IRS grants penalty relief for certain late-filed partnership tax returns

The IRS on Sept. 1 granted relief to partnerships that were late filing either their tax returns or their requests for extensions of time to file those returns for the first taxable year that began after Dec. 31, 2015.

In 2015, Congress amended the due dates by which businesses must file tax returns, effective for tax years beginning after Dec. 31, 2015. Under the law change, partnerships must file Form 1065 or an extension by the 15th day of the third month following the close of the tax year. For calendar-year partnerships, this means Form 1065 or Form 7004 must be filed by March 15. Previously, the due date was April 15. A timely filed Form 7004 grants a partnership a six-month extension to file.  

Partnerships that do not timely file Forms 1065 or 1065-B or other affiliated returns, such as Forms 8804, 8805, or 5471, may be subject to considerable penalties, which are often automatically assessed.

Recognizing the potential for confusion with the change in law, the IRS issued Notice 2017-47, which grants relief for certain penalties imposed for the first taxable year of any partnership that began after Dec. 31, 2015. At least one of the following conditions must be satisfied in order to obtain relief:

  1. The partnership filed Forms 1065, 1065-B, 8804, 8805, 5471, or other forms required to be filed with the IRS, and furnished copies (or Schedules K-1) to the partners by the date that would have been timely prior to the change in law (the 15th day of the fourth month following the end of the tax year, or April 18, 2017, for calendar-year partnerships).
  2. The partnership filed Form 7004 to request an extension of time to file by the date that would have been timely prior to the change in law and subsequently files the return with the IRS and furnishes copies (or Schedules K-1) to the partners by the 15th day of the ninth month following the end of the tax year, or Sept. 15, 2017, for calendar year partnerships.

If a partnership files Form 1065-B and was required to furnish Schedules K-1 to partners by March 15, 2017, it must have done so to qualify for relief.

The notice states that relief will be automatically granted for such penalties, and that partnerships that qualify for relief and have already been assessed penalties can expect to receive a letter within the next several months notifying them that the penalties have been abated. For penalties that have not been abated by Feb. 28, 2018, the IRS has provided a hotline.  

This notice is welcome news to partnerships that may not have been aware of the change in due dates. Nevertheless, while the notice provides relief from penalties, it does not give any indication as to the impact on other consequences related to the late-filing of a partnership tax return, such as statutory or regulatory elections. Accordingly, it may be necessary to obtain late-election relief in certain circumstances.

For more information, see Tax Flash 2017-06.

Dave Auclair
National Managing Principal,
Washington National Tax Office
T +1 202 521 1515

Shamik Trivedi
Senior Manager, Washington National Tax Office
T +1 202 521 1511

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