Q&A with the Pennsylvania Department of Revenue

Why submit copies of the K1s and is the DOR considering a K1 reconciliation form?

Sep 30, 2013
Q:

We have observed a number of notices requesting that the taxpayer submit the actual copies of the K-1s that went into the e-filed return. First, why can this data not be drawn from the filed PA-65, PA-41 and P-20S or from the e-filed return itself? Second, it appears that this information is needed to help the Department reconcile the business profits or rental profits on the filed return especially where there may be several K-1s. Has the Department considered developing a K-1 reconciliation form which would make the reconciliation part of the e-filed return and possibly assist in the more complicated returns? 

A:

The department cannot rely on PA Schedule RK-1s and NRK-1s that are attached to returns as being 100% accurate as they are only as accurate as their input into the e-file return. Therefore, we request them. However, we should only be requesting them if they are not already on our system as of the date the return is being examined. In many cases – and particularly with paper filed PA-20S/PA-65 returns - the Schedule RK-1s and NRK-1s are not available until August or later depending upon when the PA-20S/PA-65 return was filed. Not all return information is available in our systems immediately. 

Since e-file is now the predominant filing method, the department will explore developing a summary form for reporting income from Schedules RK-1 and NRK-1. However, income verification will still be needed even if the form is present with a return. 

Additionally, Federal K-1 information is also problematic in that these documents must be provided to the department for verification of the income/loss amounts reported for entities that do not file the PA-20S/PA-65 return.
 

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These documents provide a summary of the answers provided by the Department of Revenue to the PICPA Committee on State Taxation at its annual question and answer session. These documents are classified as revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on their specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.