Who Must File

Any S corporation that is required to file Form 1120-S and that has items relevant to the determination of the U.S. tax or reporting obligations of its shareholders under the international provisions of the Internal Revenue Code (Code) must complete the relevant parts of Schedules K-2 and K-3. See each part and section for a more detailed description of who must file each part and section. Penalties may apply for filing Form 1120-S without all required information or for furnishing Schedule K-3 to shareholders without all required information. The penalties that apply with respect to Form 1120-S and Schedule K-1 apply with

respect to the Schedules K-2 and K-3, respectively. See the Interest and Penalties section of the Instructions for Form 1120-S.

Except as otherwise required by statute, regulations, or other IRS guidance, an S corporation is not required to obtain information from its shareholders to determine if it needs to file each of these parts.

An S corporation is only required to complete and file the relevant portions of Schedules K-2 and K-3, as applicable. For example, if the S corporation does not own (within the meaning of section 958) an interest in a foreign corporation other than solely by reason of applying section 318(a)(3) (providing for downward attribution) as provided in section 958(b), it is not required to complete Schedule K-2, Parts IV, V, VI, and VII or the corresponding Schedule K-3 parts.

Schedules K-2 and K-3 consist of the most common international tax provisions of the Code. However, not all provisions are specifically identified on these schedules. To the extent that an international provision is implicated that is not otherwise specifically identified, the S corporation should check box 13 in Schedules K-2 and K-3, Part I, and attach a statement to both Schedules K-2 and K-3 (for shareholder’s share).

Note: An S corporation with no foreign source income, no assets generating foreign source income, and no foreign taxes paid or accrued may still need to report information on Schedules K-2 and K-3. For example, if a shareholder claims a credit for foreign taxes paid or accrued by the shareholder, the shareholder may need certain information from the S corporation to complete Form 1116, Foreign Tax Credit (Individual, Estate, or Trust). See each part for applicability.

Domestic Filing Exception (Exception To Filing Schedules K-2 and K-3) An S corporation does not need to (i) complete and file with the IRS the Schedules K-2 and K-3, or (ii) furnish to a shareholder the Schedule K-3 (except where requested by a shareholder after the 1-month date (defined in criterion 3)) if each of the following are met with respect to the S corporation’s tax year 2025.

1. No or limited foreign activity. During an S corporation’s tax year 2025, the S corporation either has no foreign activity (as defined later), or if it does have foreign activity, such foreign activity is limited to:

• Passive category foreign income (determined without regard to the high-taxed income exception under section 904(d)(2)(B) (iii)),

• Upon which not more than $300 of foreign income taxes allowable as a credit under section 901 are treated as paid or accrued by the S corporation, and

Instructions for Schedule K-2 (Form 1120-S) and Schedule K-3 (Form 1120-S) (2025) Catalog Number 74486Y Oct 24, 2025 Department of the Treasury Internal Revenue Service www.irs.gov

• Such income and taxes are shown on a payee statement (as defined in section 6724(d)(2)) that is furnished or treated as furnished to the S corporation.

Foreign activity. For purposes of the domestic filing exception, foreign activity means any of the following.

• Foreign income taxes paid or accrued (as defined in section 901 and the regulations thereunder).

• Foreign source income or loss (as determined in sections 861 through 865, and section 904(h), and the regulations thereunder).

• Ownership interest in a foreign partnership (as defined in sections 7701(a)(2) and (5)).

• Ownership interest in a foreign corporation (as defined in sections 7701(a)(3) and (5)).

• Ownership of a foreign branch (as defined in Regulations section 1.904-4(f)(3)(vii)).

• Ownership interest in a foreign entity that is treated as disregarded as an entity separate from its owner (as defined in Regulations section 301.7701-3).

2. Shareholder notification. With respect to an S corporation that satisfies criterion 1, shareholders receive a notification from the S corporation at the latest when the S corporation furnishes the Schedule K-1 to the shareholder. The notice can be provided as an attachment to the Schedule K-1. The notification must state that shareholders will not receive Schedule K-3 from the S corporation unless the shareholders request the schedule.

