12/16/2023 0 Comments Whats the 411Even though the foreign tax is not directly accrued or paid from the partnership itself, it may impact foreign taxes that the partner has directly. For instance, like a domestic partnership that has just the business in the US, they may have items on that partnership return that may impact the foreign tax that a partner is taking. In the instructions, they give some examples of that. Tim Chan: The instructions say, does the partnership have items of international relevance? To the lay person, that doesn't necessarily mean that the partnership has to have foreign activity. I think there was a lot of disparate reporting, a lot of white papers, and the IRS to their credit, cited that as one of the reasons for standardizing and modernizing the mechanism to report information to partners by inventing the K-2 and the K-3. I think it's pretty likely that in pre-TCGA years, that partnerships and other flow-through entities had probably been inadvertently not providing all the relevant data to their partners. So obviously, it was the very largest partnerships that were reporting information on Line 16. That data came out of the IRS when this project started, and that they'd also said that the 5% of businesses that had international transactions on Line 16, also where the partnerships that accounted for more than 50% of all the income reported on partnership returns. David, could you talk about why you think these numbers are misleading and why we need to continue to have all practitioners of all size firms be paying attention to these schedules?ĭavid Sites: Thanks, April. I've seen some data from 2017 filings that show less than 5% of businesses have international transactions on Line 16, leading to the spoiler alert, I guess, incorrect conclusion that Schedules K-2, K-3 are only applicable to a small number of businesses. Before we talk about why you might qualify not to file, let's talk about who needs to file. We're going to be digging into this exception today and talking about other things that you need to know for filing these schedules. 2, and subsequently, those have been finalized, Dec. Thankfully, in the second draft of the instructions, the IRS listened and issued another set of draft instructions. So some of these requirements for this exception seem like a difficult ask. They offered a new exception called the domestic filing exception. ![]() 25, to be specific, of 2022, the IRS issued draft instructions for the 1065 and shortly thereafter, for the 1120-S schedules. Fast-forward to now, getting ready for the 2022 filing season. So mid-February, the IRS provided some additional exceptions for filing those schedules in 2021. Along with this, it was announced that the E-file system was not going to be ready to accept schedules as part of an E-file return, and let's just say chaos ensued. So in early 2022, about a year ago, as we're recording, the IRS released final instructions for the schedules, and some of the wording and requirements took a lot of practitioners by surprise. These schedules were meant to streamline international tax reporting for flow-through entities. So coming into the 2021 tax filing season, there were still a lot of questions about Schedules K-2 and K-3. Just wanted to give a quick background here on the schedules. David is a managing partner of international tax services at Grant Thornton, and Tim is a managing director at KPMG in their national tax office. David and Tim were with me on a podcast that we recorded back in late 2021. Today, we're going to be talking about what's new for the 2022 filing year for Schedules K-2 and K-3, with two experts in this area, David Sites and Tim Chan. ![]() I'm April Walker, host of the Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. ![]() Īpril Walker: Hello, everyone, and welcome to this collaboration between the Journal of Accountancy podcast and the AICPA's Tax Section Odyssey podcast. To comment on this episode or to suggest an idea for another episode, contact Neil Amato at.
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