In a Notice, IRS has provided penalty relief to partnerships that filed certain untimely returns, or untimely requests for an extension of time to file those returns, for the first tax year that began after Dec. 31, 2015, by the 15th day of the 4th month following the close of that tax year. Thus, the Notice provides penalty relief for certain partnerships that did not file the required returns by the new due date for tax years beginning in 2016.
Background. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (Surface Transportation Act, PL 114-410) included a major restructuring of entity return due dates, effective generally for returns for tax years beginning after Dec. 31, 2015 (see Weekly Alert ¶ 2 08/06/2015). Among the changes the Surface Transportation Act made, it provided that a partnership return—Form 1065 (U.S. Return of Partnership Income)—has to be filed by the 15th day of the 3rd month after the end of the tax year. Thus, partnerships with a calendar year have to file by Mar. 15 of the following year. (Code Sec. 6072(b), as amended by Surface Transportation Act Sec. 2006(a))
Under pre-Surface Transportation Act, the due date for filing the annual return of a partnership had been the 15th day of the 4th month following the close of the tax year (April 15 for calendar-year taxpayers).
Partnerships filing Form 1065 and Form 1065 B (U.S. Return of Income for Electing Large Partnerships) are affected by the Surface Transportation Act amendment. These partnerships may also file Form 8804 (Annual Return for Partnership Withholding Tax (Section 1446)) and Form 8805 (Foreign Partner’s Information Statement of Section 1446 Withholding Tax), which are generally due to IRS on the same date as the partnership’s Form 1065 or Form 1065-B.
Filers of Form 1065 must furnish their partners with Schedules K-1 (Partner’s Share of Income, Deductions, Credits, etc.) by the due date of the Form 1065, and filers of Form 1065-B must furnish their partners with Schedules K-1 by the first March 15 following the close of the partnership’s tax year. Filers of Form 8804 that are required to file Forms 8805 must also furnish their partners with their respective copies of Forms 8805 by the due date of the Form 8804. Some partnerships must also file additional returns, such as Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations) by the due date of the Form 1065 or Form 1065-B.
Partnerships can obtain a 6-month extension of time to file Form 1065, 1065 B, or 8804 by filing Form 7004 (Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns) by the statutory due date of those returns. Partnerships that receive an extension of time to file Form 1065 receive a concurrent extension of time to furnish their partners with Schedules K-1. Also, partnerships that receive an extension of time to file Form 8804 receive concurrent extensions of time to file Forms 8805 and to furnish respective copies of the Forms 8805 to their partners.
The 6-month extension may apply to additional returns that partnerships may be required to file by the due date of their Forms 1065 or 1065-B, but it does not affect the due date for partnerships filing Form 1065-B to furnish their partners with Schedules K-1.
Partnerships that fail to timely meet their obligations to file and furnish returns are subject to penalties:
…Partnerships that fail to file Form 1065, 1065-B, or 8804 by the due date (with regard to extensions) are subject to penalty under Code Sec. 6698 or Code Sec. 6651.
…Partnerships that fail to file Forms 8805 by the due date (with regard to extensions) are subject to penalty under Code Sec. 6721.
…Partnerships that fail to furnish Schedules K-1 or the partner copies of Forms 8805 by the due date are subject to penalty under Code Sec. 6722.
…Partnerships that fail to file Form 5471 by the due date are subject to penalty under Code Sec. 6038 or Code Sec. 6679.
…Partnerships that fail to file additional returns that they are required to file by the due date of their Forms 1065 or 1065-B may also be subject to other penalties.
Many partnerships filed the returns discussed above or Form 7004 for the first tax year beginning after Dec. 31, 2015, by the date previously required by Code Sec. 6072. If not for the Surface Transportation Act (i.e., under prior law), these returns and requests for an extension of time to file would have been timely.
Penalty relief. IRS will grant relief from the penalties described above for any return described above for the first tax year of any partnership that began after Dec. 31, 2015, if:
1. The partnership filed the Form 1065, 1065-B, 8804, 8805, 5471, or other return required to be filed with IRS and furnished copies (or Schedules K-1) to the partners (as appropriate) by the date that would have been timely under Code Sec. 6072 before amendment by the Surface Transportation Act (i.e., Apr. 18, 2017 for calendar-year taxpayers, because April 15 was a Saturday and April 17 was a legal holiday in the District of Columbia); or
2. The partnership filed Form 7004 to request an extension of time to file by the date that would have been timely under Code Sec. 6072 before amendment by the Surface Transportation Act and files the return with IRS and furnishes copies (or Schedules K-1) to the partners (as appropriate) by the 15th day of the 9th month after the close of the partnership’s tax year (Sept. 15, 2017, for calendar-year taxpayers). If the partnership files Form 1065-B and was required to furnish Schedules K-1 to the partners by Mar. 15, 2017, it must have done so to qualify for relief.
This relief will be granted automatically for penalties for failure to timely file Forms 1065, 1065-B, 8804, 8805, and any other returns, such as Form 5471, for which the due date is tied to the due date of Form 1065 or Form 1065-B. Partnerships that qualify for relief and have already been assessed penalties can expect to receive a letter within the next several months notifying them that the penalties have been abated.
For reconsideration of a penalty covered by Notice 2017-47 that has not been abated by Feb. 28, 2018, IRS advises that taxpayers should contact the number listed in the letter that notified them of the penalty or call (800) 829-1040 and state that they are entitled to relief under Notice 2017-47.
Taxpayers who qualify for relief under Notice 2017-47 will not be treated as having received a first-time abatement under the IRS’s administrative penalty waiver program.
References: For the penalty for failure to timely file partnership returns, see FTC 2d/FIN ¶ V-1762; United States Tax Reporter ¶ 66,984.
