Schedule K-2 is a new 14- to 19-page form with up to 11 sections. It is filed as part of the partnership or S corporation tax return. It reports items of international tax relevance from the operation of the business. Since this form gets filed as part of the business return, you won’t see a copy unless you see the complete business tax returns.
Schedule K-3 is a 15- to 20-page form with up to 13 sections. It is basically an expansion of Schedule K-1 to provide greater detail to you on your share of the business’s international tax items. It is needed for the preparation of your individual income tax returns. This schedule is provided to both you and the IRS, and it reports your share of income, deductions, credit, and international informational reporting items. It may also include data needed for you to file certain international informational forms (such as Forms 5471, 8858, 926, 8621, and 8992) as part of your Form 1040, Individual Income Tax Return. Many of these forms have a $10,000 penalty for failure to file.
Even if the partnership or S corporation does not have foreign income or foreign assets, it may still need to file Schedules K-2 and K-3, which could delay your individual tax filings.