2022 Schedules K-2 and K-3 Reporting Requirements for Partnerships and S Corporations

The Internal Revenue Service (IRS) recently issued revised instructions for Schedules K-2 and K-3 for the 2022 tax year. The revised instructions include a new “domestic filing exception” for partnerships and S corporations in response to requests for expanded filing relief and clarity. The Schedules K-2 and K-3 reporting forms are used by pass-through entities to report certain international income, deductions, credits and other miscellaneous items.

Partnerships and S corporations that meet the domestic filing exception will not be required to file Schedules K-2 and K-3 with the IRS. The domestic filing exception will be met with the following requirements:

  1. The entity’s foreign activity, if any, must be limited as described in the form instructions (generally limited to passive foreign income with not more than $300 of foreign income taxes allowable as a credit).
  2. If the entity is a partnership, all direct partners must be U.S. citizens or resident alien partners (domestic estates and trusts with solely U.S. citizens and/or resident alien beneficiaries are included) as further described in the form instructions.
  3. Partners/shareholders must be timely notified. The eligible entity must notify the partners/shareholders by the time they are finished with their Schedule K-1. The notice can be provided as a Schedule K-1 forms. The notification must state that partners/shareholders will not receive Schedule K-3 from the partnership or S corporation unless requested.
  1. No 2022 Schedule K-3 requests are made by a partner/shareholder to the qualifying entity on or before the “one-month date.” The one-month date is defined as one month before the date the qualifying entity files its income tax returns. For example, for a 2022 calendar year partnership filing on extension, the latest one-month date would be August 15, 2023. If a partner/shareholder requests a Schedule K-3 from the entity after the one-month period, then the entity only has to provide the information to the requesting partner/shareholder and does not have to file the Schedules K-2 and K-3 with the IRS.

Qualifying entities that wish to take advantage of the domestic filing exception must timely notify partners/shareholders that the entity will not be issuing Schedule K-3 unless specifically requested. Additionally, qualifying entities will be responsible for tracking whether any timely requests for Schedule K-3 have been made.

To best determine if the domestic filing exception is right for your organization, please contact your BSSF advisor.

About the Author

Mary Kay Toth, CPAMary Kay Toth, is a Principal at Brown Schultz Sheridan & Fritz (BSSF) and a key member of the Firm’s Tax Department. She has over 25 years of experience in public accounting with clients all over the south-central Pennsylvania region. Mary Kay is considered a trusted advisor, consulting with a wide variety of small, closely-held business clients and assisting them with their financial and tax needs which include business tax planning, tax compliance services and financial statement preparation.

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