In a Revenue Procedure, IRS has allowed partnerships that are subject to the Bipartisan Budget Act of 2015 (BBA)’s centralized partnership audit procedures, to file an amended 2018 and/or 2019 Form 1065, to take into account tax changes brought about by the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act as well as any other tax attributes to which the partnership is entitled by law.
The BBA created centralized partnership audit procedures; those procedures are found in Code Sec. 6221 through Code Sec. 6241. The centralized partnership audit procedures apply to all partnerships, unless the partnership makes a valid election under Code Sec. 6221(b) not to have those procedures apply. Partnerships subject to the centralized partnership audit regime are referred to as BBA partnerships.
Code Sec. 6031(a) requires every partnership to file a return each year stating items such as its gross income and deductions. Form 1065 is used for this purpose. Code Sec. 6031(b) requires that a partnership required to file a return under Code Sec. 6031(a) furnish a copy of the Schedule K-1 to each partner that includes such information as may be required to be shown by regs.
Subject to limited exceptions, Code Sec. 6031(b) also prohibits BBA partnerships from amending the information required to be furnished to their partners after the due date of the return, unless specifically provided by the Secretary of the Treasury or his delegate.
The CARES Act provides retroactive tax relief that affects partnerships. For example, it contains retroactive provisions for depreciation relief for “qualified investment property” (CARES Act Sec. 2307) and for an increase in the business interest deduction limitation from 30% to 50%. (CARES Act Sec. 2306)
In Notice 2019-46, 2019-37 IRB 695, IRS announced that it intends to issue regs that will permit a domestic partnership or S corporation to apply the rules in Prop Reg §1.951A-5, before replaced by TD 9866, 6/14/19, to tax years ending before June 22, 2019.
IRS allows for amended returns.
The Revenue Procedure allows BBA partnerships file amended partnership returns and issue amended Schedules K-1 under the circumstances described below.
IRS reasoned that, without the option to file amended returns, BBA partnerships that already filed their Forms 1065 for the affected years generally would be unable to take advantage of the CARES Act relief for partnerships except by filing Administrative Adjustment Requests (AARs) pursuant to Code Sec. 6227. Filing an AAR would result in the partners’ only being able to receive any benefits from that relief on the current tax year’s federal income tax return. Thus, if an AAR were filed, the partners generally would not be able to take advantage of CARES Act benefits from an AAR until they file their current year returns, which could be in 2021. This process would significantly delay the relief provided in the CARES Act intended to apply to the affected tax years and provide an immediate benefit to taxpayers.
BBA partnerships that filed a Form 1065 and furnished all required Schedules K-1 for the tax years beginning in 2018 or 2019 prior to the issuance of the Revenue Procedure may file amended partnership returns and furnish corresponding Schedules K-1 before September 30, 2020. The amended returns may take into account tax changes brought about by the CARES Act as well as any other tax attributes to which the partnership is entitled by law.
For purposes of Code Sec. 6222 (Partner’s return must be consistent with partnership return), the amended return replaces any prior return (including any AAR filed by the partnership) for the tax year for purposes of determining the partnership’s treatment of partnership-related items.
The Revenue Procedure does not prevent a partnership from filing an AAR to obtain the benefits of the CARES Act or any other tax benefits to which the partnership is entitled. A BBA partnership that files an amended return pursuant to the Revenue Procedure is still subject to the centralized partnership audit procedures enacted by the BBA.
Procedures for filing the amended returns.
A BBA partnership must file a Form 1065 (with the “Amended Return” box checked) and furnish corresponding amended Schedules K-1. The partnership must clearly indicate the application of the Revenue Procedure on the amended return and write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended return and attach a statement with each Schedule K-1 sent to its partners with the same notation. The partnership may file electronically or by mail.
Special rule for partnerships whose returns are under examination. If a BBA partnership is currently under examination for a tax year beginning in 2018 or 2019 and wishes to take advantage of the option to file an amended return pursuant to the Revenue Procedure, the partnership may only do so if the partnership sends notice, in writing, to the revenue agent coordinating the partnership’s examination that the partnership seeks to use the amended return option described in the Revenue Procedure prior to, or contemporaneously, with filing the amended return. The partnership must also provide the revenue agent with a copy of the amended return upon filing.
Special rule for BBA partnerships who have previously filed an AAR. If a BBA partnership has previously filed an AAR and wishes to file an amended return pursuant to the Revenue Procedure for the same tax year, the partnership should use the items as adjusted in the AAR, where applicable, in lieu of any reporting from the originally filed partnership return.
Coordination with Not. 2019-46. A partnership that applied Notice 2019-46 may continue to apply the rules of Prop Reg §1.951A-5 for purposes of filing an amended Form 1065 for such tax years under the Revenue Procedure if the partnership furnishes amended Schedules K-1 consistent with those proposed regs and provides appropriate notifications to its partners under the principles of Notice 2019-46, Sec. 5.01, before September 30, 2020.
Nothing in the Revenue Procedure changes a partnership’s obligation to provide information described in Notice 2019-46, Sec. 5.02.
If a partnership applies the final GILTI regs under Reg §1.951A-1(e), any amended Schedules K-1 issued under the Revenue Procedure must be consistent with those final regs.
To continue your research on the BBA centralized partnership audit rules, see FTC 2d/FIN ¶ T-2400 et seq.; United States Tax Reporter ¶ 62,214.12 et seq.
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