IRS Grants 6-Month Extension for Filing Forms 1065 to Certain Partnerships

(Parker Tax Publishing August 2019)

In Rev. Proc. 2019-32, the IRS granted an extension of time to eligible partnerships to file a superseding Form 1065 and furnish a corresponding Schedule K-1 to each of its partners. The extension applies only to partnership tax years that ended before the issuance of Rev. Proc. 2019-32 and for which the extended due date for the partnership tax year is after July 25, 2019, and applies to partnerships that (1) have not opted out of the centralized partnership audit rules, (2) timely filed a Form 1065, and (3) timely furnished all required Schedules K-1. Rev. Proc. 2019-32.

Background

Effective for partnership tax years beginning after December 31, 2017, the Bipartisan Budget Act of 2015 (BBA) removed the unified partnership audit and litigation rules enacted by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and replaced them with a centralized partnership audit regime in Code Sec. 6221 to Code Sec. 6241. In general, the centralized audit partnership regime determines, assesses, and collects tax at the partnership level. The centralized audit rules apply to all partnerships unless the partnership elects under Code Sec. 6221(b) not to have those procedures apply. Only certain partnerships that are required to issue fewer than 100 Schedules K-1 are eligible to make the election under Code Sec. 6221(b). Partnerships subject to the centralized partnership audit regime are referred to as BBA partnerships.

Code Sec. 6222(a) requires partners in a BBA partnership to treat partnership-related items (as defined in Code Sec. 6241 and the corresponding regulations) consistently on the partner's return with how the BBA partnership treated such items on its return. This consistency requirement applies to partners that are passthrough entities, such as partnerships and S corporations, as well as non-passthrough persons, such as individuals and C corporations.

[Code Sec. 6031(a) requires every partnership to file a return for each tax year and Code Sec. 6072(b) provides that the deadline for filing Form 1065 and furnishing Schedules K-1 to partners is generally the fifteenth day of the third month after the end of the partnership's tax year. For a calendar year partnership, the deadline is March 15. Under Code Sec. 6081(a), the IRS may grant a reasonable extension, generally no more than six months, for filing any return, statement, or other required document. To receive an extension, Reg. Sec. 1.6081-2(b) generally requires that a partnership submit an application before the due date for filing the Form 1065. Certain partnerships that keep their records and books outside the United States and Puerto Rico are granted a three-month extension automatically without submitting an application under Reg. Sec. 1.6081-5T(a)(1). This three-month extension runs concurrently with any six-month extension granted under Reg. Sec. 1.6081-2.

For calendar-year partnerships that timely request a six-month extension, the extended deadline is September 15. A partnership that files its Form 1065 and furnishes Schedules K-1 to its partners before the September 15 deadline for filing the Form 1065 (including extensions) may file a superseding Form 1065 and furnish corresponding Schedules K-1 before the deadline, including extensions. A timely filed superseding Form 1065 is considered the original return of the partnership.

Partnership tax years beginning in 2018 were the first tax years for which the centralized partnership audit regime was mandatory and the first tax years for which restrictions on amending Schedules K-1 under Code Sec. 6031(b) were effective.

In Rev. Proc. 2019-32, the IRS stated that it was aware that many BBA partnerships have requested an extension of the filing deadline and may file an original Form 1065 (and furnish original Schedules K-1 to their partners) or a superseding Form 1065 (and furnish corresponding Schedules K-1 to their partners) until the extended due for the 2018 tax year. Generally, if any partners filed returns for the 2018 tax year before receiving an original or revised Schedule K-1 from a BBA partnership, those partners may amend their returns if inconsistent with the Schedule K-1.

However, the IRS observed that certain BBA partnerships timely filed Form 1065 for the 2018 tax year and timely furnished Schedules K-1 to their partners. According to the IRS, some partnerships that already filed Form 1065 for the 2018 tax year may have made errors, including not reporting all of the required information on the Schedules K-1. These BBA partnerships, having timely filed, did not request an extension of the deadline to file and, due to the restrictions on amending Schedules K-1 under Code Sec. 6031(b), may not amend the Schedules K-1, including for the 2018 tax year. The IRS noted that the ability of the partners of such BBA partnerships to amend their own returns for the 2018 tax year is not affected by the restrictions under Code Sec. 6031(b); however, if the partner is a BBA partnership, the restrictions under Code Sec. 6031(b) may apply.

Relief Provided to Eligible BBA Partnerships

In Rev. Proc. 2019-32, the IRS said that it will treat the timely filing of Form 1065 by certain BBA partnerships as a timely and appropriately filed request for a six-month extension of the deadline to file the Form 1065. BBA partnerships that timely filed a Form 1065 and timely furnished all required Schedules K-1 (without regard to the extensions of time provided by Rev. Proc. 2019-32) may file a superseding Form 1065 and furnish corresponding Schedules K-1 before the expiration of the extended deadline.

The filing and furnishing extensions provided in Rev. Proc. 2019-32 are available only to BBA partnerships that timely filed a Form 1065 and timely furnished Schedules K-1 before the application of Rev. Proc. 2019-32, and also file a superseding Form 1065 and furnish corresponding Schedules K-1 on or before the date that is six months after the non-extended deadline. For purposes of Code Sec. 6222, the superseding return replaces any prior return for the tax year for purposes of determining the partnership's treatment of partnership-related items.

The filing and furnishing extensions provided in Rev. Proc. 2019-32 apply only to partnership tax years that ended before the issuance of Rev. Proc. 2019-32 and for which the extended due date is after July 25, 2019.

Compliance Tip: To take advantage of the relief provided by Rev. Proc. 2019-32, partnerships should file a superseding Form 1065 and furnish corresponding Schedules K-1 in the same manner as the original return and Schedules K-1 and write on top of the superseding Form 1065 "SUPERSEDING FORM 1065 PURSUANT TO REVENUE PROCEDURE 2019-32."

For a discussion of Form 1065 filing requirements, see Parker Tax ¶28,550.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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