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.
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.