Important Notes:

• 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
• With release CCH® ProSystem fx® Tax 2021.04010, and forward, Schedules K-2 and K-3 prepared in a return will be included with the IRS electronic filing schema XML. They will not be attached as a PDF. There is no limit to the number of shareholders for electronic filing.
• 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 shareholders whenever there is input on the Schedule K-2 > KF series Interview Forms.

This article assumes that the return already has shareholders input. In an S Corporation return, go to Interview Form K-1 to complete a list of shareholders 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.

1. Go to Interview Form Schedule K-2 > KF-1 - Foreign Partner Information General Information and Part I.
2. In Boxes 30-33 - General Information, complete as applicable.

Part I - Corporation's Other Current Year International Information

3. In Boxes 40-51 - Partnership's Other Current Year International Information, select applicable checkboxes.

Part II - Foreign Tax Credit Limitation

4. In Box 30 - Row,  select Lookup Value F4 and chose an applicable option from the list.
5. In Box 32 - Country Code, select Lookup Value F4 and chose an applicable foreign country code from the list.
6. In Boxes 33-63, input applicable Income amounts associated with the Row and Country code chosen in steps 4 and 5.

7. In Box 110 - Row, select Lookup Value F4 and chose an applicable option from the list.
8. In Boxes 113-143 input applicable deduction amounts associated with the Row code chosen in step 7.

Part III - Other Information for Preparation of Form 1116 or 1118.

9. Go to Interview Form KF-3 - Foreign Partner Information Part III Sections 1 and 2.
10. In Box 30 - Row, select Lookup Value F4 and chose an applicable option from the list.
11. In Box 32 - SIC Code, input a valid Standard Industrial Classification code.
    • OSHA SIC Manual
    • OSHA SIC Search
12. In Boxes 33-49, input applicable amounts related to the Row and SIC codes selected in steps 10 and 11.

13. In Box 110 - Row, select Lookup Value F4 and chose an applicable option from the list.
14. In Boxes 112-136,  input applicable Interest Expense amounts associated with the Row code chosen in step 13.

15. Go to Interview Form KF-5 - Foreign Partner Information Part III Section 4.
16. In Box 40 - Row Code, select Lookup Value F4 and chose an option from the list.
17. In Boxes 70-126, input applicable amounts associated with the Row code chosen in step 16.

Part IV - Distributions From Foreign Corporations to Corporation  (Schedule K-2, page 9)

18. Go to Interview Form KF-7 - Foreign Partner Information Part IV.
19. Box 30 - Name of Distributing Foreign Distribution, input an applicable name.
20. In Box 31 - EIN or Reference ID Number, input applicable identification number.
21. In Boxes 32-102, populate as applicable to your client information.

Part V - Information on Shareholders' Section 951(a)(1) and Section 951A Inclusions (Schedule K-2, page 10)

22. Go to Interview Form KF-8 - Foreign Partner Information Part V.
23. In Box 30 - Separate Category, select Lookup Value F4 and chose an applicable option from the list.
24. In Boxes 40-114, input information as applicable to the category code selected in step 23.

Part VI - Information To Complete Form 8621

25. Go to Interview Form KF-9 - Foreign Partner Information Part VI.
26. In Boxes 30-38 - General Information, input as applicable to populate columns a, b, c, d, and e.
27. In Boxes 40-43 - Summary of Annual Information, input as applicable to populate columns f, h, and i.
28. In Boxes 50-54 - Information Regarding Elections, input as applicable to populate columns j, k, l, m, and n.
29. In Box 88 - Date Acquired Current Year, input as applicable to populate column g.

30. In Boxes 60-63 - QEF and Mark-to-Market, input as applicable to populate columns c, d, e, and f.
    • Columns a and b are populated from KF-9, boxes 30 and 31.
31. In Boxes 70-83- Section 1291 and Other Information, input as applicable to populate columns g through o.

Part VII - Corporation's Interest in Foreign Corporation Income (Section 960) (Schedule K-2, pages 13 and 14)

32. Go to Interview Form KF-10 - Foreign Partner Information Part VII.
33. In Box 30 - EIN or reference ID, input applicable identification number.
34. In Box 31 - Separate category, select Lookup Value F4 and chose an applicable option from the list.
35. In Boxes 40-61 - input as applicable to populate lines 1-5 columns i, ii, and iii.
36. Calculate the return.

Notes

• One 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 shareholder's Schedule K-1.
• The Schedule K-2 may populate but will not prepare until at least one of Parts  1-7 have inputs made.
• If the S Corporation 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. The lower-tier Schedule 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 shareholder(s) next upper-tier tax return.