Yes, Schedules K-2 and K-3 require new information that wasn’t previously required for partners or shareholders to accurately complete their own returns.
The new schedules necessitate more detailed and complete reporting than what partnerships and S corporations may have been providing previously. This is because the prior versions of Schedules K and K-1 did not require a specific format for providing international information, leading to a confusing array of statements attached to these schedules. The new Schedules K-2 and K-3 provide a standardized format, which helps partners and shareholders to accurately complete their returns with respect to international tax aspects.
The new schedules were created to accommodate the complex international provisions enacted by the Tax Cuts and Jobs Act (TCJA) of 2017, which required a significant increase in the amount and types of information needed to calculate U.S. tax liability with respect to items of international tax relevance. The IRS observed that items of international tax relevance were not always reported in a clear and standard format on the previous schedules, leading to the need for these new schedules to ensure accurate and consistent reporting.
In summary, the new Schedules K-2 and K-3 require more detailed and standardized information to help partners and shareholders accurately complete their tax returns, which was not previously required in such detail.
Sources:
Notice 2021-39
IRS Feels Your Pain on Schedules K-2 and K-3
Partnership Instructions for Schedules K-2 and K-3 (Form 1065) (2023)
