Due dates for tax returns don’t change very often—so rarely that most taxpayers likely assume they simply won’t. But Congress in 2015 proved that such dates can be changed and that Congress is willing to do so, changing several dates. Matters are tougher when Congress moves the due date forward, as they did for partnerships.
Many partnerships, unaware of that requirement, either filed their Form 1065 or their request for an extension on Form 7004 after March 15, but on or before April 15, this year. Notice 2017-47 provides relief from late filing penalties for partnerships in that situation who meet the requirements provided for in the notice.
The penalties for the late filing of a partnership return have become much more onerous in recent years, being set at $195 per partner per month late (not to exceed 12 months), with the amount being adjusted for inflation. If the partnership has very many partners and/or is multiple months late the penalties can quickly add up to a significant amount being due.
The relief covers partnerships who filed the following forms by their pre-2017 due dates:
- Form 1065, “U.S. Return of Partnership Income”
- Form 1065-B, “U.S. Return of Income for Electing Large Partnerships”
- Form 8804, “Annual Return for Partnership Withholding Tax (Section 1446)”
- Form 8805, “Foreign Partner's Information Statement of Section 1446 Withholding Tax”
- Form 7004, “Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns”
- Form 5471, “Information Return of U.S. Persons With Respect to Certain Foreign Corporations”
For the last two forms listed, it’s important to note the relief only applies to an affected tax law partnership—other filers who file these returns late will not be eligible for relief under this notice.
The notice provides that relief will be granted if either of the following two conditions are satisfied:
- The partnership filed the Form 1065, 1065-B, 8804, 8805, 5471, or other return required to be filed with the IRS and furnished copies (or Schedules K-1) to the partners (as appropriate) by the date that would have been timely under section 6072 before amendment by the Surface Transportation Act (April 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
- The partnership filed Form 7004 to request an extension of time to file by the date that would have been timely under section 6072 before amendment by the Surface Transportation Act and files the return with the IRS and furnishes copies (or Schedules K-1) to the partners (as appropriate) by the fifteenth day of the ninth month after the close of the partnership’s taxable year (September 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 March 15, 2017, it must have done so to qualify for relief.
The IRS indicates that partnerships will not have to take action to obtain this relief. If the penalty has not yet been assessed, the IRS indicates that the relief will be granted automatically. If the penalty has already been assessed against the taxpayer, the notice provides that the partnership will receive a letter within the next several months notifying them that the penalties have been abated.
If a partnership that previously had the penalty assessed that qualifies for relief under this notice does not receive abatement by February 28, 2018, the partnership should contact the IRS at the number listed in the letter that assessed the penalty and state that the partnership qualifies for relief under Notice 2017-47.
Another piece of good news is that the notice also provides that this will not count as receiving relief under the IRS’s first time abatement administrative penalty waiver program.
Note that the notice does not provide relief to a taxpayer that failed to timely request an extension by March 15, became aware of that due date before April 15, and did not file either a Form 7004 or the tax return itself by April 15. Such taxpayers would need to ask for abatement from the IRS for reasonable cause.
One key factor to note is that the fact that the tax adviser wasn’t aware of the change of due date would likely not be found to be a reasonable cause, but the fact the partnership was not aware of the change in due date and was not advised of the change by the tax adviser would likely qualify, especially given the issuance of this notice. While the difference in those two statements may seem to many to be utterly insignificant, it is an important distinction given IRS guidance to agents about what constitutes reasonable cause and what case law has held in these cases.
Another issue not discussed in this notice is whether such partnerships will be deemed to have received a grant of extension of time to file a return for purposes of funding a retirement plan or for making any elections due by the due date (including extensions). A waiver of the penalties by itself would not cure these problems.
 IRC §6698