How do I input Schedule K-2 and Schedule K-3 in a 1065 return using interview forms in CCH® ProSystem fx® Tax?
- Article Type:
- How To
- Last Modified:
- 02/02/2024
Objectives
Environment
- CCH ProSystem fx Tax
- 1065
- Interview
- Schedule K-2
- Schedule K-3
Procedure
Important Note:
- With release 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 KF-1, Boxes 106 & 107
- 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, 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 > KF series Interview Forms.
- Schedule K-3: By default, the Schedule K-3 form will be autogenerated for all partners whenever there is input on the Schedule K-2 > KF series Interview Forms.
This article assumes that the return already has partners input. In a partnership return, go to Interview Form K-1 to complete a list of partners as applicable to your client.
If an input should be specially allocated, please utilize the Ratio ID fields which are available with nearly all input forms below.
- Go to Interview Form Schedule K-2 > KF-1 - Foreign Partner Information General Information and Part I.
- In Boxes 30-33 - Complete as applicable.
Part I (Schedule K-2, pages 1 and 2)
- In Boxes - 40-51 - Complete as applicable.
Part II (Schedule K-2, pages 3, 4 and 5)
- Go to Interview form KF-2 - Foreign Partner Information Part II Foreign Tax Credit Limitation.
- In Boxes 30-54 - Section 1 - Income - Row, select Lookup Value F4 and chose 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 and prior.
- With release 2021.03020, 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 Boxes 32-56 - Country Code, select Lookup Value F4 and chose an applicable foreign country code from the list.
- In Boxes 33-59, 62-79, input income amounts if applicable, associated with the code selected in step 5.
- In Box 81-105 - Section 1 - Other Category Income - Row, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes 85-109 - Other Amount, input income amounts if applicable associated with the code selected in step 8.
- In Boxes 110-134 - Section 2 - Deductions - Row, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes 113-139, 142-159, input deductions amounts if applicable associated with the code selected in step 10.
- In Boxes 161-181 - Section 2 - Other Category Deductions - Row, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes 164-184 - Other Amount, input amounts associated with code selected in step 12, if applicable.
Part III (Schedule K-2, pages 5-8)
- Go to Interview form KF-3 - Foreign Partner Info - Part III Other Info For Form 1116 or 1118 Sections 1 and 2.
- In Boxes 30-42 - Row, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes 33-56 - input amounts associated with code selected in step 15, if applicable.
- In Boxes 110-130 - Row, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes 112-144 - input Interest Expense apportionment amount associated with code selected in step 17.
- In Boxes 160-180 - Row, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes 162-182 - Country Code, select Lookup Value F4 and chose an applicable Foreign Country from the list.
- In Boxes 163-183 - Category Code, select or input 901J.
- In Boxes 164-184 - Other Amount, input Other Foreign Source amount associated with code selected in step 19.
- Go to Interview Form KF-4 Foreign Partner Info - Part III Other Info For Form 1116 or 1118 Sections 3 and 5.
- In Boxes - 30-54 - Row, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes - 32-59 - input amount associated with code selected in step 24.
- In Boxes 70-90 - Row, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes 72-92 - Country Code, select Lookup Value F4 and chose an applicable Foreign Country from the list.
- In Boxes 73-93 - Category Code, select or input 901J.
- In Boxes 74-94 - Other Amount, input amount associated with code selected in step 26.
- Go to Interview Form KF-5 - Foreign Partner Info - Part III Other Info For Form 1116 or 1118 Foreign Taxes.
- In Boxes 30 and 31 - Foreign Taxes Paid and Foreign Taxes Accrued, select the applicable checkboxes.
- In Box 40 - Row Code, select Lookup Value F4 and chose an applicable option from the list.
- In Box 42 - Country Code, select the applicable foreign country code from the list.
- In Boxes 43-124, input information applicable information related to the Row code and Country code selected in steps 32 and 33.
- Note: In Boxes 126-134 - Other Amount, if making entries into this column, a corresponding entry is also required in column Category Code, boxes 125-133.
- In Boxes 100-110 - Row, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes 102-123, input amount associated with code selected in step 25.
- In Boxes 130-140 - Row, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes 132-137 - Country Code, select Lookup Value F4 and chose an applicable Foreign Country from the list.
- In Boxes 133-143 - Category Code, select or input 901J.
- In Boxes 134-144 - Other Amount, input amount associated with code selected in step 27.
Part IV (Schedule K-2, page 9)
- Go to Interview Form KF-5 Foreign Partner Info - Part III Other Info For Form 1116 or 1118 Foreign Taxes.
- In Box 30 - Foreign Taxes paid, select the checkbox if applicable.
- In Box 31 - Foreign taxes accrued, select the checkbox if applicable.
- In Boxes 40-64 - Row Code, select Lookup Value F4 and chose an applicable Foreign Country from the list.
