Enhancement to auto populate K2

A diagnostic has been added to the Partnership and S Corporation alerting preparers to the change in filing scope, and linking them to the revised instructions.  At this time, these revisions aren't contained in the current K2 / K3 printed instructions.  They can only be found on the IRS website.

Common questions about generating the K2 and K3 in ProConnect:

• How do I generate the K2 / K3?  As soon as any information is entered in the K2 input section, the forms will generate in the program. These are found under Other Forms.
• How are amounts entered on Schedule K-2 allocated to partners or shareholders on the K-3?  Amounts entered in the K-2 will be allocated based on the partner or shareholder standard percentages.  Also see Special Allocations below. 
• Can I currently e-file returns that include the K2 / K3?  Yes.   The IRS plans on integrating the K2 /K3 into the XML schema, but that version of e-file is not yet in production.  For tax year 2021, you'll receive a diagnostic to attach these as PDF attachments. See How to attach a PDF to a tax return for e-file for steps.

How to special allocate specific items on the K-3 for partnerships 

Based on the design of the form, the K-2 input is divided into two sections:

1. International
2. Parts II & III Foreign Tax Credit Limitation and Foreign Tax

These two sections function differently, and so will special allocations, so let’s take them one by one.

Section 1, International:   In the program, these are seen as “non-prefixed” entries.   In other words, you won’t be creating an “activity 1”, “activity 2” and so on (like you would for rental properties, for instance).  Input in this section can be allocated to partners/shareholders in the next input section:  Partner Overrides-Int’l (Sch K-3).  As with any allocation, the entire amount should be allocated, and a  “-1” entry made for partners or shareholder who shouldn't receive any allocation of a specific item.

Section 2, Parts II & III Foreign Tax Credit Limitation and Foreign Tax:  In the program, these are seen as “prefixed” entries.   In other words, you can create an “activity 1”, “activity 2” and so on (like you would for rental properties for instance).    In this section, you'll see a section box on the top of the screen for each “Country”.

Each of these separate “activities” can be specially allocated using the second input line on each:  Partner overrides: (-1 = none) (O) (Click on button to expand).  

• Everything in this “activity” will be allocated using the percentages entered. 
• Other activities can be allocated differently using the same process. 
• A percentage should be entered for each partner, until 100% has been entered. 
• A “-1” should be entered for partners who receive none of this item.  (The use of -1 may make the total look off). 
• If you wish to specially allocate one item, such as guaranteed payments, you would add a new prefix with the same country and only make an entry in guaranteed payments. Then, make entries in “Partner overrides: (-1 = none) (O) (Click on button to expand).” with the appropriate partner percentages.