A Couple More Updates on the 2022 Schedules K-2 and K-3
In addition to the new domestic filing exception discussed last week, the 2022 instructions for Schedules K-2 and K-3 added the following exceptions to completing Parts V, VI and VII:
- Part V of the Schedules K-2 and K-3 is not required to be completed with respect to distributions by a foreign corporation if the partnership knows that (i) none of the distributions by the foreign corporation are attributable to previously taxed earnings and profits (PTEP) in annual PTEP accounts of any direct or indirect partner, and (ii) none of the partnership’s direct or indirect partners are eligible to claim a deduction under Section 245A with respect to any distribution by the foreign corporation.
- Part VI of Schedules K-2 and K-3 does not need to be completed with respect to a controlled foreign corporation (CFC) if the partnership knows that it does not have a direct or indirect partner (through pass-through entities only) that is a U.S. shareholder of the CFC required to include in gross income a subpart F income inclusion and/or Section 951(a)(1)(B) inclusion with respect to the CFC, or figure Section 951A inclusions by taking into account global intangible low-taxed income (GILTI) items of the CFC.
- Part VII of Schedules K-2 and K-3 does not need to be completed if:
- A partnership that knows it has no direct or indirect partners that are U.S. persons, including U.S persons that own an indirect interest in the partnership through one or more foreign entities.
- A domestic partnership that has elected to treat a Passive Foreign Investment Corporation (PFIC) as a pedigreed qualified electing fund (QEF) or made a mark-to-market (MTM) election under Section 1296 with respect to a PFIC applicable to the partnership’s tax year.
- A partnership that owns stock of a foreign corporation that is treated as a qualifying insurance corporation.
- A partnership that knows that all of its direct and indirect partners that are U.S. persons are either (i) not subject to the PFIC rules with respect to the corporation because they are subject to the subpart F rules with respect to the corporation, (ii) tax-exempt entities that are not subject to the PFIC rules with respect to the corporation, or (iii) pass-through entities with no direct or indirect U.S. taxable owners
- A partnership that marks to market stock of a PFIC.
- Carey M. Heyman, CPA
- Managing Principal of Industry - Real Estate
- CliftonLarsonAllen LLP
- Century City (Los Angeles)
Carey is the Managing Principal of the Real Estate Industry at CLA. He is a trusted advisor with close to 20 years of experience providing accounting, assurance, tax, and consulting services to real estate industry owners, operators, family offices, developers and syndicators. Carey has a strong track record of helping clients build and retain capital by leveraging tax- and cost-saving strategies and employing tax credits and incentives. He also consults with high net worth individuals, large family groups, and owners of closely-held businesses on all aspects of tax planning, estate planning, and retirement planning.
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