If you typically receive a Schedule K-1 from a partnership or S corporation, you may receive it later than usual this year.
The IRS has created two new forms, Schedules K-2 and K-3, that many partnerships and S corporations must file this year at the same time that they produce their Schedules K-1. The new filing requirements are delaying their ability to file their business tax returns and to issue Schedules K-1 to partners and shareholders.
The delays are taking place for multiple reasons:
- The IRS announced in 2021 that these forms would not be ready until at least late March 2022 at the earliest and that many businesses and entities would need to file an extension for their returns.
- The new forms are 14 to 20 pages each, so they require much more detail than businesses previously provided.
- The guidance on the forms continues to evolve. The IRS released Frequently Asked Questions on Schedules K-2 and K-3 in mid-February 2022, which clarified that the filing requirements apply to far more businesses than originally expected. Furthermore, the IRS is working to address ongoing questions and pushback from businesses and tax practitioners on these new forms.
- The forms carry severe penalties for failure to file or incomplete filing. The penalties apply both at the entity level and at the individual partner or shareholder level.
- The IRS and tax software providers are still programming the technology to allow businesses and individuals to e-file these forms.
To learn more about the new Schedule K-2 and K-3 requirements, whether they apply to you, and how they may affect the timing of your returns, check out our Frequently Asked Questions (FAQs):
We expect that the IRS’s requirements and guidance will continue to evolve over the coming weeks.
At The Wolf Group, we are monitoring these developments and continuing to evaluate the approaches that are in the best interest of our clients. If you have questions on the new Schedules K-2 and K-3 or need assistance complying with the additional foreign reporting, please contact us. The Wolf Group has assisted clients with foreign disclosures and related tax form preparation for nearly four decades.
Pursuant to Circular 230, promulgated by the Internal Revenue Service, any US tax advice contained in the body of this writing is not intended or written to be used, and cannot and should not be used, by any recipients as specific tax advice related to their facts and circumstances. Taxpayers should consult their local tax professional and/or attorney to obtain specific tax advice related to their facts and circumstances.