Changes to Schedule K-1
Changes to Schedule K-1
IRS has issued a draft of Form 1065, Schedule K-1 and there will be additional information required to be reported.
The IRS issued on June 14, 2023 a draft of the Form 1065, Schedule K-1 for 2023. There are no instructions yet (which may take several months to get released).
Here is a recap of the changes that will require additional work to obtain the information needed to fill out the form:
The 2022 form asked whether the profit and loss % increased or decreased due to a sale or exchange of the partnership interest. The 2023 form now separates these into two separate check boxes.
Item K3 now asks if any the recourse liabilities shown in Box K1 are subject to a guarantee or other payment obligation. See instructions (does this mean we will have to attach details on these obligation).
Also, the draft of the Form 1065 was released on June 23, 2023, that changes what is needed in regard to the Section 734(b) or 743(b) adjustments related to a sale or exchange of partnership interests.
The 2022 Form required disclosure of the computational details of each individual adjustment.
The 2023 Form now has four sections in Question 10.
First question is whether the partnership made a Section 754 election and the date the election was made (is this something maintained in the records).
Second question asks for the details on any current year Section 743(b) adjustments. It must break down the adjustments between net positive and net negative adjustments plus attach a statement showing the computation and allocation of each basis adjustment. (Instructions will show all requirements).
Third question asks for the details on any Section 734(b) adjustments similar to Section 743(b) adjustments.
Fourth question asks for details on any adjustment related to a built-in loss.
Section 743(b) adjustments relate to sales or exchanges between partners, either current or new partners plus any inherited partnership interests. Section 734(b) relates to a purchase of a partner’s interest in the partnership by the partnership.
As we can see, the IRS continues to ask for more and more information on partnership tax returns and I would not expect the trend to change in the future.