These new instructions, pending any final updates, provide a much-welcome filing exception for a domestic partnership. Under the updated instructions, a domestic partnership, as defined under IRC Sec. 7701(a)(2) and (4), does not need to complete and file with the IRS Schedules K-2 and K-3 or furnish to a partner the Schedule K-3 if each of the following our criteria is met with respect to the partnership’s tax year 2022:
- The domestic partnership has no or limited foreign activities, or if it does have foreign activity, such foreign activity is limited to passive category foreign income, in general, reported on Forms 1099’s, upon which not more than $300 of foreign taxes were subject to the Foreign Tax Credit. Foreign activity is defined as follows:
- Foreign income taxes paid or accrued
- Foreign source income or loss
- Ownership interest in a foreign partnership
- Ownership interest in a foreign corporation
- Ownership in a foreign branch
- Ownership interest in a foreign entity that is treated as a disregarded entity
- All partners are U.S. citizens or resident aliens, domestic decedent estates, or certain domestic trusts
- The partnership must send a notification to the partners two months before its filing deadline, without an extension. For calendar year partnership the deadline is January 15, 2023
- No 2022 Schedule K-3 is requested from a partnership by a partner prior to one month before the partnership filing deadline, without extensions. For calendar year partnerships the deadline is February 15, 2023.
If a partner’s request for Schedule K-3 is received after this deadline, the partnership is not obligated to file Schedule K-2 and K-3 with IRS but must provide the information to the requesting partner.
The above exception, as of today, applies to partnerships only. The IRS has not provided a similar exception for S-corporations. We understand that you may have questions or concerns about this new reporting requirement. Our staff members are available to answer all questions you may have and can assist you with all of your tax and financial planning needs.