To help standardise the format in which US domestic partnerships report foreign tax items, the US has proposed adding two new schedules to Form 1065, U.S. Return of Partnership Income, beginning with tax year 2021.
The proposed changes are intended to simplify the process for partners to compute their U.S. income tax liability with respect to items of international tax relevance, including claiming deductions and credits, while also increasing the US Internal Revenue Service’s efficiency in verifying taxpayer compliance, according to the tax agency’s 14 July press release. The changes generally would not affect US domestic partnerships with no foreign activities or foreign partners to report.
The proposed new schedules for international items, and related instructions, that were released for public comment are:
- Schedule K-2 (Form 1065), Partners’ Distributive Share Items — International; and
- Schedule K-3 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc. — International.
The international-focused partnership schedules are meant to “better align the information that partnerships provide on the schedules with the tax forms used by partners”, the press release says. “It is intended that all the information to be reported on the new schedules is already necessary for the partnership to provide to partners or is available to the partnership.”
In comparison with existing forms, Schedule K-2 (Form 1065) would replace portions of existing Form 1065, Schedule K, lines 16(a) through 16(r). Schedule K-3 (Form 1065) would replace portions of Schedule K-1, Part III, boxes 16 and 20, according to the press release.
Affected stakeholders are invited to submit comments through 14 September 2020. Written comments should be emailed with the subject line “International Form Changes” to lbi.passthrough.international.form.changes@irs.gov.
Similar revisions are planned to Form 1120-S, U.S. Income Tax Return for an S Corporation, and Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, the press release says.
— Dave Strausfeld, J.D., (David.Strausfeld@aicpa-cima.com) is an FM magazine senior editor.
