Draft 2021 Schedules K2 and K3 Released (IR-2021-98; April 30, 2021)
The IRS has released draft Schedules K-2 and K-3
for the Forms 1065, 1120-S, and 8865 for tax year 2021 (filing season 2022). These are a continuation of the drafts released in July 2020 intended to clarify pass-through information to partners that deal with international tax provisions. The new K1s are range between 15 and 20 pages and are designed to provide greater clarity for partners on how to compute their U.S. income tax liability with respect to items of international tax relevance, including claiming foreign tax credits, GILTI, FDII, etc. Tax form instructions will be released this summer.
Tax Practitioner Planning: This will greatly simplify the required international tax provision reporting for tax preparers who file passthrough entity returns. This is also a welcome change for the tax preparers of the partners of these entities as it will provide the information needed to calculate foreign tax credits, GILTI, etc. The entities need not complete this schedule if the partnership does not have items of international tax relevance (typically, international activities or foreign partners).