K-2/K3 Breaking News!

[sjrcpa]

Here's what IRS said this evening:

February 15 update

Coming relief from certain Schedule K-2 and K3 reporting: The IRS intends to provide certain additional transition relief for this year from the Schedule K-2 and K-3 reporting for certain domestic partnerships and S corporations with no foreign activities, foreign partners or shareholders, and without knowledge of partner or shareholder need for information on items of international relevance. For 2021, these qualifying domestic partnerships and S corporations will not have to file the new schedules. We are taking this step in response to feedback we received from the tax community and our stakeholders. The IRS will provide full details of this relief soon.

[abctax55]

I saw that... I sure hope it is MORE than just checking to see if any partners/shareholders are filing F 1116.  A gross receipts test would be ideal.

[rbynaker]

"and without knowledge of partner or shareholder need for information on items of international relevance."

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That sounds like a lawsuit waiting to happen.  Good luck trying to establish what you didn't know and when you didn't know it!

Gives a whole new meaning to the phrase "don't ask questions you don't want the answers to."

I guess if you're not up on your CPE then you have no knowledge of any need for this information, right?

The COVID disaster wasn't bad enough, the IRS has to invent brand new disasters this year.  Meanwhile there are still 6 million--oops, sorry, we didn't have enough people who actually showed up to work to count how far behind we were, correction 24 million--unprocessed tax returns.  But this is the perfect time to add 30 pages of data to PTE returns.

[amec]

IRS provides further details on additional relief for certain partnerships preparing schedules K-2 and K-3 for 2021

WASHINGTON -  The IRS today provided further details on additional transition relief for certain domestic partnerships and S corporations preparing the new schedules K-2 and K-3 to further ease the change to these new schedules. Those eligible for the relief will not have to file the new schedules for tax year 2021.

The new schedules K-2 and K-3 improve reporting by standardizing international tax information to partners and flow-through investors, making it easier for them to report these items on their tax returns. In addition, the changes ease flow-through return preparation compliance by clarifying obligations and standardizing the format for reporting. 

Notice 2021-39 provides penalty relief for good-faith efforts to adopt the new schedules. Today’s transition relief, appearing in new frequently asked questions (FAQs) on Schedules K-2 and K-3, allows an additional exception for tax year 2021 filing requirements by certain domestic partnerships and S corporations.

The IRS is providing an additional exception for tax year 2021 to filing the Schedules K-2 and K-3 for certain domestic partnerships and S corporations. To qualify for this exception, the following must be met:

• In tax year 2021, the direct partners in the domestic partnership are not foreign partnerships, foreign corporations, foreign individuals, foreign estates or foreign trusts. 
• In tax year 2021, the domestic partnership or S corporation has no foreign activity, including foreign taxes paid or accrued or ownership of assets that generate, have generated or may reasonably expected to generate foreign source income (see section 1.861-9(g)(3)).
• In tax year 2020, the domestic partnership or S corporation did not provide to its partners or shareholders nor did the partners or shareholders request the information regarding (on the form or attachments thereto):
• Line 16, Form 1065, Schedules K and K-1 (line 14 for Form 1120-S), and
• Line 20c, Form 1065, Schedules K and K-1 (Controlled Foreign Corporations, Passive Foreign Investment Companies, 1120-F, section 250, section 864(c)(8), section 721(c) partnerships, and section 7874) (line 17d for Form 1120-S).
• The domestic partnership or S corporation has no knowledge that the partners or shareholders are requesting such information for tax year 2021.

If a partnership or S corporation qualifies for this exception, the domestic partnership or S corporation does not need to file Schedules K-2 and K-3 with the IRS or with its partners or shareholders.  However, if the partnership or S corporation is subsequently notified by a partner or shareholder that all or part of the information contained on Schedule K-3 is needed to complete their tax return, then the partnership or S corporation must provide the information to the partner or shareholder. If a partner or shareholder notifies the partnership or S corporation before the partnership or S corporation files its return, the conditions for the exception are not met and the partnership or S corporation must provide the Schedule K-3 to the partner or shareholder and file the Schedules K-2 and K-3 with the IRS.

[abctax55]

• The domestic partnership or S corporation has no knowledge that the partners or shareholders are requesting such information for tax year 2021.

THIS is the part that bothers me.... proving a negative can be difficult.

[amec]

I think the further part that bothers me is: However, if the partnership or S corporation is subsequently notified by a partner or shareholder that all or part of the information contained on Schedule K-3 is needed to complete their tax return, then the partnership or S corporation must provide the information to the partner or shareholder

If the 1116 required the information from the K-3 before, doesn't it still need that information now? The shareholder/partner now has to ask for it?

[sjrcpa]

And it's only for 2021.

[johnoc]

Wondering what the status is for 2022 tax year filings?

k-2 and k-3 reporting when no foreign activity?

[IRonMaN]

I got all excited when I saw breaking news only to be disappointed when I saw it was a rerun from last year.☹️

[johnoc]

2022 IRS S Corp. Instructions for K-2 and K-3 indicate 2022 have domestic exception similar to 2021.

Guess that answers my quesiton. 

[IRonMaN]

It's amazing what a person can find by reading the instructions to tax forms 😀