Form K3 Explained Partwise

 

In Previous Blog we have seen the requirement for K2 and K3 , now let’s see how K3 Form looks like

Ø  WHAT FORM K3 IS USED FOR AND HOW MANY PARTS ARE THERE IN K3 FORM?

Form K3 shows Partner’s Share of Income, Deductions, Credit Etc- International. It has 13 parts. The First page of K3 Form is Informational and contains General Information like

o   Employer Name, Address and EIN

o   Partner Name, Address and SSN

o   Checkbox for indicating which parts are applicable.

Ø  WHAT ARE USES OF DIFFERENT PARTS OF K3?

          There are 13 parts of K-3, All the parts are mentioned below:       

Part I of Schedule K-3: It is used to report international tax items not reported elsewhere on Schedule K-2 or K-3.

 

Part II of Schedule K-3: It is used to figure the income or loss of partnerships by source and separate category of income and to report the partner’s distributive share of such income or loss. Partners will use the information to figure and claim a foreign tax credit on Form 1116 or 1118.

 

Part III of Schedule K-3: It is used to report information necessary for the partner to determine        the allocation and apportionment of R&E expense, interest expense, and the foreign-derived intangible income (FDII) deduction for purposes of the foreign tax credit limitation. It is also used to report foreign taxes paid or accrued by the partnership and the partner’s distributive share of such taxes and used to report income adjustments under section 743(b) by source and separate category. Partners will use the information to figure and claim a foreign tax credit on Form 1116 or 1118.

 

Part IV of Schedule K-3: It is used to report the information necessary for the partner to determine its section 250 deduction with respect to FDII. Partners will use the information to claim and figure a section 250 deduction with respect to FDII on Form 8993, Section 250 Deduction for Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI).

 Part V of Schedule K-3: It is used to report information the partner needs, in combination with other information known to the partner, to determine the amount of each distribution from a foreign corporation that is treated as a dividend or excluded from gross income because the distribution is attributable to previously taxed earnings and profits (PTEP) in the partner’s annual PTEP accounts with respect to the foreign corporation, and the amount of foreign currency gain or loss on the PTEP that the partner is required to recognize under section 986(c). Partners will report the dividends and foreign currency gain or loss on Form 1040 or 1120. If eligible, partners will also use this information to figure and claim a dividends received deduction under section 245A on Form 1120. Partners will also use the information to figure and claim a foreign tax credit on Form 1116 or 1118.

 Part VI of Schedule K-3: It is used to provide information that the partner needs to determine any inclusions under sections 951(a)(1) and 951A. Partners will use the information to complete Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI), and Forms 1040 and 1120 with respect to subpart F income inclusions, section 951(a)(1)(B) inclusions, and section 951A inclusions.

Part VII of Schedule K-3: Used to provide information needed by partners to complete information related to PFIC

 

Part VIII of Schedule K-3: It is used to provide the foreign corporation's net income in the income groups for purposes of the partner's deemed paid taxes computation with respect to inclusions under sections 951A, 951(a)(1), and 1293(f). Partners will use the information to figure and claim a deemed paid foreign tax credit on Form 1118.

Part IX of Schedule K-3: It is used to provide information for the partner to figure its base erosion and anti-abuse tax (BEAT). Partners will use the information to complete Form 8991, Tax on Base Erosion Payments of Taxpayers With Substantial Gross Receipts.

 

Part X of Schedule K-3: It is used to provide information for the partner to figure its tax liability with respect to income effectively connected with a U.S. trade or business (ECI) or with respect to fixed, determinable, annual, or periodical (FDAP) income, partners will use the information to figure and report any U.S. tax liability on Forms 1040-NR, U.S. Nonresident Alien Income Tax Return, and 1120-F, U.S. Income Tax Return of a Foreign Corporation, or other applicable forms.

 

Part XI of Schedule K-3: Used to provide certain information to U.S. and foreign partners with respect to section 871(m) by a PTP that satisfies certain other requirements. Certain partners will use the information to determine their U.S. withholding tax obligations and to figure and report any U.S. tax liability on Forms 1042 and 1042-S.

 

Part XII. Reserved. Part XIII of Schedule K-3: Used to provide information for a foreign partner to figure its distributive share of deemed sale items on a transfer of the partnership interest. Partners will use the information to complete Form 4797, Sales of Business Property; Form 6252, Installment Sale Income; and Form 8949, Sales and Other Dispositions of Capital Assets

COMPILED BY:

CA. Harsimran Kaur