Schedule K-2 is the IRS form that partnerships need to file with their club's Form 1065 tax return if the partnership has certain foreign income, foreign partners or foreign activities.

Schedule K-3 is the corresponding IRS form that partnerships generate and give to partners. The individual partners use the Schedule K-3 when they prepare their personal income tax returns.

The IRS offers two ways for many investment clubs to eliminate or reduce Schedule K-2 and K-3 from your club tax filing. These are the Domestic Filing Exception and the Small Partnership Filing Exception.

If your club meets all of the criteria for either the Domestic Filing Exception or the Small Partnership Filing Exception and does not have foreign partners, it means your club does NOT need to prepare and file Schedule K-2 or K-3 with the IRS. Not filing Schedules K-2 and K-3 will save your club time and paper.

Clubs who have foreign partners will NOT qualify for the exceptions and will still need to generate and file Schedules K-2 and K-3.

If you use bivio software to complete your club taxes, your answers in the bivio tax interview will determine if your club meets either the Domestic Filing Exception or the Small Partnership Filing Exception. bivio's software will generate the proper notification to partners as an attachment to each partner's K-1.

1. Club has no or limited passive foreign activity. ($0 - $300 of Foreign Taxes Paid)

2. All partners are US citizens or resident aliens.

3. Your club must notify partners in writing by the filing date of the club partnership return, March 15, stating that the partner must request a Schedule K-3 if the partner requires one. Note: bivio will generate this notice with the member's K-1.

4. No partner requests a Schedule K-3 on or before February 15.

   Note: Timing of the notifications in items 3 and 4 may be extended if the club files for an extension

1. The partnership's total receipts for the tax year were less than $250,000.

2. The partnership's total assets at the end of the tax year were less than $1 million.

3. Schedules K-1 are filed with the return and furnished to the partners on or before the due date (including extensions) for the partnership return.

4. The partnership is not filing and is not required to file Schedule M-3.

If your club meets all of the criteria for EITHER the Domestic Filing Exception or the Small Partnership Filing Exception and does not have foreign partners, it means:

• Your club does NOT need to prepare and file Schedule K-2 or K-3 with the IRS.

• Your club does NOT need to give partners a Schedule K-3 document.

Clubs that do not qualify for the exceptions or clubs that have foreign partners need to generate and file Schedules K-2 and K-3.