New 2018 Schedule K-1 Items for Partnership Returns: Meeting Complex Compliance Issues

Description

Proper completion of a client's federal Schedule K-1s to report a partner's share of a partnership's income, gains, losses, etc. has long presented challenges to tax advisers, particularly for specialized investment partnerships such as fund of funds or master limited partnerships. Changes to the Schedule K-1 beginning with the 2018 tax year may create additional complexity for partnerships and their tax advisers.

The K-1 for the tax year 2018 introduces several substantive changes to prior years' reporting requirements. The updated Schedule requires taxpayers to disclose the recipient partner's beginning share of partnership liabilities, as opposed to only the ending amount, which will help in tracking a partner's basis. Additionally, partnerships will need to report negative tax basis capital interests for partnerships not using tax basis to calculate capital account balances. The IRS issued guidance offering penalty relief for taxpayers omitting this reconciliation under specified circumstances.

The most substantial changes to the K-1 involve the new foreign information and repatriation provision created by the 2017 tax reform law. Partnerships must report each partner's share of the entity's foreign inclusion amounts under Section 951 GILTI, Section 965(a) transition tax, and Subpart F income other than GILTI or 965 transition items.

The new form adds further codes in Box 16 for foreign transactions while eliminating or replacing some Code items in Box 13 other deductions. These changes will create additional disclosure and schedule requirements for partnerships with foreign holdings, or non-tax basis capital account reporting. Tax advisers will need to factor in these new items in completing K-1s for impacted partners.

Listen as our expert panel provides a practical guide to completing Schedule K-1, with a focus on the new reporting items presented in the 2018 form.