3. No 2025 Schedule K-3 requests by the 1-month date. The S corporation does not receive a request from any shareholder for Schedule K-3 information on or before the 1-month date. The 1-month date is 1 month before the date the S corporation files the Form 1120-S. For tax year 2025 calendar year S corporations, the latest 1-month date is August 17, 2026, if the S corporation files an extension. A shareholder must request that the S corporation provide subsequent year Schedule K-3 information or must request such information on an annual basis.

Note: If an S corporation receives a request from a shareholder for the Schedule K-3 information after the 1-month date for the tax year 2025 and has not received a request from any other shareholder for Schedule K-3 information on or before the 1-month date, the domestic filing exception is met and the S corporation is not required to file the tax year 2025 Schedules K-2 and K-3 with the IRS or furnish the tax year 2025 Schedule K-3 to the non-requesting shareholders. However, the S corporation is required to provide the tax year 2025 Schedule K-3, completed with the requested information, to the requesting shareholder no later than 1 month from the date on which the S corporation receives the request from the shareholder. See Example 3 .

Note for S corporations that satisfy criteria 1 and 2, but don’t satisfy criterion 3. If the S corporation received a request from a shareholder for Schedule K-3 information on or before the 1-month date and therefore the S corporation does not satisfy criterion 3, the S corporation is required to file the Schedules K-2 and K-3 with the IRS and furnish the Schedule K-3 to the requesting shareholder. The Schedules K-2 and K-3 are required to be completed only with respect to the parts and sections relevant to the requesting shareholder. For example, if a shareholder requests the information reported in Part III, Section 2 (Interest Expense Apportionment Factors), the S corporation is required to complete and file Schedule K-2, Part III, Section 2, with respect to the S corporation’s total assets and Schedule K-3, Part III, Section 2, with respect to the requesting shareholder’s share of the assets. On the date that the S corporation files Schedules K-2 and K-3 with the IRS, the S corporation must provide a copy of the filed Schedule K-3 to the requesting shareholder. The S corporation does not need to complete, attach, file, or furnish any other parts or sections of the

Schedules K-2 and K-3 to the IRS, the requesting shareholder, or any other shareholder. The S corporation should keep records of the information requested by the shareholder. See Example 2 .

If an S corporation receives requests from shareholders for Schedule K-3 information both on or before the 1-month date and after the 1-month date, the S corporation is required to file Schedules K-2 and K-3 as described in the prior paragraph only with respect to the shareholder requests received on or before the 1-month date. With respect to requests received after the 1-month date, the S corporation is required to provide the Schedule K-3, completed with that shareholder’s requested information no later than 1 month from the date on which the S corporation receives the request from the shareholder. See Examples 2 and 3, later.

Example 1. Domestic filing exception met—issuance of Schedule K-3 not required. A married couple, U.S. citizens, each own a 50% interest in SC, an S corporation. SC and the married couple have a tax year end of December 31. SC invests in a regulated investment company. With respect to tax year 2025, SC receives a Form 1099 from the regulated investment company reporting $100 of creditable foreign taxes paid or accrued on passive category foreign source income. SC does not have any foreign activity other than that from the regulated investment company. The married couple receive notification from SC as an attachment to Schedule K-1 that they will not receive the Schedule K-3 unless they so request. The married couple don’t request Schedule K-3 from SC for tax year 2025. SC qualifies for the domestic filing exception, and, as such, SC need not complete Schedules K-2 and K-3.

Example 2. Domestic filing exception not met. The facts are the same as in Example 1 except that the married couple each own a 40% interest in SC, and A, a U.S. citizen, owns a 20% interest in SC. A requests Schedule K-3 from SC for tax year 2025 and SC receives this request on February 1, 2026. After requesting an extension, SC files Form 1120-S on August 31, 2026. SC does not qualify for the domestic filing exception because A requested the Schedule K-3 by the 1-month date (July 31, 2026). As such, SC must complete and file with the IRS the parts and sections of the Schedules K-2 and K-3 that are relevant to A. With respect to the Schedules K-2 and K-3 filed with the IRS, SC does not need to complete, attach, or file any parts or sections relevant to the married couple. SC must provide a copy of the filed Schedule K-3 to A on the date that SC files its Form 1120-S. SC does not need to furnish a Schedule K-3 to the married couple.

