New Exceptions for Filing Schedules K-2 & K-3

Published January 27, 2023

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The Internal Revenue Service (IRS) has finalized partnership instructions for Schedules K-2 & K-3 for 2022. These new instructions include a “domestic filing exception” (DFE) where a domestic partnership does not need to file Schedules K-2 and K-3 if the partnership meets four criteria for the 2022 tax year.

It’s important to note these schedules accompany partnerships, S corporations, in addition to, single-member LLCs, where the LLC’s sole member is one of the persons listed and the LLC is disregarded as an entity separate from its owner.

To meet the Domestic Filing Exception for 2022, a domestic partnership must meet the following criteria:

  1. The partnership has no or limited foreign activity, as passive category foreign income has not more than $300 of foreign income taxes allowable as a credit and such income and taxes are shown on a payee statement that is furnished or treated as furnished to the partnership.
  2. The partnership’s direct partners are certain specified U.S. citizens/resident aliens;
  3. The partnership that satisfies criteria 1 and 2, partners receive a notification from the partnership at the latest when the partnership furnishes the Schedule K-1 to the partner.
  4. The partnership does not receive a request from any partner for Schedule K-3 information on or before the 1-month date. The “1-month date” is 1 month before the date the partnership files the Form 1065. For tax year 2022 calendar year partnerships, the latest 1-month date is August 15, 2023, if the partnership files an extension.

Form 1116 Exemption
If the partnership meets the DFE criteria, it will also be exempt from filing Form 1116.

We’re here to help.
Please reach out to your trusted MCM relationship contact with any questions about the new exceptions for filing Schedules K-2 & K-3.

Source: IRS