K2/K3 Safe Harbor

[Mitch]

Has anyone been able to find the opt out election for the filing of the K2/K3 for Partnerships/S-Corps? I've been in discussions with other accountants and there software has the election on the K2 input screen. Also once they check the box it produces a footnote on the K-1. 

 

[Lee B]

"Consider the Option to Just Prepare the Forms

Advisers may wish to consider the other alternative to qualifying the S corporation to meet either the Domestic Filing Exception or the Form 1116 Exemption Exception—just preparing the Schedules K-2 and K-3 for an S corporation with only domestic activities.

*Several professional tax software publishers have added the option to check a box that tells the software that the entity has only United States operations. When the box is checked the software uses the information entered on the forms to complete the rest of the Form 1120-S to populate Parts II and III of Schedules K-2 and K-3 based on the normal allocation information for profits and losses for the return, as well as the average book value for assets reported on the corporation’s depreciation schedule.

For many simple S corporations, this procedure will produce either a correct Schedule K-2 and K-3, or a starting point for quickly creating proper Schedules K-2 and K-3 for the corporation. In that case, taking the additional steps to meet the requirements to meet either exceptions may consume far more professional time than simply preparing these forms for filing with the Form 1120-S and providing the appropriate Schedule K-3 to each shareholder."

[Lee B]

If the required January 15th letter was not mailed out to the S Corp owners then your only option is to file Schedules K2 & K3.

[Slippery Pencil]

7 hours ago, Mitch said:

Also once they check the box it produces a footnote on the K-1. 

 

Does the footnote say anything more than, "You will not receive a K2"?

I don't think atx has a checkbox

[KenO]

As I understand the January 15th deadline was eliminated in the updated instructions released in January. The notification to partners can now be made as late as when the partnership/S-corp furnishes Schedule K-1 to its partners and can be provided as an attachment (footnote) to the Schedule K-1. The example I saw used verbiage along the lines of the "the company has determined it has met the necessary exceptions and will not issue schedule K-3 unless the shareholder requests it within one month of the company filing its Form 1120-s" or something like that as best I can remember.

[BulldogTom]

@KenO When did that change?   Last CPE course I took in early January still said you had to do the letter by Jan 15th.   Not shocked if it changed, but curious when.

Thanks

Tom
Longview, TX

[Lynn EA USTCP in Louisiana]

To Bulldog Tom, IRS K2K3 webinar 2/9/2023 had the revised instructions along with a nice flowchart.

[Slippery Pencil]

46 minutes ago, BulldogTom said:

When did that change?   Last CPE course I took in early January still said you had to do the letter by Jan 15th.  

Final instructions for K-2 & K-3 were issued the last two weeks of December. 

https://www.irs.gov/instructions/i1065s23#en_US_2022_publink1000107247
3. Partner notification. With respect to a partnership that satisfies criteria 1 and 2, partners receive a notification from the partnership at the latest when the partnership furnishes the Schedule K-1 to the partner. The notice can be provided as an attachment to the Schedule K-1. The notification must state that partners will not receive Schedule K-3 from the partnership unless the partners request the schedule.

https://www.irs.gov/instructions/i1120s23#en_US_2022_publink1000102223
2. Shareholder notification. With respect to an S corporation that satisfies criterion 1, shareholders receive a notification from the S corporation at the latest when the S corporation furnishes the Schedule K-1 to the shareholder. The notice can be provided as an attachment to the Schedule K-1. The notification must state that shareholders will not receive Schedule K-3 from the S corporation unless the shareholders request the schedule.

Who was the CPE provider?

[BulldogTom]

15 minutes ago, Slippery Pencil said:

Who was the CPE provider?

Spidell.   Did the update seminar 1/10

Tom
Longview, TX

[Lee B]

IR 2022-38 dated February 16th

https://www.irs.gov/newsroom/irs-provides-further-details-on-additional-relief-for-certain-partnerships-preparing-schedules-k-2-and-k-3-for-2021

FAQ 15   https://www.irs.gov/businesses/schedules-k-2-and-k-3-frequently-asked-questions-forms-1065-1120s-and-8865

I haven't seen anything about this notice in the various tax news sites for which I am signed up?

I just did an online search for "Schedule K 2"  and this stuff popped up. Amazing!

