Purpose of Schedule K-3

Schedule K-3 (Form 1120-S) is an extension of Schedule K-1 (Form 1120-S) and is generally used to report to shareholders their shares of the items reported on Schedule K-2. You must include this information on your tax or information returns, if applicable. See separate parts for specific instructions. You only need to use the schedules that are applicable to you.

See Purpose of Schedule K-1, Inconsistent Treatment of Items, and Errors in the Shareholder’s Instructions for the Schedule K-1 (Form 1120-S) for instructions that are equally applicable with respect to the Schedule K-3. The S corporation reported items based on the information known to it, and the actual treatment of the items with respect to the shareholder may differ if any assumptions made by the S corporation are incorrect (such as ownership threshold levels and relatedness determinations). In such cases, the shareholder must treat the items according to the shareholder’s actual facts and, if appropriate, file a Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), to identify and explain the inconsistency.

S corporations with no or limited foreign activity. An S corporation with no foreign source income, no assets generating foreign source income, and no foreign taxes paid or accrued may be reporting information to you on Schedule K-3. For example, if you claim a credit for foreign taxes paid and/or accrued separately from your S corporation interest, you may need certain information from the S corporation to complete Form 1116, Foreign Tax Credit.