IRS to allow e-filing of new K-2 and K-3 schedules starting in March

The Internal Revenue Service said Friday it will be rolling out the ability to electronically file the new Schedules K-2 and K-3 next year, but not at the beginning of the filing season.

Schedules K-2 (Partners’ Distributive Share Items — International) and K-3 (Partner’s Share of Income, Deductions, Credits, etc. — International) are new for the 2021 tax year. If taxpayers have items of international tax that are relevant, they’re required to report the information on Schedules K-2 and K-3 if they file Form 1065 (U.S. Return of Partnership Income), Form 1120-S (U.S. Income Tax Return for an S Corporation) or Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships).

They are part of the IRS’s efforts to require better tax compliance, especially for large partnerships that do business internationally. The schedules are supposed to give partners and shareholders more clarity about how to figure their U.S. income tax liability when it comes to international tax items, including claiming deductions and credits. To find out if a taxpayer is required to submit Schedules K-2 and K-3, the schedule instructions provide further information.

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However, the IRS needs to phase in the electronic filing of the new schedules in its Modernized e-File, or MeF, system. On Friday, the IRS said that MeF or Extensible Markup Language (XML) electronic filing capability for Schedules K-2 and K-3 for TY 2021 will not be available as of the beginning of the 2022 filing season in January 2022. Instead, Schedules K-2 and K-3 will be available for MeF/XML filing in the following timeframes:

If taxpayers or tax professionals electronically file the return before the time frames above during this interim period, they should submit the schedules as separate PDF files attached to the return. The schedules can all be found in Forms and Publications.

The recommended standard names for the PDF files will be posted to IRS.gov/mef. Taxpayers who aren’t required to complete Schedules K-2 and K-3 won’t be affected by this timeline and can file their returns electronically at the beginning of filing season 2022. The IRS has also notified e-file providers about this time frame.

Separately, the IRS also announced Thursday that the MeF system for business returns won’t be available right for several days after Christmas. To prepare the system for the upcoming filing season for tax year 2021 and ensure that all business returns for the tax year 2020 e-filed through the MeF system are processed on a timely basis, the shutdown for “Send Submissions” only is scheduled to begin at 11:59 a.m. (noon) Eastern time, Sunday, Dec. 26, 2021. However, transmitters can continue to use the other service requests except “Send Submissions” until 11:59 p.m. (midnight) Eastern time, Sunday, Dec. 26, 2021.

States can continue to use all the service requests they need to retrieve and process state submissions in line with shutdown activities described above, but the IRS recommends that states adjust their processing schedule so they can retrieve submissions in time to validate the returns and submit acknowledgements. Any acknowledgements that haven’t been retrieved by 11:59 p.m. Eastern time on Dec. 26 can’t be accessed until the MeF system opens for production in January 2022. However, the MeF ATS (Assurance Testing System) will be operational during this cutover period. Tax professionals should monitor the MeF Operational Status page for any future updates.