The IRS has released drafts of the 2019 Form 1065 (U.S. Return of Partnership Income), its Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.), Form 1120-S (U.S. Income Tax Return for an S Corporation), and its Schedule K-1, (Shareholder’s Share of Income, Deductions, Credits, etc). The forms and schedules are near-final, and the final, updated versions will be released in December.
The draft K-1 for Form 1065, on Item L, requires that a partner’s capital account be reported on a tax basis. In previous years, it could have been reported on a tax basis, GAAP basis, Code Sec. 704(b) book basis, or some other basis.
Expert Insight: The 2018 Instructions for Form 1065, for Item L, required a partnership that does not report tax basis capital accounts to its partners to report (on line 20 of Schedule K-1 using code AH) the amount of that partner’s tax basis capital. Because of that, most partnerships began to keep track of the capital accounts on a tax basis, even if they used a different method for Item L. Hence, they should be ready for the switch to tax-basis-only capital account reporting in 2019.
Among the other changes is the addition of a checkbox that allows a taxpayer to indicate if certain grouping or aggregation elections have been made. The changes also reflect updates consistent with changes resulting from the Tax Cuts and Jobs Act (PL 115-97, 2017).
The IRS says that the draft 2019 Form 1065 and Schedule K-1, as well as the draft Form 1120-S and its Schedule K-1, are near-final forms. The drafts are intended to give tax practitioners a preview of the changes and software providers the information they need to update systems before the final version of the updated forms and schedules are released in December.
Find the draft forms and IRS announcement in Checkpoint Federal Tax Update.
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