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Business Tax

IRS Adds to Schedule K-2 and K-3 FAQs

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

The IRS has added new FAQs related to various Schedules K-2 and Schedules K-3.

The FAQs relate to:

  • Schedule K-2 to Form 1065, Partners’ Distributive Share Items—International;
  • Schedule K-2 to Form 1120-S, Shareholders’ Pro Rata Share Items—International;
  • Schedule K-2 to Form 8865, Partners’ Distributive Share Items—International;
  • Schedule K-3 to Form 1065, Partner’s Share of Income, Deductions, Credits, etc.—International;
  • Schedule K-3 to Form 1120-S, Shareholder’s Share of Income, Deductions, Credits, etc.—International; and
  • Schedule K-3 to Form 8865, Partner’s Share of Income, Deductions, Credits, etc.—International.

The new FAQs are:

FAQ 19. The partnership or S corporation does not qualify for [any exceptions otherwise provided for in previous FAQs). Is the partnership or S corporation required to complete all parts of Schedules K-2 and K-3?

FAQ 20. A filer otherwise required to file Forms 5471, 8865, and/or 8858 may qualify for an exception from filing those forms based on the Internal Revenue Code, IRS guidance, and/or instructions to those respective forms (for example, the multiple filer exception). If the filer qualifies for such exception, do the Instructions to the Schedules K-2 and K-3 nevertheless require a filer to complete Forms 5471, 8865, and/or 8858?

FAQ 21. In Part II, Section 1 (Description) and Part III, Section 4, Lines 1 and 3 of Schedules K-2 and K-3 (Forms 1065, 1120-S, and 8865), is it possible to enter the code “RIC”?

FAQ 22. When must a filer complete Section 1 of Part III, Schedules K-2 and K-3 (Forms 1065, 1120-S, and 8865)?

FAQ 23. If a foreign partnership has passive foreign investment companies (PFICs) for which a mark-to-market (MTM) election described in Reg. §1.1291-1(c)(4) has been made (for example, under section 475), does the filer need to report the PFICs on Part VII of Schedules K2 and K3 (Forms 1065 and 8865)?

FAQ 24. Are Part VIII (Form 1065) and Part VII (1120-S) of Schedules K-2 and K-3 required to be completed for dormant foreign corporations (as defined in Rev Proc 92-70, sec. 3)?

FAQ 25. How should a partnership report its accrued original issue discount (OID) and OID income taxable on a gross basis to a foreign partner on Section 1 of Part X of Schedules K-2 and K-3 (Form 1065)?

FAQ 26. Could you clarify the reporting on Section 3, Lines 2b, 3a, and 3b, of Part X, Schedules K-2 and K-3 (Form 1065)?

Note. The IRS issues FAQs to provide general information to taxpayers and tax professionals as expeditiously as possible. For more information about FAQs as a type of guidance and the extent to which taxpayers and tax professionals may rely on FAQs, see FTC 2d/FIN ¶T-10162.1.

To continue your research on what information must be provided to partners on Form 1065, Schedule K-1 and other schedules see FTC 2d/FIN ¶S-2707.

 

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