Starting in tax year 2021 the IRS updated the Schedule K-1 to include a new Schedule K-3 to report the partner's share of international transactions. This replaces and adds more detail to the codes that appeared on 1065 Schedule K-1, line 16 in prior years.
This article will help you:
- Enter info from the K-3, parts II and III, on an individual return;
- Generate the foreign tax credit Form 1116; and
- Understand where items from other parts of the Schedule K-3 may need to be reported.
You may be able to use the information reported on Sch. K-3 to figure your foreign tax credit. For more information, see Form 1116, Foreign Tax Credit and IRS Pub. 514 for Individuals.
To enter K-3 parts II and III:
- From Income, under Passthrough K-1's, go to Partnership Info (1065) or S-Corp Info (1120S), depending on the K-1 type.
- From along the top of the workspace, select the following for your K-1 type:
- Partnership: Lines 11-20
- S Corporation: Lines 11-17
- Scroll down to the section for your K-1 type:
- Partnership: Line 16 - International Tax (Schedule K-3 - Form 1065)
- S Corporation: Line 14 - International Tax (Schedule K-3 - Form 1120-S)
- Enter the following info for each country where foreign taxes were paid or accrued:
- Form 1116 Name - leave this field blank unless you want to link the entry to an existing form.
- Name of Country must be selected for any line you're not linking to an existing Form 1116.
- Select the Category of Foreign Income (if not linking to an existing 1116).
- Enter the Partner's foreign gross income for this category.
- Enter any Interest Expense Allocated to Foreign Sources from Part III, section 2.
- Enter any Other Foreign Deductions Apportioned or Allocated from Part III.
- Enter the amount of Foreign Tax Withheld (US Dollars) from Part III, section 4.
- Enter the amount of Foreign Tax Withheld (Foreign Currency) if applicable.
- Enter the Date Paid or Accrued.
- Select the Type of Income Withheld On.
- Repeat these steps for any other countries.
Where do I enter the K-3 gross income from all sources?
To have the Schedule K-3 gross income from all sources affect the calculation of Form 1116, line 3e, follow these steps:
- From Credits, under Foreign Tax Credit (1116), go to Foreign Tax Credit (1116).
- Select the tab for the desired foreign country, from there selecting the Gen Info./Elections option in the upper-right corner of the workspace.
- Enter the amount in Gross income from all sources [Adjust].
Where do I enter other parts of the K-3?
Schedule K-3 parts IV - XII aren't used to calculate the foreign tax credit, but provide information you may need for other forms in the return. See the Schedule K-3 instructions for additional information.
For tax year 2020 and prior:
- Go to the Input Return tab.
- On the left-side menu, select Income.
- Click on Partnership Info (1065 K-1).
- On the left-side menu, select Line 16 - Foreign Transactions.
- Click inside of the Foreign tax withheld (foreign currency) (Click on button to expand) field.
- Click the plus sign (+) that appears to expand the input field.
- Enter the amounts and information as provided by the partnership*:
- Name of foreign country
- Category of foreign income
- Partner's foreign gross income
- Interest expenses allocated to foreign sources
- Other foreign deductions
- Foreign tax withheld (US dollars)
- Date paid or accrued
- Type of income withheld on
- Click OK to return to the main input screen.
*Click on an item below to learn more about how the program handles each entry.
Form 1116 name or number
An entry in this field will link the foreign tax information to a specific Form 1116 entered on the Credits > Foreign Tax Credit (1116) screen. If this field is left blank, the program will use your entries in Name of foreign country and Category of income to determine which 1116 to send this information to. If no existing match is found, the program will create a new Form 1116.
Name of foreign country
Enter the foreign country to which the taxes were paid. This is usually reported on the K-1, box 16, code A. If you leave the Form 1116 name or number field blank, the program will use this entry, along with the Category of income, to determine which 1116 to send the information to.
Category of foreign income
Enter the category of foreign income as shown on the K-1. When Form 1116 name or number is left blank, the program will use this entry, along with the Name of foreign country, to determine which 1116 to send the information to.
Partner's foreign gross income
Enter the partner's foreign gross income as shown on the K-1, box 16, code C, D, E, or F. This amount will print on Form 1116, part I, line 1.
Other foreign deductions
Enter the amounts as reported on the K-1, box 16, code H, I, J, or K. This amount will print on Form 1116, part I, line 2.
Foreign tax withheld (foreign currency)
An entry in this field is not required. The program will not convert foreign currency amounts, so the US dollar amount must be entered. If you choose to enter a foreign currency amount along with the US dollar amount, you will need to enter a foreign currency conversion statement on the Credits > Foreign Tax Credit (1116) screen, then link that screen to this K-1 using the Form 1116 name or number field discussed earlier.
Date paid or accrued
Enter the date the taxes were paid or accrued. The date will print on Form 1116, part II.
Type of income
Enter the type of income the foreign taxes were withheld on. This entry is needed to determine which category of income to report the withholding under on Form 1116, part II. If the selection has Accrued next to it, as opposed to Paid, then the Accrued checkbox on Form 1116, part II will be checked.
Related topics
