Per the IRS instructions, a 2022 domestic partnership does not need to complete and file with the IRS Schedules K-2 and K-3 or furnish to the partner(s) their Schedule K-3 if each of the following 4 criteria are met:
- No or limited foreign activity
- Foreign activity is defined as
If there is foreign activity, it must be limited to passive category foreign income, which is not more than $300 of foreign income taxes allowable as a credit under Section 901 are treated as paid or accrued by the partnership, and such income and taxes are shown on a payee statement that is furnished to the partnership. Direct partners are US citizens or resident aliens
- Foreign income taxes paid or accrued,
- Foreign source income or loss,
- Ownership interest in a foreign partnership,
- Ownership interest in a foreign corporation
- Ownership of a foreign branch, or
- Ownership interest in a foreign entity that is treated as disregarded as an entity separate from its owner.
Partners must receive notification from the partnership
- During tax year 2022, the direct partners in the domestic partnership must be:
- Individuals that are US citizens,
- Individuals that are US aliens,
- Domestic decedent’s estates, with solely US citizen and/or resident alien individual beneficiaries,
- Domestic grantor trusts that are not foreign trusts and that have solely US citizen and/or resident alien individual grantors and solely US citizen and/or resident alien individual beneficiaries,
- Domestic non-grantor trusts with solely US citizen and/or resident alien individual beneficiaries,
- S corporations with a sole shareholder, or
- Single-member LLCs, where the LLC’s sole member is one of the persons listed in items a through f above and the LLC is disregarded as an entity separate from its owner
There were no 2022 Schedule K-3 requests by the 1-month date
- If the partnership satisfies criteria 1 and 2, the partners must receive notification from the partnership that the partners will not receive Schedule K-3 from the partnership unless the partners request the schedule. At the latest, the notification must be furnished when the partnership furnishes the Schedule K-1 to the partner. The notice can be provided as an attachment to the Schedule K-1. See this FAQ: Schedule K-2 Domestic Filing Exception - Entering in Program for how to attach notification to the Schedule K-1.
- To qualify, the partnership has not received a request from any partner for Schedule K-3 information on or before the 1- month date (1 month before the date the partnership files Form 1065). For calendar year filers, the latest 1-month date for tax year 2022 is August 15, 2023, if the partnership files an extension.