Part IV. Distributions From Foreign Corporations to S Corporation

Use Part IV to determine your share of distributions by foreign corporations to the S corporation (with your share being reported in this Part IV) that are attributable to PTEP in your annual PTEP accounts with respect to the foreign corporations (which you exclude from your gross income) or non-previously taxed E&P, and the amount of foreign currency gain or loss on distributed PTEP that you are required to recognize under section 986(c). The amount of foreign currency gain or loss on distributed PTEP that you are required to recognize under section 986(c) is equal to the excess of the U.S. dollar amount of the PTEP over your U.S. dollar basis in the PTEP. If the distributed PTEP was maintained in a functional currency other than the U.S. dollar, the U.S. dollar amount of the distributed PTEP is determined by translating the distributed PTEP into U.S. dollars using the spot rate on the date that the PTEP was distributed; see section 989(b)(1). Your U.S. dollar basis in the distributed PTEP is generally equal to the U.S. dollar amount of E&P that you previously included in gross income; see sections 989(b) (1) and (3).

Also use Part IV, in combination with other information known to you, to claim and figure a foreign tax credit on Form 1116.

Include the U.S. dollar amount of E&P distributions from qualified foreign corporations in determining the amount of qualified dividends you report on Form 1040, line 3a. A foreign corporation identified as a qualified foreign corporation in column (j) that is a PFIC (as defined in section 1297) for the tax year of the foreign corporation in which the distribution was made, or the preceding tax year, is not a qualified foreign corporation, regardless of whether it is indicated as such in column (j). See section 1(h)(11)(C)(iii)(I) and Notice 2004-70, 2004-44 I.R.B. 724.

Include the U.S. dollar amount of E&P distributions from a non-qualified foreign corporation in determining the amount of ordinary dividends you report on Form 1040, line 3b.

However, do not include the U.S. dollar amount of E&P distributions from a foreign corporation in determining the amount you report on Form 1040, line 3a or 3b, to the extent the distributions are attributable to PTEP in annual PTEP accounts that you have with respect to the foreign corporation, or attributable to E&P that are excludable from your gross income under section 1293(c). See Notice 2019-01, 2019-02 I.R.B. 275.

Include the amount of foreign currency gain or loss that you are required to recognize under section 986(c) in determining the amount to report on Schedule 1 (Form 1040), Additional Income and Adjustments to Income, line 8.

Note: The S corporation may have annual PTEP accounts under section 959 with respect to the foreign corporation or may have earnings with respect to the foreign corporation that, when distributed, can be excluded from the S corporation’s income under section 1293(c) for amounts included in income by the S corporation under section 951(a) or section 1293(a), respectively. In such a case:

1. If the distributing foreign corporation is a PFIC and is not a CFC with respect to which you or any other direct or indirect shareholder of the S corporation is a U.S. shareholder (as defined in section 951(b)), the S corporation may exclude your share of any distribution from the foreign corporation in your Schedule K-3, Part IV, to the extent such distribution constitutes a distribution excludable from the S corporation’s gross income under section 1293(c);

2. If the distributing foreign corporation is a CFC with respect to which the S corporation has PTEP for amounts it included in income under section 951(a) (only to the extent such PTEP relates to tax years of the CFC either (i) beginning before January 25, 2022, or (ii) with respect to which the S corporation and/or its shareholders elected under Proposed Regulations section 1.958-1(e)(2) to be treated as owning stock of the CFC within the meaning of section 958(a)), the S corporation may exclude your share of any distribution from the foreign corporation in your Schedule K-3, Part IV, to the extent such distribution is attributable to PTEP under section 959; or

3. If the distributing foreign corporation is both a CFC and a PFIC, and the S corporation has no PTEP for amounts included in income under section 951(a) that can be excluded from the S corporation’s gross income under section 959 when distributed, the S corporation will report your share of the entire distribution on your Schedule K-3, Part IV, and will provide you with information on any amounts that may be excluded from the S corporation’s gross income under section 1293(c), if applicable.

If the S corporation received a distribution that is attributable to PTEP in an annual PTEP account of the S corporation, or attributable to E&P that are excludable from the S corporation’s gross income under section 1293(c) that is treated as a dividend for purposes of section 1411 (that is, for purposes of the net investment income tax) and, therefore, may be net investment income (NII PTEP), it will attach an attachment to the Schedule K-3 regarding your share of the S corporation’s NII PTEP. If you are an individual who is a U.S. citizen or resident, or a domestic trust or estate, use the U.S. dollar amounts of NII PTEP reported on the statement, and follow the Instructions for Form 8960, Net

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

Investment Income Tax—Individuals, Estates, and Trusts, to figure and report your net investment income. See Regulations sections 1.1411-1 through -10 for details. Note that your share of a distribution received by the S corporation that is attributable to PTEP in your annual PTEP accounts, or attributable to E&P that are excludable from your gross income under section 1293(c), may also be treated as a dividend for purposes of section 1411 and, therefore, may be NII PTEP.

Note: Columns (e) and (f) are reported in the foreign corporation’s functional currency.