On July 14, 2020, the IRS released two new schedules proposed to be added to the 2021 Form 1065, “U.S. Return of Partnership Income”: Schedule K-2, “Partners’ Distributive Share Items – International,” and Schedule K-3, “Partner’s Share of Income, Deduction, Credits, etc. – International.” These forms provide the IRS and partners with standardized information about partnership items of international tax relevance.
The Tax Cuts and Jobs Act of 2017 added numerous international tax provisions that affect the taxation of partnerships and their partners. The current schedules associated with the Form 1065 do not provide partners with sufficient information to comply with their U.S. filing requirements. Instead, partnerships report this information within footnotes attached to the partners’ K-1 package. As a result, partners receive varying levels of detail about international tax-related items from each investment or need to follow up with the partnership to obtain all the information required to comply with the new international tax provisions on their own returns.
This lack of standardized international tax information from partnerships also means that the IRS is unable to capture this information electronically and use it in its compliance and enforcement activities.