At the time of this blog post, the IRS was still making changes to its approach to Schedules K-2 and K-3 in response to push-back from tax professionals and other parties. In particular, the American Institute of Certified Public Accountants (AICPA) and other organizations [...]
If you typically receive Schedules K-1 from partnerships and you are expecting Schedules K-3 this year, then you will generally need to wait for them before you can file your S corporation return. If you are expecting a 2021 Schedule K-3 but do not [...]
We have compiled Frequently Asked Questions for individuals to help explain how the new Schedule K-2 and K-3 will affect their individual tax filings. These explanations can be shared with any shareholders to help address their questions.
The shareholders want their Schedules K-1 and K-3 by April 18 so that they can file their individual returns by then. What should I tell them?
While the IRS is working diligently to enable S corporations to file their 2021 returns with the new schedules as soon as possible, guidance on the new forms continues to evolve. Since failure to properly complete or file the new schedules may subject the [...]
Yes. The IRS has released a timeline for accepting e-filed returns with the new Schedules K-2 and K-3. S corporation returns are slated for the middle of the year: Form Number [...]
In late 2021, the IRS announced that it would not begin accepting Schedules K-2 and K-3 until end of March 2022 at the earliest. Since this timeframe is after the March 15 due date for 2021 Forms 1120-S, the IRS indicated that any S [...]
The penalty for failing to file or filing an incomplete Schedule K-2 or K-3 is $10,000. This penalty can be applied at both the entity level and the individual shareholder level. The IRS has provided temporary relief for this penalty for 2021 under Notice [...]
Can the shareholders just decide not to claim foreign tax credits on their individual returns so that we don’t have to prepare Schedules K-2 and K-3 at the S corporation level?
Possibly. If the S corporation has no foreign income, assets, or other international items to report AND all shareholders forego (completely) the claiming of foreign tax credits on their individual returns, then the S corporation could potentially skip the filing of Schedules K-2 and [...]
Our S corporation doesn’t have any foreign assets or income. Do we really need to do this? Are there any exceptions?
While there are exceptions, we advise you to tread carefully. The exceptions are much more limited than expected. And failure to file Schedules K-2 and K-3 carries $10,000 penalties. As of late February 2022, the IRS continued to release new guidance and FAQs on [...]
Most likely. The IRS’s FAQs on Schedules K-2 and K-3, released in mid-February 2022, clarified that many partnerships and S corporations, including those that do not have foreign assets or operations, may need to file the new forms: “In many instances, a partnership or [...]