Example 3. Domestic filing exception met—issuance of Schedules K-3 still required. The facts are the same as in Example 2 except that SC receives the request from A on August 20, 2026. SC qualifies for the domestic filing exception because A requested the Schedule K-3 after the 1-month date. SC is not required to file the tax year 2025 Schedules K-2 and K-3 with the IRS or furnish the Schedule K-3 to the married couple. However, SC is required to provide the Schedule K-3, completed with the requested information, to A on September 20, 2026, 1 month from August 20, 2026.

Note: If an S corporation does not meet the domestic filing exception, it may meet the Form 1116 exemption to filing the Schedules K-2 and K-3. See Form 1116 Exemption , later.

Small S Corporation Filing Exception Form 1120-S, Schedule B, question 11, excepts an S corporation from completing Schedules L and M-1 if the S corporation meets two conditions.

• The corporation’s total receipts for the tax year were less than $250,000.

• The corporation’s total assets at the end of the tax year were less than $250,000.

2 Inst. for Schedules K-2 and K-3 (Form 1120-S) (2025)

An S corporation is excepted from completing Schedules K-2 and K-3 if the S corporation meets both conditions of question 11 of Schedule B.

The shareholders must receive a notification from the S corporation at the latest when the S corporation furnishes the Schedule K-1 to the shareholder. The notice can be provided as an attachment to Schedule K-1. The notification must state that shareholders won’t receive Schedule K-3 from the S corporation unless the shareholders request the schedule.

If an S corporation receives a request from any shareholder for Schedule K-3 information on or before the 1-month date, the S corporation is required to file the tax year 2025 Schedules K-2 and K-3 and furnish the tax year 2025 Schedule K-3 to the requesting shareholder(s). The 1-month date is 1 month before the date the S corporation files the Form 1120-S. For tax year 2025 calendar year S corporations, the latest 1-month date is August 17, 2026, if the S corporation files an extension.

If an S corporation receives a request from a shareholder for Schedule K-3 information after the 1-month date for tax year 2025, and hasn’t received a request from any other shareholder for Schedule K-3 information on or before the 1-month date, the S corporation isn’t required to file the tax year 2025 Schedules K-2 and K-3 or furnish the tax year 2025 Schedule K-3 to the non-requesting shareholders. However, the S corporation is required to provide the tax year 2025 Schedule K-3, completed with the requested information, to the requesting shareholder at the latest 1 month from the date on which the S corporation receives the request from the shareholder.

Schedules K-2 and K-3 are required to be completed only for the parts and sections relevant to the requesting shareholder. For example, if a shareholder requests the information reported on Part III, Section 2, the S corporation is required to complete and file Schedule K-2, Part III, Section 2, for the S corporation’s total assets and Schedule K-3, Part III, Section 2, for the requesting shareholder’s share of the assets. On the date that the S corporation files Schedules K-2 and K-3, the S corporation must provide a copy of the filed Schedule K-3 to the requesting shareholder. The S corporation doesn’t need to complete, attach, file, or furnish any other parts or sections of Schedules K-2 and K-3 to the IRS, the requesting shareholder, or any other shareholder.

If an S corporation receives requests from shareholders for Schedule K-3 information both on or before the 1-month date and after the 1-month date, the S corporation is required to file Schedules K-2 and K-3 as described in the prior paragraph only for the shareholder requests received on or before the 1-month date. For requests received after the 1-month date, the S corporation is required to provide Schedule K-3, completed with that shareholder’s requested information, no later than 1 month from the date on which the S corporation receives the request from the shareholder.

A shareholder must request Schedule K-3 information for each year, unless the shareholder specifically requests to receive Schedule K-3 information for the 2025 tax year and all subsequent years (or if the shareholder specifically requested in a prior year to receive Schedule K-3 for each subsequent year).