How do I input Schedule K-2 and Schedule K-3 in a 1065 return using worksheet view in CCH® ProSystem fx® Tax and CCH Axcess™ Tax?
- Article Type:
- How To
- Last Modified:
- 02/02/2024
Objectives
Environment
- CCH ProSystem fx Tax
- CCH Axcess
- CCH Axcess Tax
- 1065
- Worksheet
- Schedule K-2
- Schedule K-3
Procedure
Important Note:
- With release CCH Axcess™ Tax 2023-1.0 and CCH® ProSystem fx® Tax 2023.01000
- Schedule K-2/K-3, Part II, Section 1 & 2 - U.S. Source Column Automation
- This column will automatically be produced with the applicable amounts flowing from Form 1065, Page 1, Schedule K, Schedule K-1, Form 8825, and Other Rental Schedule and Royalty Schedule when requested on:
- Form 1065 — Partners > Schedule K-2- Distributive Share Items — International Parts I-V > Schedule K-2 General Information and Part I > Print and Calculation Options, Line 31 and 32
- This column will automatically be produced with the applicable amounts flowing from Form 1065, Page 1, Schedule K, Schedule K-1, Form 8825, and Other Rental Schedule and Royalty Schedule when requested on:
- Schedule K-2/K-3, Part II, Section 1 & 2 - U.S. Source Column Automation
- Software release 2021.04000 / 2021-4.0, per CCH Software News, June 24, 2022:
- Federal Schedules K-2 and K-3 are now available for electronic filing through XML with the return. Previously, CCH ProSystem fx Tax / CCH Axcess Tax was limited to a 50-partner limit as a PDF autogenerated attachment. With this release, we will no longer generate PDF attachments for Schedules K-2 and K-3. Beginning with this release, Schedules K-2 and K-3 can only be filed through the electronic filing XML and we currently have a 250-partner limit. Upload speed of the return may be affected by the size/information in the return. These delays may appear to the user as longer processing times. With larger returns, a message of “Not Responding” may display in the application. If you see a delay, please wait for the upload to complete before attempting to interrupt the upload. In future releases later this year, the partner limit is planned to be increased.
- Schedule K-2: The Schedule K-2 form will be generated solely based on the Schedule K-2 worksheets.
- Schedule K-3: By default, the Schedule K-3 form will be autogenerated for all shareholders whenever there is input on the Schedule K-2 worksheet.
This article assumes that the return already has partner input. In a partnership return, go to Partners > Partner Information. Complete a list of partners as applicable to your client.
Inputs below will appear in both the Partners > Schedule K-2 input worksheet and the Foreign > Schedule K-2 worksheets as they are synchronized together.
If an input should be specially allocated, please utilize the Ratio ID fields which are available with nearly all input worksheets and sections below.
- Go to Partners > Schedule K-2 - Distributive Share Items - International Parts 1-V.
- Expand Section 1 - Schedule K-2 General Information and Part I.
- In Lines 1-4 - Complete as applicable.
Part I (Schedule K-2, pages 1 and 2)
- In Lines 5-16 - Partnership's Other Current Year International Information, select the checkbox to populate Schedule K-2, page 1, Part I, lines 1-12.
Part II - Foreign Tax Credit Limitation
- Expand Section 2 - Schedule K-2 Part II Section 1 Income.
- In Column Row Code, select Lookup Value F4 and choose an applicable option from the list.
- Section 986(c), 987, 988 gains, and Guaranteed payments are by default assumed as US Source and do not allow an input for Country Code and thus are not included in a subtotal sorted by country in Sch K-2 / K-3, line 24A, 24B, or 24C on release 2021.03010 / 2021-3.1 and prior.
- With release 2021.03020 / 2021-3.2, the 1065 system will allow a Country Code input for Row Codes 5, 16, 17, and 18, and thus provide the option to include or exclude these items from the line 24A/B/C country by country subtotal.
- In Column Country Code, select an applicable foreign country from the list.
- In the remaining columns, input information as applicable to the Row and Foreign country selected in steps 6 and 7.
- Expand Section 3 - Schedule K-2 Part II Other Income
- Inputs to this section will only carry to the form if the Row Code and Country code matches with an input made with steps 6 and 7.
- In Column Row, select Lookup Value F4 and chose an applicable option from the list.
- In Column Country Code, select an applicable foreign country from the list.
- In the remaining columns, input information as applicable to the Row and Foreign country selected in steps 10 and 11.
- Expand Section 4 - Schedule K-2 Part II Section 2 Deductions.
- In Column Row Code, select Lookup Value F4 and choose an applicable option from the list.
- In remaining columns, input information applicable to the Row code selected in step 14.
