Partnerships subject to the centralized partnership audit rules of the Bipartisan Budget Act of 2015 (BBA) may file amended returns and amended Schedules K-1 for 2018 and 2019, rather than filing an administrative adjustment request (AAR), according to guidance released by the IRS on April 8.
Revenue Procedure 2020-23
provides that eligible BBA partnerships may file amended partnership returns and furnish corresponding amended Schedules K-1 before Sept. 30, 2020, rather than having to file an AAR to make an adjustment to an item reflected on the 2018 or 2019 tax returns. For this purpose, a BBA partnership is a partnership that is subject to the centralized partnership audit regime. All partnerships with tax years beginning after 2017 are BBA partnerships unless they make a valid election out of the centralized partnership audit regime. Eligible BBA partnerships and eligible taxable years are BBA partnerships that filed Form 1065 and furnished Schedules K-1 for partnership taxable years beginning in 2018 or 2019 prior to April 8, 2020, the date of issuance of the revenue procedure.
Under the BBA, a partnership 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 on Form 8082, “Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR).” The BBA procedures are in effect for partnership tax years beginning after Dec. 31, 2017. All partnerships are subject to the BBA’s centralized partnership audit rules unless an eligible partnership elects out of the BBA on its original-filed Form 1065.
The filing of an AAR can be administratively complex for both the partnership and its partners. The BBA rules generally require any adjustment, whether resulting in an imputed underpayment or an overpayment for any partner, to be reflected in the tax year in which the AAR is filed. For example, if a BBA partnership were to make an adjustment to its 2018 tax return in 2020, the tax impact of that adjustment would generally be reflected on the partners’ returns for the 2020 tax year, which would be filed in 2021.
Rev. Proc. 2020-23 provides procedural relief for BBA partnerships to make adjustments to their 2018 and 2019 returns in order to take advantage of certain provisions enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act provides retroactive tax benefits that could affect partnerships with respect to the 2018 and 2019 tax years. This guidance does not provide specific instructions on how to take advantage of CARES Act-related provisions, although it is expected that additional guidance is forthcoming from the IRS with respect to the interest deduction limitation under Section 163(j) and depreciation related to qualified improvement property.
The amended partnership returns are not necessarily limited to CARES Act tax benefits. Rev. Proc. 2020-23 states that the amended partnership returns may take into account tax changes brought about the CARES Act “as well as any other tax attributes to which the partnership is entitled by law.” The Service may issue FAQs or other guidance clarifying questions arising from the relief provided in Rev. Proc. 2020-23, such as the scope of permissible changes. In such event, this Tax Flash will be updated or supplemented as appropriate.
Amended return procedures
A BBA partnership is not obligated to file an amended return pursuant to Rev. Proc. 2020-23 and may determine it wishes to instead file an AAR. If a BBA partnership files an amended return for 2018 or 2019, it should file Form 1065 (with the “Amended Return” box checked) and furnish corresponding amended Schedules K-1 to the partners. The BBA partnership should also write “FILED PURSUANT TO REV PROC 2020-23” 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 to the examiner in writing that the BBA partnership wishes to use the amended return option. This notice must be given prior to or contemporaneously with the filing of the amended return, and the BBA partnership must provide the examiner a copy of the amended return.
If a BBA partnership has already filed an AAR for 2018 or 2019, the BBA partnership must use the items as adjusted in the AAR, rather than using the reporting reflected in the original return.
Special rule for partnerships applying proposed GILTI regulations
In Notice 2019-46
, the IRS allowed partnerships to apply proposed regulations, rather than final regulations, related to the global intangible low-taxed income (GILTI) rules for taxable years that ended before June 22, 2019. Rev. Proc. 2020-23 states that partnerships that applied the proposed regulations based on Notice 2019-46 could continue to apply those proposed regulations for purposes of filing an amended Form 1065 and amended Schedules K-1. Such partnerships must provide appropriate notifications to their partners in accordance with Notice 2019-46. If the partnership applied the final regulations, then any amended Schedule K-1 would have to be consistent with the final regulations.
Next steps and considerations
A partnership that files an amended return under Rev. Proc. 2020-23 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 as well, or risk a computational adjustment by the IRS.
In addition, as described previously, it is likely that many partnerships will want to take advantage of tax-favorable provisions of the CARES Act. Rev. Proc. 2020-23 provides procedural rules on the way a partnership may now amend a Form 1065, but it does not provide any guidance related to other, substantive areas of the law that may have been amended by the CARES Act. Finally, please watch for additional guidance on CARES Act provisions that may affect the information that is included in any amended partnership return that is permitted under Rev. Proc. 2020-23.
For more information contact:
Tax Practice Policy & Quality
Grant Thornton LLP
+1 312 602 8960
Principal, Partnership Tax Technical Leader
Washington National Tax Office
Grant Thornton LLP
+1 202 521 1590
Senior Manager, IRS Practice, Procedure, and Regulatory Services
Washington National Tax Office
Grant Thornton LLP
+1 202 521 1511
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