This time the IRS has totally dropped the ball with the way that they have handled this issue!

[BulldogTom]

12 hours ago, Lynn EA USTCP in Louisiana said:

To Bulldog Tom, IRS K2K3 webinar 2/9/2023 had the revised instructions along with a nice flowchart.

On 2/9/2023 I was doing CA returns that included the Middle Class Tax Relief payments that were taxable until they weren't.   This has not been my year for following what the IRS is doing.

Tom
Longview, TX

[Lee B]

Drake has 4 different check boxes which covers all of the various options

[Randall]

I don't think ATX has any options to check.  According to IRS instructions for 1120S and 1065, we can attach a statment for K-2 and K-3 exception.  ATX has a Blank Statment option that I'll use for the statement.  This will go with the efiling so I don't have to attach a separate pdf.

[Lynn EA USTCP in Louisiana]

The only option I've seen in ATX is a checkbox stating K2K3 are attached.  I too have used the Blank Statement for the exception disclosure.

[Mike CPA]

Hi Lynn, as far as I know, the Blank Statements only get attached to the return itself. But the Domestic Filing Exception has to be attached to each individual K-1. How are you utilizing the blank statements w/the K-1's?

[Lynn EA USTCP in Louisiana]

Mike CPA, what I have done is notify the partners/shareholders that unless they specifically request it the K2K3 will not be included with their K1.  this notification has already been sent out, and all my partners/shareholders have responded that they do not request the K2K3.

 

[Mike CPA]

10 hours ago, Lynn EA USTCP in Louisiana said:

Mike CPA, what I have done is notify the partners/shareholders that unless they specifically request it the K2K3 will not be included with their K1.  this notification has already been sent out, and all my partners/shareholders have responded that they do not request the K2K3.

 

Thank you. That makes sense, I'm just wondering in what form you are making this notification. While an email or other form of direction communication may actually be the most likely to get the shareholders' attention, it likely would not actually satisfy the IRS' requirement that the notification be "attached to the K-1." 

[Lion EA]

From the 2022 partnership instructions:

3. Partner notification. With respect to a partnership that satisfies criteria 1 and 2, partners receive a notification from the partnership at the latest when the partnership furnishes the Schedule K-1 to the partner. The notice can be provided as an attachment to the Schedule K-1. The notification must state that partners will not receive Schedule K-3 from the partnership unless the partners request the schedule.

[Randall]

19 hours ago, Mike CPA said:

Hi Lynn, as far as I know, the Blank Statements only get attached to the return itself. But the Domestic Filing Exception has to be attached to each individual K-1. How are you utilizing the blank statements w/the K-1's?

I have 2 statements, one for K-2 and one for K-3.  Both are attached to the return.  I print an extra statement for K-3 and attach to each K-1.

[Mike CPA]

On 2/28/2023 at 2:18 PM, Lion EA said:

From the 2022 partnership instructions:

3. Partner notification. With respect to a partnership that satisfies criteria 1 and 2, partners receive a notification from the partnership at the latest when the partnership furnishes the Schedule K-1 to the partner. The notice can be provided as an attachment to the Schedule K-1. The notification must state that partners will not receive Schedule K-3 from the partnership unless the partners request the schedule.

Ah, thank you! I stand corrected; the K-1 attachment is merely one option for making this notification. It's more flexible than I'd thought.

[Lion EA]

From the 2022 S Corporation Instructions for Schedules K-2 and K-3 (Form 1120-S):

2. Shareholder notification. With respect to an S corporation that satisfies criterion 1, shareholders receive a notification from the S corporation at the latest when the S corporation furnishes the Schedule K-1 to the shareholder. The notice can be provided as an attachment to the Schedule K-1. The notification must state that shareholders will not receive Schedule K-3 from the S corporation unless the shareholders request the schedule.

[cpabsd]

I am late to the game here... but ATX does have an exception box.  It is under Elections, Form 1120S and the very bottom.  Just FYI.  

[Randall]

21 hours ago, cpabsd said:

I am late to the game here... but ATX does have an exception box.  It is under Elections, Form 1120S and the very bottom.  Just FYI.  

I see that box to check.  But where is the statement?  I can't find where to print the statement.  And what about K-3?

[Randall]

I see that the printed statement prints out under the Blank Statements tab.  But there is still no statement for the K-3.