- In Boxes 42-66 - Country Code, Country Code, select Lookup Value F4 and chose an applicable Foreign Country from the list.
- In Boxes 70-134 - Category Income(s), input amount associated with code selected in step 34.
- Go to Interview Form KF-6 - Foreign Partner - Part IV Info on Partners' Sec. 250 Deduction with Respect to FDII.
- In Boxes 31-49 - input amounts where applicable.
- In Boxes 61-73 - input amounts where applicable.
- In Boxes 81-102 - Deduction Eligible Income (DEI), input amounts where applicable.
- In Boxes 82-103 - Foreign-derived Deduction Eligible Income (FDDEI), input amounts where applicable.
- In Boxes 110-114 - SIC Code, input a valid three-digit Standard Industrial Classification code.
- In Boxes 112-117 - DEI and FDDEI, input amounts associated with SIC code used in step 42.
- In Boxes 120-123 - SIC Code, input a valid three-digit Standard Industrial Classification code.
- In Boxes 122-125 - Total, input an amount associated with SIC code used in step 44.
Part V (Schedule K-2, page 10)
- Go to Interview Form KF-7 - Foreign Partner Info - Distributions From Foreign Corporations to Partnership.
- In Boxes 30-102, populate fields as they should appear on the Sch K-2, Part V.
Part VI (Schedule K-2, page 11) Part VII (Schedule K-2, pages 12-14)
- Go to Interview Form KF-8 - Foreign Partner Information Part VI.
- In Box 30 - Separate category, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes 40-102 - populate fields as they should appear on the Sch K-2, Part VI.
Part VII (Schedule K-2, page 13)
- Go to KF-9 - Foreign Partner Information - Information to Complete Form 8621.
- In Boxes 30-54, input as applicable.
- In Boxes 60-83, input as applicable.
Part VIII (Schedule K-2, page 14-15)
- Go to Interview Form KF-10 - Foreign Partner Info - Business Interest in Foreign Corporation Income (Section 960).
- In Box 31 - Separate Category, select Lookup Value F4 and chose an applicable option from the list.
- In Box 40 - Row, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes - 30, 32-34, 41-61, input as applicable.
Part IX (Schedule K-2, page 15 and 16)
- Go to Interview Form KF-12 - Foreign Partner Information - Part XI Base Erosion and Anti-Abuse tax.
- In Boxes 31-43 - Section 1 - Applicable Taxpayer, input as applicable.
- In Box 50 - Row Code, select Lookup Value F4 and chose an applicable option from the list.
- In Boxes 53-72 - input as applicable.
- In Box 73 - Withholding Rate, input a decimal percentage, where 1.0 equals 100%.
- Note: the tax withheld calculation appears at Schedule K-2, page 16, Part IX, Section 2, line 18, in a statement.
Part X (Schedule K-2, pages 16-18) - Foreign Partners' Character and Source of Income and Deductions.
- Go to Interview Form KF-13 - Foreign Partner Info - Part X Char and Source of Inc and Deduct Sections 1 and 2.
- In Box 30 - Row Code, select Lookup Value F4 and choose an applicable option from the list.
- In Box 32 - Total, input is may not be necessary as Column a rows will automatically populate with Gross Income amounts from all sources from Form 1065.
- In Box 33 - Partner Determination, populates Part X, column b, input the applicable amount determined by the partner per IRS instructions.
- In Boxes 34-62, input applicable amounts which populate Part X, columns c through g.
- In Box 80 - Row Code, select Lookup Value F4 and chose an applicable option from the list.
- In Box 82 - Total, input may not be necessary as column a will automatically total from inputs made to boxes 83-113.
- In Boxes 83-113, input as applicable.
- Go to Interview Form KF-14 - Foreign Partner - Part X Foreign Partners Char and Source of Inc. and Ded. Section 3.
- In Boxes 31-45 - input applicable amounts to populate Part X, Section 3, lines 1a-4b.
- In Box 50 - SIC Code, input a valid three-digit code according to industry type to populate Part X, Section 3, line 5a-5b.
- In Boxes 52 and 53 - ECI and Worldwide, input applicable amounts associated with the SIC code input with step 73.
- In Boxes 60-65 - Other Allocation and Apportionment Key, input as applicable to populate Part X, Section 3, lines 7a-8b.
Part XI (Schedule K-2, page 19) - Section 871(m) Covered Partnerships
- Go to Interview Form KF-15 - Foreign Partner Information Part XI.
- In Boxes 30-44 - input as applicable to your client.
- Calculate the return.
Part XII (Schedule K-2, page 19) - Section 871(m) Tax Liability of a Qualified Derivatives Dealer (QDD)
- Go to Interview Form KF-19.
- 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
- CCH Axcess™ Tax and CCH® ProSystem fx® Tax: What to Expect for New Schedules K-2 and K-3.
- 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?
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