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Generating the Schedules K-2 and K-3 in ProSeries and entering it in the 1040 return

SOLVEDby Intuit52Updated September 28, 2022

This article will help you:

Who must file Schedules K-2 and K-3?

Generally, any partnership or S corporation must file if they:

  • Have international income, assets, credits, or activity;
  • Have an international owner (partner or shareholder); or
  • Have owners who claim a credit for foreign taxes paid on their return (Form 1116 or 1118).

The revised instructions can be found here, but aren’t available yet in the printed version.

Common questions about generating the K2 and K3 in the business return:

  • How are amounts entered on Schedule K-2 allocated to partners or shareholders on the K-3?  Amounts entered in the K-2 will be allocated based on the partner or shareholder standard percentages. 
  • Can I specially allocate amounts to the K-3? There isn't a way to do special allocations to the K-3, however on the K-3 there's a checkbox Check box to remove all program computed items for Schedule K-3, page 2-4. By checking this box you can manually complete the Schedule K-3 with the desired amounts for each partner/shareholder.
  • Are the K-2/K-3's e-filed with the return? The Schedule K-2 and Schedule K-3 are not e-filed with the return and need to be sent as PDF attachments. See How do I attach PDF files to federal or state electronic filing?
  • How do I generate the K2 / K3? 
    1. Open the Schedule K-2 Page 1.
    2. Complete Questions A, B and C.
    3. Complete Parts I through XI as needed.
    4. For Partnerships: On the Schedule K-1 Worksheet check the boxes for each partner under Information for Schedule K-2/K-3 Reporting.
    5. For S-Corporations: On the Schedule K-1 Worksheet check the box for each shareholder under Information for Sch K-2.

Entering a K-3 in the individual return:

If the taxpayer or spouse received a K-3 from the business return, that will need to be entered into the individual return along with their K-1 information. To enter the K-3:

  1. Open the Schedule K-1 Worksheet.
  2. Scroll down to the Foreign Transactions line:
    • For partners, this is line 16.
    • For shareholders, this is line 14.
  3. Check the Schedule K-3 is attached if checked box.
  4. Enter the Name of Country or U.S. Possession.
  5. Complete lines B through AI based on the K-3 received.
Line A: Name of country or U.S. possessionEnter from Schedule K-3, Part 2, Section 1, Line 24, description columns (a,b,c)
Line B: Gross Income from all sourcesEnter from Schedule K-3, Part 2, Section 1, Line 24, Column G
Line C: Gross Income sourced at individual levelEnter from Schedule K-3, Part 2, Section 1, line 24, Column F
Line E: Foreign gross income - Foreign branch categoryEnter from Schedule K-3, Part 2, Section 1, Line 24, Column B
Line F: Foreign gross income - Passive categoryEnter from Schedule K-3, Part 2, Section 1, Line 24, Column C
Line G: Foreign gross income - General categoryEnter from Schedule K-3, Part 2, Section 1, Line 24, Column D
Line H: Foreign gross income - otherEnter from Schedule K-3, Part 2, Section 1, Line 24, Column E
Line I: Deductions allocated at individual levelInterest expense - Enter from Schedule K-3, Part 2, Section 1, sum of Lines 39-43, Column F
Line J: Deductions allocated at individual levelOther - Enter from Schedule K-3, Part 2, Section 1, sum of Lines 39-43, Column F
Line L: Deductions allocated - foreign branch categoryEnter from Schedule K-3, Part 2, Section 1, Line 54, Column B
Line M: Deductions allocated -Passive categoryEnter from Schedule K-3, Part 2, Section 1, Line 54, Column C
Line N: Deductions allocated - General categoryEnter from Schedule K-3, Part 2, Section 1, Line 54, Column D
Line O: Deductions allocated - OtherEnter from Schedule K-3, Part 2, Section 1, Line 54, Column E
Line P: Total foreign taxes paidEnter from Schedule K-3, Part 3, Section 4, Line 1, on Page 8 or 9 depending on income category, if "Paid" is checked.
Line Q: Total foreign taxes accruedEnter from Schedule K-3, Part 3, Section 4, Line 1, on Page 8 or 9 depending on income category, if "Accrued" is checked.
Line R: Reduction in taxes available for creditEnter from Schedule K-3, Part 3, Section 4, Line 1, on Page 8 or 9 depending on income category, if "Accrued" is checked.

The program will display the code meaning in the description column.

If the description is followed by ** (two asterisks), use the QuickZoom button immediately below to go to the additional information worksheet to enter the additional information required for the item.

For descriptions followed by * (one asterisk), you must enter the item on the form or schedule as indicated by the information supplied with the K-1.

  1. At the bottom of the table, select the QuickZoom to enter additional foreign tax information.
  2. The most common entries needed here will be the entries for Foreign taxes paid, and Foreign taxes accrued.
    1. To generate the credit on Form 1116:
      1. On line 2 check box a.
      2. On line 3 double-click in the box and select the copy of the 1116 for these foreign taxes.
      3. Select the country column for Form 1116.
      4. Review the 1116.
    2. To claim a deduction for the foreign taxes:
      1. On line 2 check box b.
      2. On line 4 check box a or box b depending on if there is foreign earned income from this activity reported on Form 2555. ​

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