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Great News (Potentially) For 2022 Partnership Tax Return Filings

Nov 1, 2022

The IRS recently announced in drafted instructions to the 2022 Form 1065 new relief provisions for filing Schedules K-2 and K-3. First introduced with the 2021 tax filing season, the intent of Schedule K-2 and K-3 is to provide the IRS and partners with detailed disclosures surrounding foreign income taxes. Most tax professionals agreed that the broad-reaching requirements of the original Schedule K-2 and K-3 created too much of a tax burden for “normal” partnerships with no international activity. Because of this cumbersome preparation, the IRS offered a one-year deferral (from 2021 to 2022) for most taxpayers.

In the draft instructions for the 2022 partnership filings, the IRS is providing an updated domestic filings exception to the requirement to file Forms K-2 and K-3. Per these recently released draft instructions, a partnership does not need to complete and file the Schedules K-2 and K-3 with the IRS if each of the following four criteria is met regarding the partnership:

  1. The partnership has no or limited foreign activity.
  2. The partners are all U.S. citizens or resident aliens.
  3. By January 17, 2023 (for calendar year partnerships), the partnership sends notifications to its partners of their intent not to prepare Form K-3.
  4. No partners explicitly request a Form K-3 by February 15, 2023 (for calendar year partnerships).

We anticipate many partnerships will want to consider sending notifications to their partners by the January 17th deadline to avoid the costly compliance burden of preparing Forms K-2 and K-3 with their 2022 partnership return. Further guidance and examples concerning the need for reporting by partnerships with domestic activity and with partners who are U.S. persons are available at IRS.gov.

Contact your CRI advisor for additional information or with any questions. We’re here to provide the insight you’ll need to properly file your Schedules K-2 and K-3.

 

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