Schedule K-2 is a new 14-page form with 7 total parts. It is filed as part of your Form 1120-S, S Corporation Tax Return. It is basically an expansion of Schedule K to provide greater detail on items of international tax relevance from the operation of the S corporation. The Schedule K-2 may also include certain international informational forms, such as Forms 5471, 8858, 926, 8621, and 8992. Many of these forms have a $10,000 penalty for failure to file.
Schedule K-3 is a 15-page form with 7 total parts. Like a Schedule K-1, a Schedule K-3 is provided to each shareholder to provide information on that shareholder’s allocation of pass-through items from the business. In this case, it provides details on that shareholder’s allocation of international items reported on Schedule K-2. It also provides the pass-through data needed for any international informational forms (such as Forms 5471, 8858, 926, 8621, and 8992) that must be filed as part of each shareholder’s Form 1040, Individual Income Tax Return.
Even if S corporations do not have foreign income or foreign assets, they may still need to file Schedules K-2 and K-3.