News Alert: IRS Announces Some Changes to the Schedule K-2 and K-3 Instructions

Last week the IRS announced some changes to the Schedule K-2 and K-3 instructions. The update includes some additional language around who has to file the Schedules K-2 and K-3. The instructions now indicate that a partnership with no foreign source income, no assets generating foreign source income, and no foreign taxes paid or accrued may still need to report information on Schedules K-2 and K-3. The form would still be required if the partners could possibly need information that would be reported on the Schedule K-3. This would be, for example, in the event that one of the partners claims a foreign tax credit, that tax partner may need some information from the Partnership to determine some of the components for the foreign tax credit calculation.

While taxpayers had been hoping for guidance that would narrow the population of the returns requiring the schedule K-2 and K-3, this guidance seems to expand the possible population of returns that would now require Schedule K-2 and K-3s.

Also the IRS provided some clarity to taxpayers on when a Form 8858 or 5471 would be required to be attached to the schedule K-3 provided to partners. The IRS indicates that these attachments would only be necessary if the partnership has reason to believe that the partners would need a copy of these forms to fulfill their own tax filing obligations. In practice, this scenario does not seem likely, so it would appear that this is indeed the relief that taxpayers were hoping for: eliminating the need to share Forms 8858 and 5471 with partners which would have been a great logistical challenge.

Similarly other international information returns such as Form 8865 and 8621 filed by the partnership need not be attached to the Schedule K-3.

Contact Us

For assistance in understanding your Schedule K-2 and K-3 filing requirements please reach out to Withum’s International Tax Services Team.