Many Partnership Returns Will Still Need to Prepare Schedules K2/K3

The IRS started to require Schedule K2/K2 for partnerships and S corporations last year. However, there is an exception to filing the form, but many farm partnershp returns will not qualify.

The IRS started to require preparing Schedule K2/K3 for partnerships and S corporations for the 2021 tax returns. For 2022, these schedules may not be required if you have no foreign income or tax withholding (or small amounts in some cases) and you only have domestic partners.

However, if at least one of your partners is a domestic partnership you are still required to file these schedules even if you meet all of the other requirements. Many of the farm partnership returns that I have help prepare seem to have at least one partnership. This means you will need to prepare these schedules which may take longer to do than the rest of the return.

Perhaps in the future, the IRS will eliminate this provision since in many cases, the information is not needed to accurately prepare the partner’s tax return.

We will keep you posted.