The updated draft Partnership Instructions for Schedules K-2 and K-3 (Form 1065) for the 2022 taxable year provide a new domestic partnership filing exception. This is welcome relief for tax professionals working with most domestic partnerships.
- The partnership has no or limited foreign activity, which is specifically defined in the instructions and includes domestic partnerships whose only foreign activity is passive category foreign income that:
- Only generates $300 or less of taxes subject to the Foreign Tax Credit; and
- Is shown on a payee statement such as Form 1099-DIV;
- All partners are U.S. citizens or resident aliens, domestic decedent estates, or certain domestic trusts;
- The partnership sends specific notification to the partners by two months before its filing deadline, without extensions (January 15 for calendar-year partnerships); and
- No partners specifically request Schedule K-3 from the partnership prior to one month before the entity’s filing deadline, without extensions (February 15 for calendar-year partnerships). If the information is requested after February 15, then the partnership only has to provide the information to the requesting partner and does not have to file the K-2 and K-3 with the IRS.
Note: The draft K-2/K-3 (Form 1120S) instructions have not yet been released. We assume similar relief will be provided in these draft instructions. We will issue another Flash E-mail if this is not the case.
The draft Partnership Instructions for Schedules K-2 and K-3 (Form 1065) can be found at:
www.irs.gov/pub/irs-dft/i1065s23–dft.pdf
We will be covering this new K-2/K-3 filing exception in detail in Spidell’s upcoming Federal/California Tax Update webinars and seminars. Registrants will receive a free sample partner notification letter in the next week to meet the notification requirement listed above.
Sign up for Spidell’s 2022/23 Federal and California Tax Update to spend one day with us and be ready for tax season. Click here for a list of in-person seminar locations.