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Alert: On Feb. 16, 2022, the IRS issued IR-2022-38 providing transition relief related to Schedules K-2 and K-3 for certain taxpayers.

Overview

If a taxpayer has items of international relevance, they are required to report on Schedules K-2 and K-3 if they file:

  • Form 1065, U.S. Return of Partnership Income

  • Form 1120-S, U.S. Income Tax Return for an S Corporation

  • Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships

Schedules K-2 and K-3 replace, supplement and clarify the reporting of certain amounts formerly reported on a partner’s or shareholder’s Schedule K-1 as foreign transactions.

Client outreach

Schedules K-2 and K-3 Client Information Letter

Notify your clients about the new reporting forms and advise them to contact you with questions.

Tax Section Odyssey podcast

Transitional challenges for Schedules K-2 and K-3 | Tax Section Odyssey

Schedules K-2 and K-3 aim to standardize international tax information reporting to flow-through investors, yet challenges in practical implementation exist.

K-2/K-3 — Making sense of new international passthrough reporting | Tax Section Odyssey

Listen to this podcast covering the new schedules and related past and future AICPA efforts.

Video & audio

Grappling with Schedules K-2 and K-3

In this Journal of Accountancy podcast, learn how to better understand the ins and outs of these formidable forms.

Webcast archive — IRS panelists on K-2/K-3 outbound

Listen to a webcast from IRS speakers providing insights on Schedules K-2 and K-3.

News & articles

Schedules K-2 and K-3 e-file capability postponed for S corporations, The Tax Adviser, April 28, 2022

More Schedule K-2 and K-3 FAQs posted, The Tax Adviser, April 13, 2022

IRS offers further K-2/K-3 relief, The Tax Adviser, Feb. 16, 2022

Complying with new schedules K-2 and K-3, Tax Insider, Feb. 11, 2022

Navigating the new Schedules K-2 and K-3, The Tax Adviser, Sept. 1, 2021

See more articles from The Tax Adviser on Schedules K-2 and K-3.

IRS guidance

FAQs

Schedules K-2 and K-3 Frequently Asked Questions (Forms 1065, 1120S and 8865)

This set of FAQs provides answers to common questions, such as who is required to file the schedules and what transition relief is available.

Frequently Asked Questions (FAQs) for 2021 Short Tax Year Pass-Through Entity Returns and Schedules K-2 and K-3

This IRS FAQs page answers questions related to schedule attachments for short-year returns.

Forms

Schedule K-2 (Form 1065), Partners’ Distributive Share Items — International, and Instructions
Schedule K-2 is an extension of Schedule K of Form 1065 and is used to report items of international tax relevance from the operation of a partnership.

Schedule K-3 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc.— International, and Instructions
Schedule K-3 reports items of international tax relevance from the operation of a partnership.

Schedule K-2 (1120-S), Shareholders’ Pro Rata Share Items — International, and Instructions
Schedule K-2 is an extension of Form 1120-S, Schedule K, and is used to report items of international tax relevance from the operation of an S corporation.

Schedule K-3 (Form 1120-S), Shareholders’ Share of Income, Deductions, Credits, etc. — International, and Instructions
Schedule K-3 is an extension of Schedule K-1 (Form 1120-S) and is generally used to report to shareholders their share of the items reported on Schedule K-2.

Notices

Notice 2021-39
This notice provides background information on Schedules K-2 and K-3 as well as information on potential penalties for noncompliance. The notice also covers transition relief from penalties for incorrect or incomplete information if the filer establishes that they made a good faith effort to comply with the new reporting requirements.

Other IRS guidance

Post-Release Changes to Tax Forms, Instructions and Publications
The articles on this page explain specific changes to forms, instructions or publications after they are available on IRS.gov.

Schedules K-2 and K-3: Interim Electronic Filing for Tax Year 2021
This IRS guidance page provides details on how to submit the schedules with an electronic return and the timeframe of availability for the Modernized e-File (MeF) system.

This resource is part of the robust tax resource library available from the AICPA Tax Section. The Tax Section is your go-to home base for staying up to date on the latest tax developments and providing the edge you need for upskilling your professional development. If you’re not already a member, consider joining this prestigious community of your tax peers. You’ll get free CPE, access to rich technical content such as our Annual Tax Compliance Kit, a weekly member newsletter and a digital subscription to The Tax Adviser.

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Join the growing community of AICPA members who make all this possible. You’ll get up to date information and discounts on CPE, and contribute to a vibrant and growing profession.