Possibly. If the partnership has no foreign income, assets, or other international items to report AND all partners forego (completely) the claiming of foreign tax credits on their individual returns, then the partnership could potentially skip the filing of Schedules K-2 and K-3. Again, we would urge caution here, for several reasons:
- There is a cost to foregoing foreign tax credits on individual tax returns. Depending on the magnitude of a partner’s foreign tax credits, he or she may not agree or it may not be worth it to forego the credits.
- If a partner later needs this information, it might need to be produced anyway.
- A partner might inadvertently claim foreign tax credits on their individual return for foreign taxes paid via their US brokerage accounts, thus nullifying the exception.
- As stated above, it’s not clear whether domestic partnerships may be required to file Schedules K-2 and K-3 even if they do not have foreign income or assets.
If partners did want to forego foreign tax credits to avoid filing Schedules K-2 and K-3, they need not completely forego claiming of foreign tax credits on their individual returns. Individuals can elect to claim foreign tax credits without filing Form 1116 if the following conditions are all met:
- All foreign source gross income was “passive category income.”
- All the income and any foreign taxes paid on it were reported to the taxpayer on a qualified payee statement (e.g., Form 1099 or 1099-DIV).
- The total foreign taxes paid are not more than $300 if single or $600 if married filing joint.
That said, we advise the same cautions as above.