An earlier article on this site discussed the addition to the 2018 Form 1065 instructions that required partnerships to provide tax basis capital account information for partners whose tax basis capital would be negative and which are reporting partners’ capital on the K-1 on basis other than the tax basis (IRS Adds Requirement for Tax Basis Partner Capital Information Reporting to Form 1065 Instructions, February 15, 2019).
Certain partnerships complained to the IRS that they will not be able to provide that information with this year’s K-1s, at least not without delaying the issuance of K-1s to shareholders significantly. In response to these complaints, the IRS in Notice 2019-20 has provided a temporary reprieve to such partnerships.
The IRS has indicated the agency will not impose penalties under IRC §6722 (for failing to furnish the partner with a complete K-1 in accordance with the instructions) and IRC §6698 (for failing to provide a K-1 to the IRS with the tax return prepared in accordance with the instructions) if the requirements of the Notice are met. These penalties are the ones that apply to the failure to timely file other information returns, such as Forms 1099.
The Notice will apply if the partnership:
Timely files the partner Schedule K-1s. The timely filing includes those provided to the partners and to the IRS on a return. That timely filing rule will apply to a partnership that obtained an extension of time to file its return and files the return before the end of the extension period; and
By March 15, 2020 (or 180 days after what would have been the extended due date of the partnership return if it had filed for an extension) the partnership provides the IRS with a schedule that provides the following for each partner that the instructions require the partnership to provide negative tax basis information on:
The partner’s name;
The partner’s address;
The partner’s taxpayer identification number;
The amount of the partner’s tax basis capital account at both the beginning and the end of the taxable year.
The information is to be provided in accordance with the instructions found in Form 1065 and any additional guidance posted by the IRS on the IRS website at irs.gov. The schedule is to be mailed to:
1973 North Rulon White Blvd.
Ogden, UT 84404-7843
Attn: Ogden PTE
The partnership does not need to provide the partners with amended K-1s, nor is the partnership required to file an administrative adjustment request.
The Notice warns that more instructions are going to be issued by the IRS on irs.gov regarding this relief, so advisers will need to watch for this additional information.