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The IRS has released final versions of two new forms that should be added to the tax returns of pass-through entities to report certain international income, deductions, credits, and other miscellaneous items. For tax years beginning in 2021, a partnership must file Schedule K-2 (partners’ total international distributive share items) and Schedule K-3 (partner’s share of international income, deductions, credits, etc.), if the partnership has relevant international tax items. Additionally, S corporations with international tax relevance, as well as certain Form 8865 filers, will have similar Schedules K-2 and K-3 filing obligations for tax years beginning in 2021.

Outlined below is an analysis of key observations from the new Schedules K-2 and K-3 that affect various entities, including hedge funds, private equity funds, real estate funds, and other stakeholders in the asset management industry.