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New additional IRS forms for partnership returns
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This year the IRS added two new forms to be filed with partnership returns. The 2 forms are schedule K-2 and schedule K-3. Schedule K-2 is an expansion of the former Foreign Transactions portion of Schedule K. If needed, only one schedule K-2 is generated per partnership. A schedule K-3 should be generated for every partner showing the partner's share of items on schedule K-2. These new schedules are quite long. Each runs 19-20 pages. Fortunately, they are only required if a partnership had foreign transactions. For investment clubs this means the club owned stock in a company incorporated outside the United States and the club received dividends or other income from such a company. The American Depository Receipts (ADRs) of foreign companies traded on a US exchange would count as a foreign company.
The new schedules also require the country of incorporation of the foreign company paying the income to the partnership be included. myICLUB now a field in the Security Profile to indicate the country of incorporation of the company. The ICLUBcentral tax printer cannot correctly complete schedules K-2 and K-3 without accurate information in the Security Profile. Check the profile of companies that were in the club portfolio during 2021. Some SEC filings, such as annual and quarterly reports, have the country of incorporation listed on the title page. Contacting the Investor Relations department of the company can also get you this information.
Because the new schedules are so long, it is recommended clubs e-file rather than paper file. The ICLUB tax printer will e-file at no extra charge. Also, we strongly encourage your members to download the PDF version of their K-1 especially if the club had foreign income. The 20+ page K-3 will be included, if applicable. Save lots of paper and use the electronic versions.
There is some good news. If your club had no foreign transactions, the K-2 and K-3 will not be required to be included in the club 1065 filing. Also, the IRS has stated there will be no penalties for problem K-2s and K-3s, as long as partnerships made a good faith effort to complete them.
Russell Malley
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Rank: Administration
Posts: 280
Thanks: 3 times
Was thanked: 47 time(s) in 42 post(s)
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There is a new development concerning clubs filing schedules K-2 and K-3. At the end of January the IRS changed the instructions for Schedule K-2. The new instructions are not in final form and are only available in draft form with a revision date of 1/31/2022. From our reading of the new instructions and consulting outside tax professionals, the consensus is ALL partnerships should include schedules K-2 and K-3 when filing their Federal form 1065. This includes partnerships with NO foreign income. Changes are now being made to the ICLUBcentral Federal tax printer so these schedules are generated for all clubs.
If your club has not filed its Federal return, I suggest you wait until the changes to include these new schedules for all clubs are implemented. This is a very high priority at ICLUBcentral. It is anticipated this will be completed soon, before the March 15 filing deadline. Clubs should not need to submit an extension to file. However, unanticipated snags may occur. Watch here on StockCentral or the ICLUBcentral web site for updates on this issue. When the changes are complete, individual members will be able to download both their personal K-1 and K-3 from the club's myICLUB site.
Next, if your club has not filed its 1065 and was planning on using paper forms and filing via mail, please seriously consider e-filing instead. Schedule K-2 will add about 20 pages to a return and the K-3s will add about 20 more for each partner. A club with 10 partners will see their Federal return increase by approximately 220 pages! Save a lot of paper and get an automatic proof of filing by using e-file.
Finally, if your club has already filed form 1065 without including schedules K-2 and K-3, there is some good news. The IRS stated early in this process that as long as a partnership made a good faith effort to comply with the new schedule requirements there would be no penalties.
Disclaimer: I am not an attorney. I am no longer a registered tax preparer in California. This information is based on postings in tax professional web sites, the IRS web site, and opinions from outside tax professionals. This issue is new territory. The specifics for clubs will vary. Consultation with a currently practicing professional familiar with your situation may be needed.
Russell Malley
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New additional IRS forms for partnership returns
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