![]() ![]() Who Must File?Īt first glance of the IRS instructions, it may appear that only pass-through entities with international activities or foreign owners need worry about these new schedules. Tax professionals must have a detailed understanding of the pass-through entity’s facts and circumstances to determine which parts of the Schedules K-2/K-3 must be completed and attached with their client’s tax return. For example, the Form 1065 Schedule K-2 (replacing Forms 1065 Schedule K, Line 16) is 19 pages with 12 parts, while Schedule K-3 (replacing Forms 1065 Schedule K-1, Line 16) is 20 pages with 13 parts. ![]() The new Schedules K-2 and K-3 are extensive. These new schedules will also equip the IRS with another tool to verify compliance of taxpayers doing business through pass-through entities. Schedule K-3 is an extension of Schedule K-1 and is generally used to report to owners their share of the items reported on Schedule K-2. Schedule K-2 is an extension of Schedule K and offers a standardized format to report items of international tax relevance from the operation of the pass-through entity. Starting with taxable years beginning in 2021, Schedules K-2 and K-3 are new schedules to accompany filing Forms 1065, 1120-S, and 8865 (together, “pass-through entities”).
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