Example of K1 Form: Understanding the Impact on Pass-Through Entities

As we move forward, applicable filers should start assessing the impact of new IRS reporting requirements on their next filing season. According to Notice 2021-39, certain transition penalty relief for tax year 2021 may be granted if a good faith effort is made to comply with these new requirements.

The Internal Revenue Service (IRS) has designed specific schedules to replace current reporting methods for certain items, which were previously reported on Line 16 and footnotes to K-1s. The new schedules aim to provide more transparency and clarity for owners of pass-through vehicles regarding how to calculate their US income tax liability from relevant international items.

For S corporations with international tax relevance, as well as certain Form 8865 filers, similar filing obligations apply through Schedules K-2 and K-3 for tax years beginning in 2021. Partnerships must also file Schedule K-2 (partners' total international distributive share items) and Schedule K-3 (partner's share of international income, deductions, credits, etc.) if they have relevant international tax items.

The IRS has released final versions of two new forms that should be added to the tax returns of pass-through entities to report certain international income, deductions, credits, and other miscellaneous items. These changes are designed to improve transparency and clarity for owners of pass-through vehicles, ensuring accurate calculation of their US income tax liability from relevant international items.

By understanding these new reporting requirements and schedules, pass-through entities can ensure compliance with the IRS and avoid potential penalties. Moving forward, it is crucial for filers to assess the impact of these changes on their upcoming filing season and make necessary adjustments to comply with the new regulations.

Example of k1 form