The IRS issued Schedule K2 and K3 beginning in tax year 2021 requiring S corporations and partnerships to report additional information related to certain foreign transactions. Beginning in tax year 2022, the IRS has further clarified the filing requirements for Schedule K2 and K3.
An S corporation or partnership does not need to file Schedules K-2 and K-3 if each of the following are met:
- No or limited foreign activity. During an S corporation or partnership’s tax year 2022, the entity either has no foreign activity, or if it does have foreign activity, such foreign activity is limited to passive income upon which not more than $300 of foreign income taxes are treated as paid or accrued by the entity.
- Shareholder/Partner notification. With respect to an S corporation or partnership that satisfies criterion 1, shareholders/partners receive a notification from the S corporation or partnership either electronically or by mail dated no later than January 15th, 2023. The notification must state that shareholders/partners will not receive Schedule K-3 from the S corporation or partnership unless the shareholders/partners request the schedule.
- No 2022 Schedule K-3 requests by the One-Month Date. The S corporation or partnership does not receive a request from any shareholder or partner for Schedule K-3 information on or before February 15th, 2023.
Click here to download a sample shareholder/partner notification letter. If your entity meets criterion #1 above, please send the enclosed shareholder/partner notification letter to each of the shareholders/partners in your entity by e-mail or postal mail. Please provide us with a copy of the notification sent to shareholders/partners with a note from your tax matters representative indicating the notice was sent or please provide a copy of the sent e-mail. We will keep this on file. If the notice is not sent we are required to prepare and file Schedules K2 and K3. Please note that these are burdensome forms requiring additional tax preparation time and as a result additional preparation fees.
Please contact our office with any questions regarding this reporting requirement.
Brien P Batley CPA