If a partnership has $100,000 of gross income and a $50,000 deduction for guaranteed payments, my understanding is that the Schedule K-1 issued to that partner should show his share of the partnership's $100,000 gross income on Line 16B (and not include the guaranteed payment).
Let's assume the partner has a 75% ownership. His Line 16B should therefore show $75,000.
Now we're filling out his 1116, Line 3e, Gross Income from All Sources. He reports $75,000 of income on Line 1 from the partnership and $50,000 of guaranteed payments on his return, so his 'gross income' is $125,000. But if you look at the instructions to the 1116 you should use Line 16B of the Schedule K-1 to populate Line 3e of the 1116. If we do this then the partner's gross income from all sources only shows as $75,000.
What happens to the guaranteed payments, and/or what am I missing?