Most K2/K3 Forms Don't Need to be Filed This Year
The IRS announced on Tuesday February 15, 2022 that most K2/K3 reporting for 2021 can be delayed until the 2022 tax return filing.
Here is the exact wording from the IRS:
Coming relief from certain Schedule K-2 and K3 reporting: The IRS intends to provide certain additional transition relief for this year from the Schedule K-2 and K-3 reporting for certain domestic partnerships and S corporations with no foreign activities, foreign partners or shareholders, and without knowledge of partner or shareholder need for information on items of international relevance. For 2021, these qualifying domestic partnerships and S corporations will not have to file the new schedules. We are taking this step in response to feedback we received from the tax community and our stakeholders. The IRS will provide full details of this relief soon.
The assumption is that if you don't have any foreign activities, partners or shareholders, you are now not required to file these forms for 2021 tax returns. Under the original guidance from January 18, 2022, the IRS required you to file these forms unless you could determine that all of your partners or shareholders did not have to file Form 1116. This new guidance indicates you don't need to determine that information from those partners or shareholders. You only need to determine if you have foreign activity or owners.
This is good news for this year. Most of our farm partnerships and S corporations have no foreign activity or owners and now we can finally E-file the tax returns (assuming the tax software gets this implemented before March 1).
As we have indicated in previous blog posts, the form is not that difficult to prepare for the majority of our farm returns, but now we don't need to delay filing the returns.
Caution may be in order. The IRS intends to provide certain additional transition relief. This is our interpretation of this relief. The IRS interpretation may be different. We will keep you posted.
