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Tax & Assurance Guidance

IRS Provides Relief on K-2 and K-3

Posted on February 17, 2022 by

Margaret Amsden

Margaret Amsden

Tarah Ablett

Tarah Ablett

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Schedule K-2 & K-3 Forms for International Business Owners Using Laptop for K-2 & K-3 Reporting

In an attempt to provide more transparency with regard to reporting of foreign activity and/or information to foreign owners, the IRS came out with two new forms for the 2021 filing year:

• Schedule K-2 (an addendum to the Schedule K)
• Schedule K-3 (an addendum to the Schedule K-1)

The initial rollout of these tax forms was rather fast and IRS systems weren’t even set up to receive the forms for some time. As such, the IRS allowed for some filing exceptions last year and while there are exceptions for the current year, they are not the same as 2021.

How to Qualify for the Domestic Filing Exception

To qualify for the 2022 domestic filing exception, the following must be met:

  • In tax year 2022, the partnership or S corporation must have no or limited foreign activity
  • Direct ownership of the partnership must be domestic:
    • Individuals that are U.S. citizens or resident aliens
    • Domestic decedent estates, domestic grantor and non-grantor trusts with U.S. beneficiaries
    • S corporations with a sole shareholder
    • Single member LLCs where the member meets previously stated domestic filing exceptions
  • Owners must be notified by the time the partnership or S corporation return is filed that no K-3 will be provided–this can be included as a footnote in the K-1
  • The partnership or S corporation does not receive a K-3 request from any owner within one month of the partnership filing due date

If the pass-through entity qualifies for this exception, they do not need to file Schedules K-2 and K-3 with the IRS or with its partners or shareholders. If, upon notifying the owners of no K-3 filing, the partnership or S corporation receives a request for K-3, they must supply it to the owner. Depending on when the request is received determines whether the K-3 is furnished to the requesting owner or if the K-2 is filed with the return and K-3 supplied to all owners.

Continue the Conversation

If you have any questions about the latest K-2 and K-3 reporting requirements, please reach out to us.

*Updated on 2/20/23

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Margaret Amsden

Shareholder, Private Client Services

Margaret leads the firm’s private client services group as the point person for individual, estate and succession planning tax strategies.

Tarah Ablett

Senior Manager, Tax

Tarah helps manufacturing and industrial automation clients leverage tax planning opportunities and navigate tax compliance issues.

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