New Reporting Relief: Recent Transition Relief for Tax Years Beginning in 2021 for New Pass-through Reporting Requirements.

• Author: Josephs, Stuart R.
• Position: FedTax

IRS Notice 2021-39 (IRB 2021-27, July 6, 2021) announced transition relief for tax years beginning in 2021 regarding new Schedules K-2 and K-3 required for the following returns:

* Form 1065, U.S. Return of Partnership Income;

* Form 1120-S, U.S. Income Tax Return for S corps; and

* Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships.

Background

IRC Sec. 6031 generally requires a partnership to:

* File an annual return reporting its gross income and allowable deductions, plus any other information prescribed by forms and instructions to carry out IRC provisions; and

* Furnish to its partners statements containing each partner's share of the partnership's items of income, gain, loss, deductions or credit, plus any additional information required to apply particular IRC provisions to the partner concerning partnership items as prescribed by forms or accompanying instructions.

Sec. 6037 provides similar requirements for an S corp.

Sec. 6038 generally requires a U.S. person controlling a foreign partnership or holding at least a 10 percent interest in a foreign partnership controlled by U.S. persons holding at least 10 percent interests (a U.S. partner) to furnish information relating to the controlled foreign partnership (CFP), including information relating to the U.S. partner's ownership interests in the partnership and allocation of partnership items to the partner.

A U.S. partner controlling a CFP also may need to provide information relating to another U.S. partner's ownership interest in the partnership and allocation of partnership items to that partner.

Pursuant to secs. 6031, 6037 and 6038, the IRS has required, in forms and instructions, that partnerships, S corps or U.S. partners in CFPs report information of international tax relevance.

New Schedules K-2 and K-3

For tax years beginning in 2021, the following Form 1065 schedules are new:

* K-2: Partners' Distributive Share Items-International; and

* K-3: Partner's Share of Income, Deductions, Credits, etc.--International. These schedules replace, supplement and clarify the reporting of certain amounts previously reported on the following Form 1065 schedules:

* K: Partners' Distributive Share Items, Line 16, Foreign Transactions and Line 20c, Other Items and Amounts; and

* K-1, Part III: Partner's Share of Current Year Income Deductions, Credits, and Other Items, Line 16, Foreign Transactions and Line 20, Other Information.

Also, for tax years beginning in...