Many CPAs and other tax preparers have reached out to us regarding the new Schedule K-2 and K-3 reporting requirements.
The perception is that this new reporting requires a lot of time and effort to complete. The reality is for most of our farm tax returns, there is extra time and effort but it is not substantial. The IRS is requiring these forms to be prepared when required and as per Carey’s blog post, many farm returns will not need any K-2 or K-3 preparation if all of the owners are not required to file Form 1116 (to claim foreign taxes).
Also, even if you are required to file the return, almost of of the information should be available, you just will have to track it down in the return. However, if your farm partnership or S corporation involves foreign transactions, the effort may be substantial.
It also appears that the tax preparation software companies may be having issues getting these forms available for e-filing. This may delay your ability to file your income tax return, but all of the information should be available to file your personal return.
Remember if you fail to file Schedule K-2 and K-3 properly, the IRS may assess a late filing penalty which can approach $2,500 per partner or shareholder. Additionally, you will likely see an increase in your tax preparation fee.
