Form 1065 Checklist: Tax Year 2022
Year-Specific Summary
The 2022 Form 1065 introduced mandatory Schedules K-2 and K-3 for partnerships with international tax relevance, replacing prior boxes 16 and 20 on Schedule K-1. A new domestic filing exception applies to partnerships with no foreign activity.
Partnerships with gross receipts exceeding $5 million must report their current and the three prior years of gross receipts to partners. These changes reflect expanded international tax reporting and pass-through information requirements unique to the 2022 filing year.
2022 Tax-Year Programs Applying to Form 1065
For tax year 2022, partnerships may claim the advanced manufacturing investment credit for qualified investments in advanced manufacturing facilities placed in service after December 31, 2022, under Section 48D, and reportable on Schedule K, line 15.
Partnerships with domestic partners claiming foreign tax credits or with any income effectively connected to a U.S. trade or business must attach Schedules K-2 and K-3 even if foreign activity is limited or absent.
Partnerships must determine whether each partner is subject to the section 163(j) business interest expense limitations based on the partnership's gross receipts. This limitation applies at the partnership level, and excess business interest expense is allocated to partners.
Ten-Step Compliance Checklist
Step 1: Obtain Required Documentation
Obtain all required Schedule K-1 packages from lower-tier partnerships, S corporations, and other pass-through entities in which the partnership holds an interest. Collect Forms 1099-B, 1099-DIV, 1099-INT, 1099-MISC, 1099-NEC, and 1099-R for partnership income.
For partnerships with partners who are nonprofits or foreign entities, gather documentation to determine withholding obligations under IRC Section 1446. Verify whether the partnership qualifies as a publicly traded partnership under IRC Section 469(k)(2), as this affects Form 1065 Schedule B reporting on line 5.
Step 2: Determine Gross Receipts Reporting Requirements
Determine whether the partnership had gross receipts exceeding five million dollars for the current year and the three immediately preceding years. If yes, report these gross receipt amounts to each partner as required by the 2022 instructions, even if the partnership has no foreign transactions.
This requirement affects Schedule K reporting on line 21 for partnerships meeting the threshold—document all gross receipts for verification by all partners.
Step 3: Identify Ownership Structure and Complete Schedule B-1
Identify all partnerships, trusts, foreign entities, and disregarded entities holding fifty percent or more in profit, loss, or capital. If any such entity exists, complete Schedule B-1 (Form 1065) identifying the entity, EIN, type of entity, country of organization, and maximum percentage owned.
This requirement applies to all partnerships and must be answered in Schedule B, question 2a. Schedule B-1 attachment is mandatory when question 2a is answered “Yes.”
Step 4: Compute Ordinary Business Income or Loss
Compute each partner’s ordinary business income or loss on Schedule K line 1a, adjusting for any section 1245 depreciation recapture. Separately track ordinary income, capital gains subject to section 751(a) treatment, and ordinary gains from the disposition of partnership section 1245 property.
Report on Schedule K line 1a only the net ordinary business income or loss after all ordinary deductions. Attach a detailed statement if section 751(a) treatment of unrealized receivables or inventory items applies.
Step 5: Calculate Section 179 Expense Deduction
Calculate the partnership’s section 179 expense deduction under IRC Section 179 and report the amount on Schedule K line 12. The partnership limitation on section 179 deductions applies at the partnership level, not at the partner level.
Each partner receives their allocable share of the partnership’s section 179 deduction regardless of whether the partner can fully deduct it under individual limitations. Do not reduce the basis in depreciable property by any section 179 amount claimed by the partnership.
Step 6: Determine Withholding Obligations for Foreign Partners
Determine whether the partnership had any income effectively connected with a U.S. trade or business allocable to foreign partners. If yes, compute the effectively connected taxable income (ECTI) subject to withholding under IRC Section 1446(a) at the rate applicable to the partner’s tax classification.
File Form 8805 to report section 1446 withholding to each foreign partner, even if no withholding was due. Failure to withhold on ECTI creates partnership liability for the unpaid tax.
Step 7: Assess Schedules K-2 and K-3 Requirements
Determine whether Schedules K-2 and K-3 are required by verifying whether the partnership has foreign-source income, assets generating foreign-source income, or foreign taxes paid.
For tax year 2022, partnerships with no or limited foreign activity may qualify for the domestic filing exception and are not required to file Schedules K-2 and K-3 unless requested by a partner.
If the exception applies, provide written notification to partners by the date the partnership furnishes Schedule K-1 to them (the notification can be attached to Schedule K-1) stating that partners will not receive Schedule K-3 unless they request it.
Check box 16 on Schedule K if Schedules K-2 and K-3 are attached.
Step 8: Report Partner Distributive Shares and Basis Limitations
Report each partner’s distributive share of losses and deductions on Schedule K-1 line 1. Partner basis limitations apply: no partner may claim losses exceeding the adjusted basis of their partnership interest.
If a partner’s basis is insufficient to allow the full loss deduction, the disallowed loss carries forward indefinitely. Attach a statement to Form 1065 identifying any partners receiving loss limitations due to inadequate basis.
Step 9: Complete Required Financial Schedules
Complete all schedules required by partnership operations: Schedule L (Balance Sheets per Books) if total assets exceed one million dollars or if the partnership is not eligible to skip this schedule under Schedule B question 4 exception criteria; Schedule M-1 (Reconciliation of Income per Books with Analysis of Net Income per Return) reconciling book income to taxable income; and Schedule M-2 (Analysis of Partners’ Capital Accounts) tracking capital contributions, allocations, distributions, and ending balances.
Attach Form 1125-A (Cost of Goods Sold) if the partnership reports inventory or cost of goods sold. Attach Form 4562 (Depreciation and Amortization) if the partnership claimed depreciation, section 179 deductions, or bonus depreciation.
Step 10: Sign and File the Return
Sign the Form 1065 return by a partner or LLC member as required by IRC Section 6063 and IRS Form 1065 instructions. Print the preparer’s PTIN if a paid preparer prepared the return.
Include the partnership’s complete name, EIN, principal business activity code, and accounting method (cash or accrual). File the original return plus one copy with all required schedules and attachments by March 15, 2023 (or by the fifteenth day of the third month following the partnership’s fiscal year-end) to the IRS using the address provided on the current Where to File page for Form 1065.
2022 Form 1065 Schedule Changes
Schedule K line 16 / Schedule K-1 box 16: Before 2022, Schedule K-1 boxes 16 and 20 contained all codes and subcodes for international transactions and foreign tax information, including foreign source income by category, foreign tax credit limitation information, and basis adjustments.
For tax year 2022, Schedules K-2 and K-3 replace prior boxes 16 and 20 on Schedule K-1, designed to provide greater clarity for partners on calculating U.S. taxes related to items of international tax relevance, including claiming deductions and credits. A new domestic filing exception allows partnerships with no foreign activity to avoid filing Schedules K-2 and K-3 unless a partner requests them. This represents a redesigned provision.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
