Where do extract income details from IRS forms?

[ian.wright@beechams.]

I need to enter US partnership income details on a UK Tax Return and have three forms.

Form K-1 (1065) Showing trading income, real estate losses, interest and various deductions

Form 8805 Reporting a loss of some sort

Form 1042-S Showing income

The income on K-1 is higher than the 1042-S and the loss on K-1 is lower than 1042-S.

Which figures do I transfer to the UK Return?

[TaxationWeb@BritishA]

Use the K1. Each item on the K1 is computed using US tax law and US GAAP. The UK tax law does not match the US tax law in certain key areas, such as depreciation. If the amounts are small, the difference should be negligble and you can probably ignore the difference. You should seek expert advice as to whether the difference can be ignored.

The Form 1042S shows net income and tax withheld. It is for US tax filing purposes, and a wholey redundant form. To file your US taxes, use the K1 isntead.

The Form 8805 is used to total all foreign taxes withheld from distributions as well as taxable income.

If your US tax withheld is 30%, you may be entitled to a partial refund of US taxes due to the US/UK tax treaty. You should consider having a US tax accountant verify the applicability of a treaty claim.

If the partnership is a real estate partnership, you will have to recompute the depreciation according to UK tax law. Similarly, if the amounts reported on the K1 are large (as in the case of a UK partner of a US law firm, for example), then you will have to make adjustments to figures to account for UK tax differences and UK depreciation differences. This would require obtaining access to the source documents Form 1065 and subsidiary Form 4562 (or substitute schedule). Your UK tax accountant would then contact the preparer of the 1065 and determine where any major adjustments need to be made.

I'm afraid I can't supply a hard and fast rule as to what is large and what is small. You will have to use your best judgement in this area.

[ian.wright@beechams.]

Thank you very much for this expert advice.