Schedule K-1 (form 1065) & Schedule K-3

assuming this is a publicly traded (PTP) or master limited (MLP) partnership traded on a stock exchange the cover letter may contain language like the following. "The Partnership will report items of international tax relevance to our partners on Schedule K-3. All of our income is effectively connected with a United States trade or business. A limited number of unitholders (primarily foreign unitholders, unitholders computing a foreign tax credit on their tax return and certain corporate and/or partnership unitholders) may need the detailed information disclosed on Schedule K-3 for their specific reporting requirements. We do not expect to report either (1) any foreign income taxes paid or accrued on Schedule K-1, Line 21 or (2) any foreign-derived intangible income.  in other words if you are a US citizen, there will be nothing to report if line 21 does not have an amount so you don't check box 16 on the Turbiotax k-1. if there is an amount on line 21 you can uncheck box 16 to amend and be able to e-file but then you'll have to leave line 21 blank and amend a second time to get the foreign tax credit if you want it. 

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as for when to file an amended return you must wait until the original is fully processed then if it will result in a refund you have until 4/15/2026 to file. if you owe there is no deadline to file but filing after 4/18/2023 will result in penalties and interest for late payment.

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look in box 20 or any supplemental schedule for an explanation of 13W - only the partnership can tell you what it's for 

Hi Mike,  Thanks for this information regarding the K-3.  I am in the same situation:  I have a K-1 tax package from an Invesco Fund, but the tax package I received from them says the K-3 won't be available until late June 2023. My K-1 has line 16 checked, but  I don't have a value in line 21. I would also add that in Part II of the K-1, the H1 "Domestic partner" box is checked , but NOT the "Foreign partner" box. So given all that, to confirm then:  even though my K-1, line 16 is "checked" (signifying a Schedule K-3 is "attached" if checked), since I have no value in line 21 (Foreign taxes paid or accrued), I can answer "no" to the TT  inquiry "is line 16 is checked?" even though it actually is checked, and not worry about the K-3, and then go ahead and file my taxes through TT with that info.  Is that correct?

Hi Mike9241,
The Partnership is ‘UNL 2022 United States 12 Month Natural Gas Fund LP’.
1/ My Schedule K-1:
       box H1 Domestic Partner is checked and Foreign Partner = blank
       box 5 Interest Income = 95
       box 6a Ordinary Dividends = 768
       box 11, code = C (Sec. 1256 contracts and straddles) and amt = a loss
       box 21 Foreign Taxes paid or accrued = blank
       I am a US citizen.
My 2022 Income Tax has not been processed yet and the result is a refund. I called the Partnership and was told that Schedule K-3 will be available by the end of June 2023. When I tried to enter my K-1 in TT as a test, the result is also a refund. If I file an Amend Tax Return in July 2023 to include both K-1 and K-3, I should be OK, right?
2/  Box 13: code = W (Other Deductions), amt = $280.
     Box 20: code A (Investment Income), amt = $863. The Rep at UNL told me that box 13 is the deduction        that    Partnership UNL can pass to the investor. Should I select ‘Miscellaneous Itemized Deductions’?

Thank you so much for your help!

No, I do not advise you to file the return without the K-3 information unless you are certain it will be blank.  The Foreign Taxes paid or accrued box being empty does not guarantee the K-3 will be blank.  If you received a letter with wording resembling what Mike9241 posted, then you could be confident it would be blank.

The Domestic Partner/Foreign Partner refers to your relationship with the partnership, so since you are both based in the US you are a Domestic Partner.

If you have not filed the return and do not have key indicators to file your return without the K-3 I recommend filing for an extension and completing your return when you receive it.  If you have already filed, you should wait until you receive the K-3 and then amend your return.  As Mike9241 posted you have until 4/15/26 to amend your 2022 returns.

Box 13 code W from a natural gas partnership should actually be classified as Investment Interest Expense (per the IRS instructions for Form 1065 Schedule K-1).

@Bruce-W 

@prettyspring 

AliciaP1,

Thank you so much!  😊

Thank you, Alicia. 

Thank you, AliciaP1.

I have a similar situation. 

I received 2 1065 K-1 Schedules, both are PTP.

For both of them, I am domestic partner. Line 21 on both is blank; Line 16 is checked. One K-1 has all zeroes in Part III. Second K-1 has Part III , box 1 : -12 ; 17A : 2 ; 20N : 3 , 20V: -13 

I am not sure if I should file taxes now ( with line 16uncheck ) & amend it later. 

OR Should I file for an extension and file taxes later when I get my K-3 schedules. 

@AliciaP1 @Mike9241 

These are small amounts, and it is unlikely the associated K3 is going to effect the tax return very much.  You can file with the information that you have now and see if the K3 merits an amendment later but based on the numbers that you have here that seems unlikely.

@mudit 

AliciaP1 thanks.  This is great advice.  I read before that the path to maximum headache and pain is to file before you have all your forms.  So just wait, and file an extension which I discovered is easy in TurboTax, thanks.   Finally -- let me point out that penalties for fudging/omitting K-series forms can be stiff, and that the IRS is changing -- with lots of new hires to go after those not in compliance.

Thanks, Mike.  My letter says--among other things--the following: 

"For the purposes of IRC Section 163(j), the IRC Section 199A, and IRC Section 461 (l), none of the distributive share of items included on your Schedule K-1 are related to a trade or business.  Please Consult your tax advisor."

