K-3 Questions

[Kiki]

I filed an extension and I'm working my Tax get done now.  And need help!   

I own USO and UNG (just holding since 2020)

I received 1065/K1. Box 16 checked but Blank on Line 21.   But K-3 hasn't been provided yet as of today August 22.  

I just leaned that the IRS says it's not required to file K-3 along with Schedule K-1 (form 1065) for 2021 if qualify the exception such as;

• In tax year 2021, the domestic partnership or S corporation has no foreign activity, including foreign taxes paid or accrued or ownership of assets that generate, have generated or may reasonably expected to generate foreign source income (see section 1.861-9(g)(3)

Q1.    How do I know whether if it has foreign activity or not?   Does it mean NO foreign activity if Line 21 is Blank?

Q2.    If so, Do I uncheck box 16 in order to avoid errors on TT software and finish my return?   (I read past discussions about this subject but 

          wonder if there is any updates since then)

Q3.    If so, Do I have to file amend later when K-3 is provided ?

Thank you very much for your time and help in advance.

[tagteam · Accepted solution]

More likely than not, it is not needed.

See https://www.irs.gov/businesses/schedules-k-2-and-k-3-frequently-asked-questions-forms-1065-1120s-and...

UNG: https://www.taxpackagesupport.com/UNG

USO: https://www.taxpackagesupport.com/USO

[TaxHacks]

I think you might want to look at the 2020 K-1 to check for foreign tax withheld. It seems probable to me that if you had tax withheld for 2020, there will probably be some for 2021.

I wrote about this K-3 situation in

PTP 1065 K-3 forms due to be released for many PTP /MLP. Will we be ready

At the time I wrote that, I had not yet learned how to do a search that would have turned up your post. My post is more of a heads up that the thing we have been waiting for is approaching the promised time for K-3s.

I really don't look forward to trying to do the 1116 forms. I hope you fall under the $300/$600 threshold.

I think that the K-3 will not increase your taxes, but the tax credit could lower the taxes. I expect no problem from the IRS  not claiming a tax credit that you could have. Whether you would amend to get that credit would depend on how you value your time and effort, I think. So my thought is that I have gone this far. So waiting until September seems worthwhile for me.

[Kiki]

Hi TaxHacks,

Thank you for your reply.  I checked my 2020 K1 Form 1065.  In 2020 form, it appeared box 16. "Foreign transactions" and that was blank so I am assuming that I had no foreign taxes or income in 2020 on K1.  But I am not sure that if there occurred any Foreign transactions in 2021 since I haven't received K-3 (Since If it's not true that box 21 on Form 1065 is left blank does Not  mean there is No foreign activity)

I think I will wait for K-3 until middle of September see if K-3 is provided.  Hope it will be provided until then so I can complete my tax 2021 by due date.

BTW, 

The total of foreign tax I paid in 2021 was below $300, my first time it fell under $300. However, I had to choose a regular method 1116 in the first year, 2014 and continued claiming 1116 every year. I have thousands of $ that were built up to carry over in each year since  then ( never had chance to use it though, or I don't know how to use it !? )  

TurboTax says:

Your 2020 return shows that you previously decided to use AMT adjustments to determine your taxable income and deductions on the Form 1116 you filled out for AMT purposes. You must continue to use this method. You should only answer No if last year's decision was an error, and you did not enter AMT adjustments in the first year you were required to file Form 1116 for AMT purposes. (Not using AMT adjustments is known as the Simplified Method.)

Even it's under $300 in this year, I can't eliminate Form 1116 because I was required to file 1116 in the first year,  2014.

Am I understand correctly?

[Kiki]

Thank you for your reply!

USO and UNG Partnership said that K-3 will be ready on August 31.   I think I will wait for it hoping that will happen.

[TaxHacks]

Ah, yes. I can see that having foreign tax credits that you have not yet utilized is a good reason to file 1116 forms. But if you are continually carrying a credit without being able to use any of it it, I wonder if you have been missing something.

Now if the carried foreign tax is only on the AMT, and you don't expect to be paying AMT in the future, can you just abandon that credit?  I really don't know.

Not saying that you  are missing something. I stumble and suffer through 1116 forms each year.

[Kiki]

Oh I am confused now.  Forms 1116 takes so much time and energy away from me each year.  My carried foreign credits are not only on the AMT but I rather abandon all of my built up credit from past years and will be released from so much headache for the future.   

Can I actually do that?

I wish I could but I thought I am already stuck in 1116 for AMT purposes forever (Not option to choose Simplified methods) because I claimed Foreign Tax Credit with form1116 AMT purposes method in the first year, 2014.

Am I misleading English?

[TaxHacks]

What I would do is to make sure you are not missing any foreign income. I did not find a strict definition of that, so I do what I can.

What I would do, if I felt like you would be to delete the 1116 forms. I would suspect that I was missing out on my accrued foreign tax withheld, but if I hated/dreaded it, I would do that. My other thing to consider is to sell off what creates the bulk of that withholding, and pay my capital gains on that. And I would count that capital gain as foreign income. That does not mean that what I do is the defined way, but it is how I interprete things.

[Anonymous]

@Kiki FYI, my K-3 for USO is available now

[Kiki]

Hi TaxHacks,

Thanks for sharing how you see it.　I was so caught up in 1116 that I was losing perspective.　It will be helpful.

[Kiki]

Hi mollinmark,

Thank you so much for letting me and others know !   I just checked now and got my USO and UNG too! 

[TaxHacks]

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@Anonymous wrote:

@Kiki FYI, my K-3 for USO is available now

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How did that work? Did you click on the K-1 icon, and get the K-3 as part of a new K-1 package, or did you phone in?

[Anonymous]

When you click on the K-1 it gives a new box to select the K-1 or K-3. I think selecting the K-3 gives you both of them.

[TaxHacks]

I had to cause page after login to bypass the cache. I used one of the methods on https://support.bonanza.com/hc/en-us/articles/[phone number removed]-How-to-Clear-or-Bypass-your-Bro...

After that, I indeed got the K3 as a seletion item. Thanks

Dang, that is going to be a bit tedious to input by hand. I wondered if the download to Turbotax TXF file option would work.  I redownloaded and compared with the first *.txf file. The only difference is that the third line (date) changed to "D8/31/2022"

[TaxHacks]

I am so far unable to relate the K-3 to what Turboax has. I hope I am missing something, and that things will look better after a night's sleep.