How to report foreign tax paid on passive dividends for Schedule K-2 on Form 1065 partnership return?

You'll need to report this on Schedule K-2, Part II (Foreign Tax Credit) and Part III (Partner's Share of Income). For Schedule K-2 Part II, you'll report the foreign source dividends in Section 1 (separating the qualified and non-qualified portions as needed). The country code for Switzerland is "CH" - make sure you use that rather than "SW" which is common mistake. The foreign taxes paid go in column F. Then in Part III, Section 1, you'll report the income by country source. For passive category income like your Swiss dividends, you'll use Section 1A. Make sure the amounts reported on K-2 flow correctly to the corresponding Schedule K-3 that goes to each partner, as they'll need this information when completing their personal Form 1116. The key thing is proper categorization as "passive" category income since that's critical for the partners' Form 1116.

I struggled with this exact issue with some German stocks we hold in our partnership. I found this really great tool called taxr.ai (https://taxr.ai) that helped me figure out the exact reporting. You upload your foreign dividend statements, and it analyzes them and tells you exactly where everything goes on the K-2/K-3. I was pulling my hair out trying to figure out the passive vs general categories and how to split the qualified portions correctly. The taxr.ai tool identified that some of our dividends qualified for treaty benefits that I would have completely missed. It also created a report I could attach to our return showing the calculation methodology.

Just wanted to follow up and say I tried taxr.ai after seeing it mentioned here. Super helpful for our partnership's K-2/K-3 reporting! I uploaded our Swiss and Japanese dividend statements and it correctly identified which portions were qualified vs ordinary and calculated the proper foreign tax allocation. What surprised me was discovering that about 15% of our dividends that I thought were qualified actually weren't because they didn't meet the holding period requirements. The tool flagged this and saved us from potential issues. It also automatically applied the correct treaty withholding rates for comparison to what was actually withheld. The report it generated was detailed enough that I feel confident we can defend our position if we're ever audited. Definitely worth checking out if you're dealing with foreign dividends in a partnership.

For anyone struggling to get answers directly from the IRS on K-2/K-3 foreign tax issues, I'd highly recommend trying Claimyr (https://claimyr.com). I had a complex question about our partnership's Swiss and German dividend reporting that wasn't covered in the instructions, and I was getting nowhere with the standard IRS phone line. Claimyr got me connected to an IRS agent in about 20 minutes when I had been trying for days on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent I spoke with was actually from the international tax division and gave me specific guidance on how to handle our foreign tax credit reporting. The agent confirmed that we needed to separate the qualified dividend portion and also explained how to handle the return when some partners are individuals and others are corporations (which have different FTC rules).

I'm following up about Claimyr that I was skeptical about before. I decided to try it yesterday after struggling for weeks to get answers about foreign tax credit reporting for our partnership. I honestly didn't expect much, but I was desperate. To my complete surprise, I got a call back in about 30 minutes, and they connected me with an actual IRS agent who specialized in partnership returns. The agent walked me through exactly where to report our foreign dividends on Schedule K-2, and confirmed that we needed to separate the qualified dividends in Part II, Section 1. The agent also explained that we needed to complete certain portions of Part III, Section 2 that I wouldn't have realized were applicable. This would have been a major oversight on our return. I'm still shocked I was able to get this level of specific guidance directly from the IRS after weeks of failed attempts. Definitely changed my opinion on the service.

Don't forget that Schedule K-2/K-3 reporting requirements have been simplified for certain partnerships for the 2023 tax year (filing in 2024). If your partnership meets the domestic filing exception, you might not need to complete all of these schedules. Your partnership qualifies for the exception if: 1. No foreign partners 2. No foreign taxes paid or accrued 3. No ownership interest in foreign entities 4. Limited foreign source income (below certain thresholds) Since you're paying foreign tax on Swiss dividends, you probably don't qualify for the exception, but worth checking if your situation changes in the future.

Has anyone used the "Streamlined Filing Compliance Procedures" for partnerships that failed to file Schedule K-2/K-3 in previous years? We just realized we should have been reporting our foreign dividends on these forms the last two years.

Just a heads up that the Swiss-US tax treaty has specific provisions for dividend withholding that you should be aware of. The standard withholding rate from Switzerland is 35%, but under the treaty, US partnerships can often get this reduced to 15%. If you've had the full 35% withheld, your partners might be getting more foreign tax credits than they're actually entitled to. The IRS can disallow "excess" foreign tax credits if you could have taken steps to reduce the foreign tax but chose not to. Make sure you're applying the treaty rate correctly.

I've been dealing with similar foreign dividend reporting issues for our partnership. One thing that really helped me was creating a detailed spreadsheet to track all the foreign dividends by country, date, and tax withheld. This made it much easier to complete the K-2/K-3 forms accurately. For Swiss dividends specifically, make sure you're checking whether your ETFs qualify for the reduced treaty withholding rate. Some Swiss ETFs are structured in ways that don't qualify for the full treaty benefits, which affects how much foreign tax credit your partners can actually claim. Also, double-check that your brokerage statements are correctly identifying which portions of the dividends are qualified vs ordinary. I found some discrepancies in our statements that would have caused issues with our K-2 reporting. The foreign tax needs to be allocated proportionally between qualified and ordinary dividends, so getting this right is critical for your partners' Form 1116 calculations. ProSeries should handle the K-2/K-3 generation once you input the data correctly, but the key is making sure all your source data is properly categorized before you start entering it into the software.