Partnerships can amend for PPP loans by Dec. 31

The IRS recently issued guidance (Rev. Proc. 2021-50) allowing certain partnerships subject to the centralized partnership audit rules of the BBA to file amended 2020 returns through Dec. 31, 2021, instead of being required to file an Administrative Adjustment Request (AAR). This guidance has been issued to provide procedural rules for eligible BBA partnerships wishing to address issues relating to the forgiveness of Payroll Protection Program (PPP) loans and several other specific items.

Background

Rev. Proc. 2021-50 provides that certain eligible partnerships subject to the centralized partnership audit rules of the Bipartisan Budget Act of 2015 (BBA) that filed a Form 1065 and furnished all required Schedules K-1 for taxable years ending after March 27, 2020, but before the issuance of the revenue procedure on Nov. 18, 2021, may file amended partnership returns and furnish amended Schedules K-1 on or before Dec. 31, 2021. Under the BBA, a partnership generally cannot file an amended Form 1065 or issue amended Schedules K-1 to partners. The only way a BBA partnership can ordinarily make an adjustment to a tax return is through the filing of an AAR.

Eligible partnerships include those that need to file amended returns to take into account tax changes under Rev. Procs. 2021-48 or 2021-49. Those revenue procedures concern the tax treatment of the forgiveness of PPP loans, certain grant proceeds, or the subsidized payment of certain principal, interest and fees. While the amended returns must take into account tax changes under Rev. Proc. 2021-48 or Rev. Proc. 2021-49, eligible BBA partnerships may make any additional changes on their amended returns.

Amended return procedures

A BBA partnership is not obligated to file an amended return pursuant to Rev. Proc. 2021-50 and may decide instead to file an AAR. If a BBA partnership files an amended return for a period ending after March 27, 2020, it should file form 1065 (with the “amended” box checked) and furnish corresponding amended Schedules K-1 to the partners. The BBA partnership should also write “FILED PURSUANT TO REV PROC 2021-50” at the top of the amended return and attach a statement with each Schedule K-1 sent to its partners with the same notation. The IRS also recommends filing the Form 1065 electronically.

If the BBA partnership is currently under examination, it may file an amended return but only if it gives notice in writing to the examiner that the BBA partnership wishes to use the amended return option.

If a BBA partnership has already filed an AAR for a period ending after March 27, 2020, the BBA partnership must use the items as adjusted in the AAR, rather than the reporting used on the originally filed return.

Next steps

A partnership that files an amended return under Rev. Proc. 2021-50 should be aware that the BBA procedures are still in effect. Under Section 6222, a partner’s return must treat partnership-related items consistent with the partnership’s treatment of those items. Accordingly, if the BBA partnership files an amended return, the partner should ensure that the treatment of those items is still consistent, and if not, the partner should consider filing an amended return, or risk a computational adjustment by the IRS.

BBA-related procedural issues can be complex, administratively burdensome, and result in unexpected consequences for both partnerships and partners.

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