Business owners have been anxiously waiting for news updates for this year’s tax returns, and the Schedule K-2 and K-3 are no exception. This new development may come as good news to certain business owners filing as partnership and S-corporations. The change implements transition relief for those eligible, and according to the IRS, “[they] will not have to file the new schedules for tax year 2021. ” This is on a case by case basis, each business owner should remember that if they receive notification from a shareholder or partner that parts or all of the Schedule K-3 are needed, then the respective business is obligated to complete the required form.
The qualifications for the exception are as follows:
- Any partners and/or shareholders involved in tax year 2021 must be domestic partners/shareholders
- The business has no foreign business operations in tax year ‘21
- The business did not provide nor did shareholders request the following information:
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- a. Line 16, Form 1065, Schedules K and K-1 (line 14 for Form 1120-S), and
- b. Line 20c, Form 1065, Schedules K and K-1 (Controlled Foreign Corporations, Passive Foreign Investment Companies, 1120-F, section 250, section 864(c)(8), section 721(c) partnerships, and section 7874) (line 17d for Form 1120-S)
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- The business has no knowledge of partners or shareholders requesting the information as stated above
It is important for business owners to know about and understand the updates from the IRS as each update has the potential to impact business either positively or negatively. There are many details to learn and understanding the qualifications, exceptions and deadlines for each tax form will help a business stay on track and maximize tax returns year after year. To learn more about this topic and other important information regarding small businesses, please feel free to contact one of our experienced tax consultants with any questions.
