Recently, in Revenue Procedure 2019-32, the IRS provided a six-month extension for certain partnerships to file a superseding Form 1065 (its partnership return) and corresponding Schedules K-1 to each of its partners.
The Bipartisan Budget Act of 2015 (the “BBA”) drastically changed the way that partnerships are audited, including partnership-level assessments; smaller partnerships, however, can opt-out. The BBA uprooted the prior system, commonly referred to as the TEFRA partnership procedures, which were introduced in the early 1980s. Among other things, under the BBA, partners are required to treat consistently certain items on their individual return with how that item was treated on the partnership’s return.
FILE – In this photo March 22, 2013 file photo, the exterior of the Internal Revenue Service (IRS) building in Washington. (AP Photo/Susan Walsh, File)
Section 6031(a) requires partnerships to file returns—this is accomplished by Form 1065 and Schedules K-1. Schedule K-1 reports the partner’s share of taxable income and other information. Partnership returns, including Schedules K-1, are due generally the fifteenth day of the third month after the end of the taxable year. So, for a calendar-year partnership, this is March 15. Extensions are available, though.
Section 6031(b), however, generally prohibits (with some exceptions) a partnership from amending the information required to be reported to partners after the due date of the return.
If a partnership files its Form 1065 and provides Schedules K-1 to partners before the deadline (including extensions, if requested), it may file what is known as a “superseding” Form 1065 and provide corresponding Schedules K-1 to its partners prior to the deadline.
Importantly, a timely filed superseding Form 1065 is considered the original return of the partnership.
Now, 2018 was the first year of the mandatory BBA procedures, and, consequently, the first year applicable for the 6031(b) restrictions on amending Schedules K-1.
Now, many partnerships requested extensions for their Forms 1065 (allowing more time to file the original or a superseding Form 1065). And, if a partner received an original or revised Schedule K-1 after filing his or her individual return, the partner could amend the individual return if needed.
However, the IRS noted that some partnerships may have timely filed returns and provided Schedules K-1 (without extensions), but may have made errors (e.g., not properly reporting all the required Schedule K-1 information).
Given the restrictions under 6031(b), the partnerships now cannot amend the Schedules K-1 for the 2018 tax year. This restriction, however, does not apply to the partner’s individual return. (Unless, of course, the partner is, itself, a partnership).
Consequently, the IRS decided to provide relief for those in the above situation. Under the Revenue Procedure, the IRS noted it will “treat the timely filing of Form 1065 by a BBA partnership described in section 3.03 of this revenue procedure as a timely and appropriately filed request for a six-month extension of the deadline to file the Form 1065.”
As such, “partnerships that timely filed a Form 1065 and timely furnished all required Schedules K-1 (without regard to the extensions of time provided by this revenue procedure) may file a superseding Form 1065 and furnish corresponding Schedules K-1 before the expiration of the extended deadline.”
The relief provided by the Revenue Procedure applies only to BBA partnerships (those that are governed by the BBA) that “timely filed Form 1065 and timely furnished Schedules K-1 prior to application of this revenue procedure and also file a superseding Form 1065 and furnish corresponding Schedules K-1 on or before the date that is six-months after the non-extended deadline.”
This relief applies only for partnership taxable years that “ended prior to the issuance of this revenue procedure and for which the extended due date for such partnership taxable year is after July 25, 2019.”
To use the relief of the Revenue Procedure, partnerships are to file a superseding Form 1065, furnish corresponding Schedules K-1, and write on the top of the superseding Form 1065: “SUPERSEDING FORM 1065 PURSUANT TO REVENUE PROCEDURE 2019-32.”
You can read Revenue Procedure 2019-32 here.
This is only a summary of the Revenue Ruling; please consult a licensed tax professional in your jurisdiction for more information.
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