schedule K-1, box 16 is checked (k-3)

[ANDY012408]

My schedule K-1, box 16 is checked (k-3)

my attached K-3 only lists a single entity (US) as the foreign country or US possession.

the foreign country or US possession; US possession IS NOT AVAILABLE on TURBO TAX

So, on my schedule K3, part 2, line 24 and it shows total gross income US $1797.

But on the turbo tax it shows Foreign gross income $1797

does TurboTax plan to add the US to the list and handle those inputs?

OR SHOULD I UNCHECK BOX 16 ON K1? please advice

[ThomasM125 · Accepted solution]

The purpose of the entry is to report foreign income. It appears you didn't have any of that since the schedule K-3 lists the source of income as being the United States. So, you can inquire of the broker if there is any foreign income to report, if not, you should leave the entry off of your tax return.

[Mike9241 · Accepted solution]

column A amounts which is where that $1797 shows up does not get entered in TurboTax K-3

[ANDY012408]

you are correct, thank you for your advice. 

[tspazok1]

Are you saying to not tell Turbo tax you have box 16 checked? I have 2 K1 with no foreign income or involvement in the K1.

Can anyone answer this:  

Foreign Country or U.S. Possession dropdown box NOT APPLICABLE? Given there is no drop down menu for US is this a problem because it defaults to Not Applicable? 

This is copied from the K3 PDF filing form (If income is U.S. source, enter “US.” Do not enter “various” or
“OC” for the country code. )

Given the latest ruling for the IRS there is no need to file a K3 so can you just say no to Check mark on line 16?

Limited exception to filing January 11, 2023

New domestic filing exception for completing Schedules K-2 and K-3: The final instructions include an exception for filing and furnishing Schedules K-2 and K-3 for tax years beginning in 2022. Under the domestic filing exception, a domestic partnership (as defined under sections 7701(a)(2) and (4) of the Internal Revenue Code) does not need to either (a) complete and file with the IRS the Schedules K-2 and K-3, or (b) furnish to a partner the Schedule K-3 (unless requested by a partner after the one-month date (defined in criterion number 4, below)) if each of four criteria are met with respect to the partnership’s tax year 2022

[DaveF1006]

According to the Tax Advisors, the new detailed schedules must be filed by all passthrough entities with items of international tax relevance, including entities with foreign partners and international activities. 

Also Tax Advisors state that  partnerships with strictly domestic income and assets may have to complete this section of the Schedules K-2 and K-3 if they have partners that are claiming a foreign tax credit. Even though you may not claim the credit there may be other partners that do, which include the foreign partners.

Now the sticky part is that these K-3 when issued cannot be ignored. Just for clarification purposes, what type of income in reported on your K-3 and the columns that reflect the income? Or just tell me , what is reported if anything?  

@tspazok1 

[tspazok1]

Thanks per your request is the following:

Part II Foreign Tax Credit Limitations

Section 1 Gross Income

Line 3 Gross rental real estate income 

Line A OC ( Which is wrong per 1065 K3 IRS doc, can only be US or other countries in the drop down menu, Turbo Tax is also wrong given there is no option for US.

Column A US source 60,327

Column B 0.

Column C 0.

Column D 0. 

Column E 0.

Column F 0.

Column G total 60,327

If you go to Part II Section 1 Gross Income line 24 same numbers appear as above

THANKS 

[Jasmith63]

Having same issue as other poster. Box 16 checked but all transactions (maybe $200 total) on k3 is US. TT gives error message. No way to resolve other than unchecking box 16 but that is technically inaccurate. LLC says they must provide k3 in case other partners need.  Doesn't seem as if a final answer has been given here to this question? And is this a tax software or irs issue?

[tspazok1]

In my opinion its a TT issues given they don't provide a drop down menu for US.

[DaveF1006]

There are other reasons why your K-3 was issued. In the first drop-down you referred to, you would only pick a country if you received foreign income or a Foreign tax credit.  You received US-Based income so you may other income reported other than what is in Part 1 or Part 2.  To clarify, how was the $200 reported and in which part of the K-3 was it reported?

@Jasmith63  

[Jasmith63]

part II is the only section with any transactions and it is all US .  net loss of $244 (other income, rental expense) all in column A (US only source) of the K3.  so line 20, 33, 34. nothing in any other section or part of the k3.   

[DaveF1006]

This is something that should have been reported in Box 2 of your k-1. Is this amount reported there?  I think what happened here is that this income is reported to the foreign partners in your partnerships to be reported on their tax returns but has no relevance to you.

According to the K-3 requirements, K-3's are sent out to ALL partners regardless if they have a reporting requirement or not because of  international tax relevance.

@Jasmith63  

[corilou1]

As an aside, Form necessary for all Box 16s. Line A can be left blank for eg., US farmland sale.

[Smarc]

Let’s assume you are a domestic taxpayer, and you received a K-1 with box 16 checked for a partnership that is also only domestic. if you do have foreign components this may still help, but I’m answering for domestic. 

Partnerships have to provide that info, because they don’t always know if the taxpayer needs that info for their own foreign filing. The info they provide is voluminous, and doesn’t match up with any of the line numbers on the K-3 worksheet form, and trying to find it online is like searching for “what fruit and vegetables can I bring into Canada).

The answer turns out to be simple, and it took me a bit to find it. Go to the K-1 line 16 worksheet (right under where you checked (K-3 attached), and right click on line B (Gross income from all sources). The pop up will tell you for each line B through R exactly where on the K-3 to find the information. If your sources are all US, most likely all you will need is line B entered to make the red box on Line 16 go away. But check the other entries on your own K-3 to be certain.

You leave line A blank if the entity is US, there is no US option on the drop down menu.

[tspazok1]

Perfect thank you so much given this confusing issue. This makes sense.