IRS Warning – Incomplete K-1’s
IRS Warning – Incomplete K-1’s – Missing, incomplete, and incorrect Schedules K-1 will limit the IRS’s ability to identify potential noncompliance, resulting in the loss of tax revenue and inequitable treatment of taxpayers, as well as potentially creating unnecessary work and increasing taxpayer burden. We determined that improvements in the receipt and storage of Schedule K-1 data will increase information reliability and availability, which will assist in identifying potential tax noncompliance.
Accurate and complete Schedule K-1 data are not always received. If Schedules K-1 are not provided or contain inaccurate data, the Internal Revenue Code (I.R.C.) provides authority for the IRS to apply a penalty to the flow-through entity submitting the form.
We encourage the software community to put checks in place to ensure:
Required Schedules K-1 are attached to 1041, 1065, the 1120S and 8865.
The number of recipients reported on the flow-through return equal to the number of attached Schedules K-1.
There are correct payee TINs on Schedule K-1. Noticeable errors include impossible Social Security Administration assigned Social Security Numbers (e.g., starting with 000), repeating digits (e.g., 999999999), and consecutive digits (e.g., 123456789).
Ensure the flow-through amounts on the return equal the sum of allocated recipient amounts on attached Schedules K-1.
IRS Warning – Incomplete K-1’s
The impacted Tax Forms include Form 1041, U.S. Income Tax Return for Estates and Trusts, Form 1065, U.S. Return of Partnership Income, Form 1065-B, U.S. Return of Income for Electing Large Partnerships, Form 1120S, U.S. Income Tax Return for an S Corporation and Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.
About Form 4684, Casualties and Thefts
Information about Form 4684, Casualties and Thefts, including recent updates, related forms, and instructions on how to file. Attach Form 4684 to your tax return to report gains and losses from casualties and thefts.
About Form 6198, At-Risk Limitations
Information about Form 6198, At-Risk Limitations, including recent updates, related forms, and instructions on how to file. Form 6198 is used by individuals, estates, trusts, and certain corporations to figure the profit (loss) from an at-risk activity, the amount at risk, and the deductible amount of the loss.
About Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR)
Form 8082 is used by partners, S corporation shareholder, beneficiary of an estate or trust, owner of a foreign trust, or residual interest holder in a real estate mortgage investment conduit (REMIC) to notify the IRS of inconsistencies between the tax treatment of an item on their returns vs. the way the pass-through entity treated and reported the item on its return. Also used to notify the IRS if partners, shareholders, et. al., did not timely receive Schedule K-1, Schedule K-1, Schedule K-1, Schedule K-1, Schedule Q, or a foreign trust statement. Partners, S corporation shareholders, beneficiaries of an estate or trust, owners of a foreign trust, or residual interest holders in a real estate mortgage investment conduit (REMIC) file this form if they wish to report items differently than the way they were reported to them on Schedule K-1, Schedule Q, or a foreign trust statement.
IRS Warning – Incomplete K-1’s
About Form 8582, Passive Activity Loss Limitations
Information about Form 8582, Passive Activity Loss Limitations, including recent updates, related forms, and instructions on how to file. Form 8582 is used by individuals, estates, and trusts with losses from passive activities to figure the amount of any passive activity loss (PAL) allowed for the current tax year.
About Form 8582-CR, Passive Activity Credit Limitations
Information about Form 8582-CR, Passive Activity Credit Limitations, including recent updates, related forms, and instructions on how to file. Form 8582-CR is used by individuals, estates, and trusts with certain credits from passive activities to figure the amount of any passive activity credit allowed for the current tax year.
Form 8810, Corporate Passive Activity Loss and Credit Limitations
Information about Form 8810, Corporate Passive Activity Loss and Credit Limitations, including recent updates, related forms, and instructions on how to file. Personal service corporations and closely held corporations use this form to figure the amount of any passive activity loss (PAL) or credit for the current tax year and the number of losses and credits from passive activities allowed on the corporation’s tax return. It is also used to make the election to increase the basis of credit property when the corporation disposes of its interest in an activity for which it has an unused credit.
About Form 8960, Net Investment Income Tax Individuals, Estates, and Trusts
Information about Form 8960, Net Investment Income Tax Individuals, Estates, and Trusts, including recent updates, related forms, and instructions on how to file. Taxpayers use this form to figure the amount of their net investment income tax (NIIT).
IRS Warning – Incomplete K-1’s
Additional Resources
Partner’s Instructions for Schedule K-1 (Form 1065) (HTML)
All Schedule Schedule K-1 (Form 1065) Revisions
About Publication 541, Partnerships