Get Up to Speed on the New International Reporting Schedules

As we indicated to you back in June, the IRS has finalized the new Schedules K-2 and K-3 for passthrough entities to report certain international income, deductions and other miscellaneous items. For tax years beginning in 2021, a partnership must file Schedule K-2, Partners’ Distributive Share Items – International, and Schedule K-3, Partner’s Share of Income Deductions, Credits, etc., - International.

Practitioners for a partner or S corporation shareholder should access these forms early because the level of detail needed to complete them is daunting, and the forms and instructions are long and complex.

Fortunately, the IRS has provided some transition relief in Notice 2021-39 for certain tax penalties for tax years beginning in 2021 if a filer of incorrect or incomplete reporting meets the IRS’ good faith effort requirements. You should document the efforts taken to update the information-gathering and reporting systems, processes, etc.

Frequently Asked Questions (FAQs) for 2021 Short-Tax Year Pass-Through Entity Returns and Schedules K-2 and K-3 | Internal Revenue Service (irs.gov)

Navigating the new Schedules K-2 and K-3 (thetaxadviser.com)