IRS Provides Welcome Relief for Partnership Filings to Obtain CARES Act Benefits

General Rules for Amending Partnership Returns

Prior to 2018, partnerships were generally subject to unified partnership audit and litigation rules enacted by the Tax Equity and Fiscal Responsibility Act of 1982, commonly referred to as the TEFRA partnership procedures.
 
For taxable years beginning after December 31, 2017, the Bipartisan Budget Act of 2015 (BBA) replaced the TEFRA audit procedures with a centralized partnership audit regime. These new audit procedures apply to all partnerships, unless the partnership makes a valid election not to have those procedures apply. Partnerships subject to the centralized partnership audit regime are referred to as BBA partnerships.
 
Partnerships file annual returns on Form 1065 each taxable year and report each partner’s distributive share of income, gain, loss, deduction and credit on Schedule K-1. Partnerships are required to furnish a copy of Schedule K-1 to each partner.
 
BBA partnerships are generally prohibited 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. On April 8, 2020, the Internal Revenue Service issued Revenue Procedure 2020-23, which exercises that authority to allow a BBA partnership to file an amended partnership return and issue amended Schedules K-1 for taxable years that began in 2018 or 2019, and only under certain circumstances.

Impact of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

The CARES Act provides retroactive tax relief that affects partnerships, including relief for the taxable years ending in 2018, 2019, and, in some cases, 2020. Without the option to file amended returns, BBA partnerships that already filed their Forms 1065 for the affected years generally are unable to take advantage of the CARES Act relief for partnerships except by filing Administrative Adjustment Requests (AARs). Filing an AAR would result in the partners only being able to receive any benefits from that relief on the current taxable year’s federal income tax return. Thus, if an AAR were filed during 2020 affecting taxable years that began in 2018 or 2019, 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. In the view of the IRS, this process would significantly delay the relief provided in the CARES Act intended to provide an immediate benefit to taxpayers.
 

Special Rule for Filing Amended Partnership Returns

Revenue Procedure 2020-23 allows BBA partnerships the option to file an amended return instead of an AAR. However, the revenue procedure does not prevent a partnership from instead 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 this revenue procedure is still otherwise subject to the centralized partnership audit procedures enacted by the BBA.
 
BBA partnerships that filed a Form 1065 and furnished all required Schedules K-1 for the taxable years beginning in 2018 or 2019 prior to the issuance of Revenue Procedure 2020-23 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.
 

 

 

Other Considerations

The relief under Revenue Procedure 2020-23 is available only to BBA partnerships that filed Forms 1065 and furnished Schedules K-1 for the partnership taxable years beginning in 2018 or 2019 prior to the issuance of this revenue procedure. The amended return replaces any prior return (including any AAR filed by the partnership) for the taxable year for purposes of determining the partnership’s treatment of partnership-related items.
 

Filing Requirements

To take advantage of the option to file an amended return, a BBA partnership must file a Form 1065 (with the “Amended Return” box checked) and furnish corresponding amended Schedules K-1. The BBA partnership must clearly indicate the application of this 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 to each Schedule K-1 sent to its partners with the same notation. The BBA partnership may file electronically or by mail, but the IRS notes that filing electronically may allow for faster processing of the amended return. It is important to note that the revenue procedure explicitly provides that the amended partnership returns are to be filed via Form 1065. Consequently, Form 1065-X should not be used for purposes of filing an amended partnership return pursuant to this revenue procedure.
 
There are special rules for BBA partnerships whose returns are under examination or who have previously filed an AAR. In addition, the revenue procedure provides clarifying guidance about a partnership’s obligation to provide information under the proposed regulations for Global Intangible Low-Taxed Income, or GILTI.

 

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