And: 

"THE SCHEDULE K-1

The instructions contained in this document re designed to assist individual U.S. unit-holders with their U.S. income tax compliance and for general information; DBA (the ticker symbol for the fund) cannot advise you regarding your individual tax matters. The correctness of returns using these instructions is the responsibility of the unit-holders and their tax preparers. Unit-holders should consult their own advisors on all tax compliance matters. Due tot he complexity of tax laws and regulations, and investors' personal financial situations, these instructions may not be suitable in all situations."

And, regarding line 13w  (in which I have the amount of 46 listed), the letter says:

"Portfolio Deductions - The Portfolio Deductions from investing activities, if any, are non-deductible for certain taxpayers, including individuals, and would reduce your tax basis in the partnership. Please consult your tax advisor."

I have amounts (in USD)  and indications in Part III lines as follows:

Line 1 - 14

Line 3 - 15

Line 5 - 32

Line 6a - 44

Line 8 - 0

Line 9a - 0

Line 11 (with code "C") - 59

Line 13 (with code "H") - 0

Line 13 (with Code "W") - 46

Line 16 - box is checked, but K-3 not ready until June 2023

Line 19 (with Code "A") - 26

Line 20 (with Code "A") - 76

I've already filed, and to do so with TurboTax, I had to say that box 16 was "unchecked."  Unless you see a situation here where I won't need to worry about it, I guess I'll need to download the Schedule K-3 when it is ready in June and file and amended return if needed.  Thoughts?  Continued thanks for your insights and expertise.  Bruce

Thank you. I think I am going to file return now, and amend it if & when I get K-3. 

Initially, I filled in all details of K-1 manually. 

Later, I found the option of importing K-1 form to Turbotax, so I imported both of my K-1 forms. In those imported forms, line 16 is unchecked. I am assuming imported form to be more accurate. 

@RobertB4444 

Experts,

One more question:

Since I sold off all my shares in these companies who sent me K-1, I assume i can say 'This partnership ended in 2022'  & 'Complete disposal' under 'Describe the partnership'. 

Please advice.

Yes, if the Schedule K-1 you received is marked as "Final," you can report that the partnership ended and enter info for a complete disposal. These choices will calculate any gain/loss on your investment and add the result to your tax return, usually on Form 4797.

@mudit 

@PatriciaV  Thank you. Both of my K-1s are Final K-1. 

Dear Experts,

I just received my Schedule K-3 so I plan to amend my tax return.  My K-3 Part II, Section 1, Line 24 line A only has US, amt $863.  My K-1 line 21 (Foreign taxes paid or accrued) = zero. 

I found post ‘Form 1065 Schedule K-3 Line 24 how to enter US income but turbotax don’t have option to select US as country’  link >> Form 1065 Schedule K-3 Line 24 how to enter US income but turbotax don't have option to select US as country (intuit.com)

My K-1:

Line L, Current Year Net Income (loss):  -$10,000

Box 11 code C, Other Income (loss):  -$10,000

• 1)    The above losses are also listed in col (f) of K-3, Part II, Section 2, Line 31 (Other losses), line 49, 54, and 55.  Is it still OK to uncheck K-1 box 16, not reporting K-3?

  2)     With other stocks, I can only claim the Realized loss if I sold the stocks.  This loss in K-1 is Unrealized Loss.  I didn’t sell any of the Partnership shares and IRS allows me to claim this loss? 

Thank you!

Dear Experts,

I just received my Schedule K-3 so I plan to amend my tax return.  My K-3 Part II, Section 1, Line 24 line A only has US, amt $863.  My K-1 line 21 (Foreign taxes paid or accrued) = zero. 

I found question ‘Form 1065 Schedule K-3 Line 24 how to enter US income but turbotax don’t have option to select US as country’  link >> Form 1065 Schedule K-3 Line 24 how to enter US income but turbotax don't have option to select US as country (intuit.com)

My K-1:

Line L, Current Year Net Income (loss):  -$10,000

Box 11 code C, Other Income (loss):  -$10,000

1)   The above losses are also listed in col (f) of K-3, Part II, Section 2, Line 31 (Other losses), line 49, 54, and 55.  Is it still OK to uncheck K-1 box 16, not reporting K-3?

2)    With other stocks, I can only claim the Realized loss if I sold the stocks.  This loss in K-1 is Unrealized Loss.  I didn’t sell any of the Partnership shares and IRS allows me to claim this loss?   

Thank you!

if you are filing form 1040 and not 1040-NR then since all income is US based there is nothing to report for the k-3. uncheck the box 16. as long as you have tax basis the amount on line 11c  (section 1256 losses) are reportable on your 1040. it is a capital loss. it will flow to form 6781 and from there 40% will flow to schedule d line 4 and 60% will flow to line 11. if you have no capital gains for the year up to $3000 may be used in the current year. the remainder carries over to 2023. This is not a passive loss where you would have to sell your partnership interest to take the loss. 

Hi @Mike9241 ,

Thank you so much for the detailed explanations! I am filing form 1040-SR.  One more question. I plan to sell all shares of this Partnership before Dec 2023 and it will be a Loss.  For tax year 2023, I should receive a Form 8949 (and 1099-B?), Schedule K-1 (Final?), and Schedule K-3, correct?   Since I was able to claim loss listed in K-1 for 2022, do I have to do any adjustments (for this loss) when filing income tax year 2023?        

Again, thank you so much your help!

2023 will be like 2022.  whether you have an actual loss depends on your tax basis which is not the same as what you bought it for. items of income , loss and distributions during the period you held it affect tax basis.   Turbotax will adjust any net 2022 capital loss by the amount utilized so only any unused amount will carry over to 2023