IRS Schedules K-2 and K-3, new for 2021, may need to be completed to include items of international tax relevance from the operations of a pass-through entity.
If the entity has any international financial activity –– which could be as simple as holding investments that pay foreign taxes –– it may be required to report on these schedules if it files:
Schedules K-2 and K-3 replace, supplement and clarify the reporting of specific amounts formerly reported on a partner's or shareholder's Schedule K-1 as foreign transactions. These schedules are more extended and will likely require additional time for us to complete.
There is a new exception for filing and furnishing Schedules K-2 and K-3 for the 2022 tax year. To qualify for this exception, the entity must meet the following criteria:
The new standardized format assists pass-through entities in providing partners or shareholders with the information necessary to complete their returns for international tax aspects. It also allows the IRS to verify tax compliance more efficiently. Failure to file such forms or properly provide these information statements to partners or shareholders can result in significant penalties.
We understand that you may have questions or concerns about these reporting requirements. Our staff members are available to answer all questions you may have and can assist you with tax compliance.
Clients are encouraged to contact their Brinker Simpson tax advisor with any questions.
As always, we appreciate the opportunity to serve you.