The IRS continues to refine its guidance regarding international tax transparency and passthrough entity reporting. One of the most significant updates affecting partnerships in 2025 pertains to the “1-month rule” governing Schedule K-3 reporting. This rule determines whether a partnership must furnish Schedule K-3 to partners who request it and whether those schedules must be filed with the IRS. The new clarification and updates bring more structure and predictability to the reporting process, especially for partnerships that qualify for the domestic filing exception but must remain responsive to partner requests.
What Is the 1-Month Rule?
The “1-month rule” is a component of the IRS’s domestic filing exception guidelines for Schedules K-2 and K-3. Under this rule, a partnership that qualifies for the domestic exception does not need to file Schedules K-2 and K-3 unless one or more of its partners request a Schedule K-3:
- At least one month before the due date (without extension) of the partnership’s tax return.
For calendar-year partnerships, this means that the request must be received by February 15, 2026 (since the Form 1065 due date is March 15, 2026). If a request is received on or before this date, the partnership is obligated to prepare and furnish the requested Schedule K-3 to the requesting partner and file it with the IRS along with Schedule K-2. If no request is received by that date, the partnership is not required to prepare or file the schedules.
2025 Updates to the 1-Month Rule
The IRS updated its guidance in mid-2024 to take effect for 2025 tax filings. The updates provide more clarity and practical examples for partnerships and reinforce compliance expectations. Here are the most critical changes and clarifications:
1. Request Must Be “Received” – Not Just Sent
One of the most important clarifications is that the request must be received by the partnership (or its preparer) by the 1-month deadline — not merely sent or postmarked by the partner. This means that emails, written requests, or system-generated notices must actually reach the partnership by the deadline, not after.
2. Electronic Communication Is Valid
The IRS clarified that electronic forms of communication — including email, secure portals, or tax preparation platforms — qualify as valid means for submitting Schedule K-3 requests. Partnerships should monitor their communication channels regularly to ensure timely receipt.
3. Formality of Request Not Required
A partner’s request does not need to be formal or use specific wording. A simple statement such as “I expect to claim a foreign tax credit” or “I’ll need Schedule K-3 for my Form 1116” is sufficient to trigger the obligation, as long as it is received by the deadline.
4. Multiple Requests Trigger Full Filing Obligation
If one or more partners submit a timely request, the partnership must prepare and file Schedules K-2 and K-3 for the entire return — not just furnish it to the requesting partner. This prevents fragmented reporting and ensures uniform disclosures across the partnership return.
5. Notification Requirements Still Apply
To rely on the domestic filing exception and avoid filing Schedules K-2 and K-3 altogether, a partnership must notify all partners by January 15, 2026 (for calendar-year filers) that it does not expect to provide Schedule K-3 unless requested. Without this timely notification, the 1-month rule cannot be used to avoid filing.
Why the 1-Month Rule Matters
The 1-month rule offers partnerships the opportunity to avoid preparing Schedules K-2 and K-3 — but only if:
- They meet the requirements for the domestic exception
- They send timely notices to partners
- No partner submits a timely Schedule K-3 request
This rule allows domestic-only partnerships with U.S. partners and no international activity to streamline their compliance process, reduce preparation costs, and eliminate unnecessary filings. However, once a partner request is received by the cutoff date, the partnership must comply in full.
Best Practices for Partnerships in 2025
To take full advantage of the domestic exception and properly manage the 1-month rule, partnerships should follow these best practices:
- Send timely written notification to partners — ideally via email with confirmation, by January 15, 2026.
- Maintain records of all partner communications, including requests and acknowledgments, in case of IRS inquiry.
- Monitor all communication channels (email inboxes, tax prep software inboxes, etc.) daily as the February 15 deadline approaches.
- Document internal compliance procedures in case any partners challenge the absence of a K-3 after the deadline.
- Consult a tax professional to ensure the proper interpretation and application of IRS guidance for your unique partnership structure.
Frequently Asked Questions
What happens if a partner submits a K-3 request after February 15, 2026?
If the request is received after the 1-month cutoff, the partnership is not required to furnish or file Schedules K-2 or K-3. However, many partnerships choose to provide the K-3 informally to accommodate partners and maintain good relationships, although it’s not legally required.
Does one request mean the whole return must include K-2/K-3?
Yes. Even one timely partner request obligates the partnership to complete and file the entire Schedules K-2 and K-3 package, not just for that partner.
Can a partnership opt out of the exception altogether?
Yes. Any partnership can voluntarily file Schedules K-2 and K-3, even if eligible for the exception. This may be prudent for partnerships with complex ownership or future foreign exposure.
Conclusion
The IRS’s updates to the 1-month rule in 2025 bring much-needed clarity to an often misunderstood area of partnership reporting. While this rule provides administrative relief, it requires strict adherence to timelines and careful communication management. Partnerships seeking to avoid filing Schedules K-2 and K-3 must send proactive notices and remain vigilant for partner requests — especially in early February when deadlines loom.
By understanding and following the updated rules, domestic-only partnerships can confidently rely on the exception and reduce unnecessary tax compliance burdens while staying fully in line with IRS expectations.
