intangible property), you, the shareholder, are treated as the seller. Therefore, you will need to determine the source of the gain reported in Part II, line 1, column (f). In general, if you are a U.S. citizen or resident alien individual, the gain is U.S. source. However, a U.S. citizen or resident alien individual with a tax home (as defined in section 911(d)(3)) in a foreign country is treated as a nonresident if an income tax of at least 10% is imposed by and paid to a foreign country regarding such sale. See section 865(g)(2). See also sections 865(e)(1) and 865(h) for other sourcing provisions for which the information provided in box 1 may be helpful.

If the S corporation checked box 1 in Part I, use the information attached to Schedule K-3 to determine if a foreign country imposed a tax of at least 10% or more on the gain from each sale. If so, and you have a tax home in a foreign country, such gain is foreign source income and reported on Form 1116. For more information, see Column (f) , later.

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 had such taxes, it checked box 2 and attached a partially completed Schedule I (Form 1118), Reduction of Foreign Oil and Gas Taxes, to Schedule K-3. You are not required to complete Form 1118; rather, use the partially completed Schedule I and the associated instructions to complete Form 1116, Part III, line 12, for the applicable reduction for individuals.

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 (as defined in Regulations section

1.909-2(b)) the related income was, 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 an S corporation into account pursuant to section 1373(a). If the S corporation checked box 3 in Part I, it attached a statement that separately identifies any arrangement, along with your share of the taxes paid or accrued in connection with the arrangement in which the S corporation participates that would qualify as a splitter arrangement under section 909. The box should be checked only if the S corporation knows, or has reason to know, that an entity that took into account related income from the arrangement is a covered person with respect to one or more shareholders. For example, you are a payor of a foreign tax if you take into account the foreign taxes paid or accrued by the S corporation under section 1366(a)(1)(A). For example, if the S corporation wholly owns a reverse hybrid (as defined in Regulations section 1.909-2(b)(1)(iv)) and you own 10% or more (determined by vote or value) of the interest in the S corporation, the reverse hybrid is a covered person with respect to you. You cannot credit the foreign taxes paid or accrued by the S corporation with respect to the reverse hybrid until you or the S corporation takes into account the related income of the reverse hybrid. Until then, the taxes are suspended. The S corporation reported your share of the potentially suspended taxes as a result of the application of section 909 on Part III, Section 3, line 2E. Include on Form 1116, Part III, line 12, taxes suspended under section 909. If you are required to complete Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, for a CFC, include in Schedule E (Form 5471), Income, War Profits, and Excess Profits Taxes Paid or Accrued, Schedule E-1, line 3b, column (d), taxes suspended under section 909.

If the S corporation checked box 3, and the statement indicates that the S corporation took into account the related income from the splitter arrangement, the taxes are partially or fully unsuspended depending on the amount of related income taken into account. Even though the taxes are unsuspended, in certain cases you might not be eligible to claim a credit for those taxes. To the extent you are eligible to claim a credit for unsuspended taxes, these amounts may be claimed on Form 1118 or 1116, as applicable. If you are required to complete Form 5471, for a CFC, report the unsuspended taxes in Schedule E (Form 5471), Schedule E-1, line 3a, column (d).

In some cases, you may take into account related income directly that allows you to partially or fully unsuspend taxes, for example, by way of a subpart F or GILTI inclusion with respect to related income.

Caution: There might be a splitter arrangement with respect to the shareholder even if the S corporation did not identify one, given that the S corporation did not have the information available to the shareholder. Therefore, you must identify such arrangement even if box 3 is not checked.

Box 4. Foreign tax translation. If the S corporation checked box 4, it will attach a statement described in the instructions for Part III, Section 3.

2 Instructions for Schedule K-3 (Form 1120-S) (2025)

Box 5. High-taxed income. If the S corporation checked box 5, you must determine if the passive income reported to you by the S corporation is treated as income in another separate category. 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). You must group your shares of passive income from an S corporation according to the rules in Regulations section 1.904-4(c)(3). However, 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 Regulations section 1.904-4(c)(5)(ii). The S corporation should have attached Attachment(s) 1 and/or 2. Use the attachment(s) and your taxes on your other passive income (that is, passive income that is not attributable to your share of the S corporation’s income) to determine if you need to assign passive income and the associated taxes to another separate category of income. You must allocate and apportion the shareholder’s expenses to this passive income to determine if the income is treated as income in another separate category. This includes both your share of S corporation expenses and expenses incurred by you directly. See the Instructions for Form 1116 for how to report your income and taxes reclassified under the high-taxed income rule.

Box 6. Section 267A disallowed deductions. If the S corporation checked box 6 in Part I and attached a statement titled “Section 267A Disallowed Deduction,” prepare your tax return by taking into account that you are not allowed a deduction for any of the amounts listed in the statement. Thus, for example, do not claim as a deduction any amount reported on lines 41 through 43 of Schedule K-3, Part II, Section 2, to the extent listed in the statement as an amount for which a deduction is disallowed under section 267A.

Caution: Box 6 and the accompanying statement describe only interest or royalty paid or accrued by the S corporation for which the S corporation knows, or has reason to know, that you are disallowed a deduction under section 267A. For information about section 267A, see FAQs for section 267A, FAQs for Form 1065, Schedule B, Other Information, question 22 .

Boxes 7 through 9. If applicable, the S corporation should have attached to the Schedule K-1 or Schedule K-3 the relevant portions of Form 5471; Form 5713, International Boycott Report; and other relevant international tax forms.

With respect to Form(s) 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs); and/or 8621, the S corporation checked box(es) 7 and/or 9, respectively, if the S corporation attached the Form(s) 8858 and/or 8621 to the Form 1120-S. If you need information from the Form(s) 8858 and/or 8621, request such information from the S corporation.

Box 10. Shareholder loan transactions. If this box is checked, the S corporation identified upstream or downstream S corporation loan transactions. See Regulations sections 1.861-9(e)(8) and (9) for purposes of determining special rules regarding interest expense allocation and apportionment if you have such loan transactions with the S corporation.

Caution: The shareholder may have additional shareholder loan transactions not identified by the S corporation due to information not known to the S corporation.

Box 11. Entity treatment for certain S corporations. If this box is checked, the S corporation has made an election under Proposed Regulations section 1.958-1(e)(2) to be treated as owning stock of a CFC within the meaning of section 958(a), and, therefore, the S corporation may have an income inclusion under sections 951(a) and 951A that it reports on Schedule K-1, line 10, “Other income (loss),” and does not report in Schedule K-3, Part V.

Box 12. Form 8865 information. This box alerts you that the S corporation attached Form(s) 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, to the Form 1120-S. The S corporation is not required to attach a copy of the form to your Schedule K-3.

Box 13. Other international items. 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 items are not otherwise reported in this part or other parts of Schedules K-2 and K-3, the S corporation reported that information on an attachment and checked box 13.