Schedules K-2 and K-3 for 2021; intended for enhanced reporting of international tax matters by pass-through entities

Draft versions of Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021 (filing season 2022)

Draft versions of Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021

The IRS today released draft versions of Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021 (filing season 2022).

According to an IRS release—IR-2021-98—these schedules are intended to provide greater clarity for partners and shareholders on how to compute their U.S. income tax liability with respect to items of international tax relevance, including claiming deductions and credits.

Read the draft versions of the schedules (each showing a “watermark” date of April 29, 2021, and including cautionary language that these drafts are subject to OMB approval and therefore to possible changes before final release):

  • Form 1065 (Schedule K-2) [PDF 619 KB] Partner’s Distributive Share Items—International
  • Form 1065 (Schedule K-3) [PDF 633 KB] Partner’s Share of Income, Deductions, Credits, etc.—International
  • Form 1120-S (Schedule K-2) [PDF 493 KB] Shareholders Pro Rata Share Items—International
  • Form 8865 (Schedule K-3) [PDF 514 KB] Partner’s Share of Income, Deductions, Credits, etc.—International
  • Form 1120-S (Schedule K-3) [PDF 501 KB] Shareholder’s Share of Income, Deductions, Credits, etc.—International
  • Form 8865 (Schedule K-2) [PDF 509 KB] Partners’ Distributive Share Items—International

The IRS stated that it expects to release an updated draft of the related instructions for these schedules this summer.

Today’s IRS release states that the redesigned forms and instructions are intended to provide guidance to partnerships, S corporations and U.S persons who are required to file Form 8865 with respect to controlled foreign partnerships on how to provide international tax information. The updated forms will apply to any persons required to file Form 1065, 1120-S or 8865, but only if the entity for which the form is being filed has items of international tax relevance (generally foreign activities or foreign partners).

The changes do not affect partnerships and S corporations with no items of international tax relevance.

Lastly, the IRS reported that to promote compliance with the adoption of Schedules K-2 and K-3 by affected pass-through entities and their partners and shareholders, the IRS intends to provide certain penalty relief for the 2021 tax year in future guidance.

 

 

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