- Expand Section 5 - Schedule K-2 Part II Other Deductions
- In Column Row Code, select Lookup Value F4 and choose an applicable option from the list.
- In the remaining columns, input information as applicable to the Row code selected in step 17.
Part III - Other Information for Preparation of Form 1116 or 1118
- Expand Sections 6 - Schedule K-2 Part III Section 1 R&E Expenses Apportionment.
- In Column Row Code, select Lookup Value F4 and choose an applicable option from the list.
- In the remaining columns, input information as applicable to the Row code selected in step 20.
- Expand Section 8 - Schedule K-2 Part III Section 2 Interest Expense Apportionment.
- In Column Row Code, select Lookup Value F4 and choose an applicable option from the list.
- In the remaining columns, input information as applicable to the Row code selected in step 23.
- Expand Section 9 - Schedule K-2 Part III Other Interest Expense.
- In Column Row Code, select Lookup Value F4 and choose an applicable option from the list.
- In Column Country Code, select an applicable country code related to the Row code selected in step 26.
- In the remaining columns, input information as applicable to the Row and Country codes selected in steps 26 and 27.
- In Column Row Code, select Lookup Value F4 and choose an applicable option from the list..
- In the remaining columns, input information as applicable to the Row code selected in step 29.
- Expand Section 11 - Schedule K-2 Part III Section 3 Other FDII Deductions.
- In Column Row Code, select Lookup Value F4 and choose an applicable option from the list.
- In Column Country Code, select an applicable country code related to the Row code selected in step 32.
- In the remaining columns, input information as applicable to the Row and Country codes selected in steps 32 and 33.
- Expand Section 12 - Foreign Tax Options
- In Lines 1 and 2 - Foreign Taxes Paid and Accrued, select the checkboxes as applicable.
- Expand Section 13 - Schedule K-2 Part III Section 4 Foreign Tax Information.
- In Column Row Code, select Lookup Value F4 and choose an applicable option from the list.
- In Column Country Code, select an applicable country code related to the Row code selected in step 38.
- In the remaining columns, input information as applicable to the Row and Country codes selected in steps 38 and 39.
- Note: If making input to column Other, then a corresponding input is also necessary in column Category Code.
- Expand Section 14 - Other Tax Information.
- In Column Row Code, select Lookup Value F4 and choose an applicable option from the list.
- In remaining columns, input applicable information related to the Row code selected in step 42.
- Expand Section 15 - Other Category
- In Column Row Code, select Lookup Value F4 and choose an applicable option from the list.
- In Column Country Code, select an applicable country code related to the Row code selected in step 45.
- In the remaining columns, input information as applicable to the Row and Country codes selected in steps 45 and 46.
Part IV (Schedule K-2, page 9)
- Expand Section 16 - Schedule K-2 - Part IV Information on Partners' Section 250 Deduction
- In Lines 1-22, input information where applicable as these lines have no prerequisite input to carry to the form.
- In Grid 23 - Section 3 - Gross Receipts by SIC Code, an input in Column SIC code is required for Columns Gross Receipts - DEI and Gross- Receipts FDDEI to carry to the form.
- In Grid 24 - Section 3 - R&E Expenses by SIC Code, an input in Column SIC code is required for Column Total to carry to the form.
Part V (Schedule K-2, page 10)
- Expand Section 17 - Schedule K-2 Part V Distributions from Foreign Corporations.
- Review columns and populate fields as they should appear on the Sch K-2, Part V.
Part VI (Schedule K-2, page 11)
- Go to Partners > Schedule K-2 - Distributive Share Items - International Part VI.
- Expand Section 1 - Schedule K-2 Part VI Options - Part VI Information on Partners' Section 951A Inclusions.
- In Line 1 - Separate category, select an applicable option from the drop-down field.
- In Line 2 - U.S. Source, select the checkbox if applicable.
- Expand Section 2 - Schedule K-2 Part VI Information on Section 951A.
- Select Detail.
- In Lines 1-15, complete as applicable.
- Select Add or and repeat step 60 for any additional foreign distributions.
Part VII (Schedule K-2, pages 12-14)
- Go to Partners > Schedule K-2 - Distributive Share Items - International Part VII.
- Expand Section 1 - Schedule K-2 Information for Form 8621.
- In Lines 1-22, complete as applicable.
- Expand Section 2 - Schedule K-2 Part VII Section 1291 and Other Information.
- Select Detail.
- In Lines 1-10, complete as applicable.
- Go to Partners > Schedule K-2 - Distributive Share Items - International Part VIII-XI.
- Expand Section 1 - Schedule K-2 Part VII Information to Complete Form 8621.
- Select Detail.
- In Lines 1-21, complete as applicable.
Part VIII (Schedule K-2, page 15)
- Go to Partners > Schedule K-2 - Distributive Share Items - International Part VIII-XI.
