The IRS has announced several new pass-through entity reporting requirements to be introduced for the 2021 tax year. The new requirements serve to provide greater detail to partners and shareholders of pass-through entities to assist them in preparing their respective tax returns. Most notable of these requirements are the Schedules K-2, K-3 and Section 1061 Worksheet A.
Schedules K-2 and K-3 will report certain international items that were previously reported on Schedule K-1 lines 16 and 20 and other items required to be disclosed by the pass-through entities in K-1 attachments. It provides the partners and shareholders with additional details regarding these international items so that they can more accurately calculate their U.S. income tax liability. Many items were previously reported as footnotes to the Schedule K and K-1, however Schedules K-2 and K-3 will formalize reporting.