Jan 19, 2023
In December 2022, the IRS posted a revised draft version of the 2022 Partnership Instructions for Schedule K-2 and K-3 (Form 1065) and a similar revised version of the 2022 S Corporation Instructions for Schedules K-2 and K-3 (Form 1120-S). They were subsequently finalized.
On this Tax Section Odyssey episode, April Walker, CPA, CGMA, Lead Manager — Tax Practice & Ethics, AICPA & CIMA along with Tim Chan, Managing Director, Washington National Tax — Passthroughs — KPMG LLP and David Sites, National Managing Partner, International Tax Services — Grant Thornton LLP, sift through the changes between the draft instructions and dive into the particulars taxpayers need to know.
What you’ll learn in this episode
- Who needs to file the Schedules K-2 and K-3 (2.41)
- Domestic filing exception in the December 2022 draft instructions (5.06)
- The two-prong test (5.47)
- What no or limited foreign activity means (6.46)
- How to report foreign-source income (8.33)
- Requirement that all direct partners are US citizens/resident aliens (9.26)
- Partner or shareholder notification (11.20)
- Requirements for the schedules and the 1-month date (13.14)
- Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), exception (18.21)
- Risks and penalties associated with not completing or filing required schedules (22.55)
- Final thoughts (25.05)
Related resources
- IRS Schedules K-2 and K-3 guidance and resources — Access resources to advise clients on IRS Schedules K-2 and K-3, which are used to report items of international tax relevance from the operations of passthrough entities.
- Tax potpourri — Form 1099-K, Schedules K-2/K-3 and tax legislation | Tax Section Odyssey — Schedules K-2 and K-3 aim to standardize international tax information reporting to flow-through investors, yet challenges in practical implementation exist.
- K-2/K-3 — Making sense of new international passthrough reporting | Tax Section Odyssey — Listen to this podcast covering the new schedules and related past and future AICPA efforts.
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