- Expand Section 2 - Schedule K-2 Part VIII Section 960.
- In Lines 1-5 - Partnership's Interest in Foreign Corporation Income (Section 960), complete as applicable.
- In Grid 6 - Subpart F Income Groups, complete as applicable.
Part IX (Schedule K-2, page 15 and 16)
- Expand Section 3 - Schedule K-2 Part IX Section 59A.
- In Line 1 - Gross receipts for section 59A(e), input a Total and/or the Total Effectively Connected Income Gross Receipts.
- In Line 2-4 - Gross receipts for first, second, and third preceding, input the Total and/or the Total ECI Gross Receipts from applicable prior years.
- In Line 5 - Amounts included in the denominator of the base erosion percentage, input the applicable Total.
- Expand Section 4 - Schedule K-2 Part IX Section 2 Base Erosion Tax Benefits, which may need to be completed if section 3 is populated.
Part X (Schedule K-2, pages 16-18)
- Expand Sections 5 - Schedule K-2 Part X Section 1 Character and Source of Income.
- In Column Row Code - select Lookup Value F4 and choose an applicable option from the list.
- In Columns under ECI and Non-ECI, input amounts as applicable.
- Expand Section 6 - Schedule K-2 Part X Section 2 - Character and Source of Deduction.
- In Column Row Code - select Lookup Value F4 and choose an applicable option from the list.
- In Columns under ECI and Non-ECI, input amounts as applicable to the row code selected in step 85.
- Expand Section 7 - Schedule K-2 Part X Section 3.
- In Lines 1-8 - Section 3 - Allocation and Apportionment Methods for Deductions, input amounts as applicable.
- In Grid 9 - Section 3 - Gross Receipts From Sales or Services by SIC Code.
- In Column SIC Code - input a valid three-digit SIC Code.
- In columns under Gross Receipts, input amounts if applicable to he SIC code used in step 90.
- In Grid 10 - Section 3 - Other Allocation and Apportionment Key, input an amount in column Allocation as applicable.
Part XI (Schedule K-2, page 19)
- Expand Section 8 - Schedule K-2 Part XI Section 871(m) Covered Partnerships.
- In Line 1 - X if you are a PTP covered partnership, select the checkbox if applicable.
- In Line 2 - Number of units partnership issued, input if applicable.
- In Grid 3 - Information for Number of Units Specified, complete with applicable information.
- Calculate the return.
Part XII (Schedule K-2, page 19) - Section 871(m) Tax Liability of a Qualified Derivatives Dealer (QDD)
- In Boxes 30-32, input applicable Qualified Derivatives Dealer name and tax year dates.
- In Boxes 40, 42, and/or 46 - Gross Amount, input an applicable amount(s) to populate Part XII, column a.
- In Boxes 41-47 - Withholding Tax Rate, input applicable decimal percentage (range 0.00-1.00) to populate Part XII, column b.
- Box 44 is not applicable because the government form and line is blocked out.
- Column c is calculated.
- In Boxes 48-68 carry to populate Part XII, line 5.
Schedule K-2, Form 1118 - Schedule I
- Go to Interview Form KF-18.
- In Box 30 - Income Category Code (Mandatory), select from the following:
- 901j
- 951A
- FB
- GEN
- PAS
- RBT 951A
- RBT FB
- RBT GEN
- RBT PAS
- In Boxes 31-34, populate as applicable.
- In Boxes 40-65, input Regular Tax amounts as applicable.
- Calculate the return.
Notes
- One way to describe the difference between Schedule K-2 and Schedule K-3
- Schedule K-2 is the Foreign Schedule K summary.
- Schedule K-3 is the partners' share of the summary items appearing on the Schedule K-2
- Schedule K-3 is printed along with a partner's Schedule K-1.
- Schedule K-2, Part XIII is only within Schedule K-3 and is a library form.
- If the partnership received a K-3 from a lower tier partnership, then we would input each item from the lower-tier Schedule K-3 according to its type, with the above input. The lower-tier K-3 information will then appear on the Schedule K-2, and pass-through again on a new Schedule K-3 prepared for the applicable partner(s) next upper-tier tax return.
Additional Information
- What to Expect for New Schedules K-2 and K-3 using CCH Axcess™ Tax and CCH® ProSystem fx® Tax.
- New Schedules K-2 and K-3: What Partnerships and S Corporations Can Expect in the First Year of Reporting
- IRS instructions for 2021 Schedule K-2 and Schedule K-3.
- How do I suppress printing of Schedule K-3(s) in a 1065 return using CCH® ProSystem fx® Tax and CCH Axcess™ Tax?
Solution Id | 000217082/000136438 |
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