The Internal Revenue Service (IRS) is continuing to increase its focus on cross border transactions and their reporting requirements. While the IRS has specialized international reporting forms for C corporations and individuals, until now there had been little specific disclosures of international transactions for partnerships. On July 14th, the IRS released a redesigned set of partnership forms for the 2021 tax year. The new forms aim to standardize the reporting of international tax items, which will enhance the flow of international reporting from the partnership to the partner level.
The first new form is Form 1065, Sch K-2, Partners’ Distributive Share Items – International. This form replaces portions of Form 1065, Schedule K, line 16(a) through 16(r). The second new form is Form 1065, Sch. K-3, Partner’s – Share of Income, Deductions, Credits, etc. – International. This form replaces portions of Form 1065, Sch. K-1, boxes 16 and 20. Sch. K-3 will provide more detail on partner level reporting requirements relating to Foreign Tax Credits, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI), and Section 250 Deduction for Foreign Derived Intangible Income (FDII).
With the introduction of these forms, international information needed for partners to complete their tax return will be more clearly stated as well as more efficient and easier for the IRS to verify taxpayer compliance on cross border transactions. According to the IRS, similar revisions can be expected for Form 1120-S for S corporations and Form 8865 for Foreign Partnership for the 2021 tax year.
If you have questions regarding this or any other international tax topic, please contact your WilkinGuttenplan advisor.