Category: Individual and Business Tax Consulting
Individual taxpayers who are required to file Form 1116 to claim a foreign tax credit and are involved in passthrough entities (partnership, S Corporations, and Publicly Traded Partnership (PTP)) may find themselves needing to file an extension for 2021. The last-minute rule changes by the IRS significantly increased and expanded the additional reporting requirements for those passthrough entities related to information required to calculate the foreign tax credit.
These additional reporting requirements from the IRS are complex and could include more than twenty (20) additional pages for each Schedule K-1 you would receive, reported on a new form K-3. This requires the passthrough entities to gather additional information and disseminate it to the partners. These additional disclosures are far reaching and affect even entities without any foreign activity. We are already seeing K-1s from publicly traded partnerships indicating that they will not be able to provide this required information until July or August of 2022. Therefore, if you have foreign tax credit from any source that requires you to file Form 1116, we may not have enough information to file your return by April 18th
We want to point out that filing an extension doesn’t increase your chances of an IRS audit, and may be in your best interest, to avoid the necessity of filing an amended return later.
Your KB advisor will be in touch regarding updates and the best approach that suits your facts and circumstances.