IRS Offers Relief for Partnerships, REMICS, and Partners That Missed New Return Due Dates

(Parker Tax Publishing September 2017)

The IRS is providing penalty relief to partnerships and real estate mortgage investment conduits (REMICs) that filed certain untimely returns or untimely requests for extension of time to file those returns as a result of changes to tax return due dates that were made by the Surface Transportation Act of 2015. The relief is granted automatically for penalties for failure to timely file Forms 1065, 1065-B, 8804, 8805, 1066, and any other returns, such as Form 5471, for which the due date is tied to the due date of Form 1065 or Form 1065-B. Notice 2017-47.

Background

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Surface Transportation Act) amended Code Sec. 6072 and changed the date by which a partnership must file its annual return. The due date for filing partnership and real estate mortgage investment conduit (REMIC) tax returns changed from the 15th day of the fourth month following the close of the tax year (i.e., April 15 for calendar-year taxpayers) to the 15th day of the third month following the close of the tax year (i.e., March 15 for calendar-year taxpayers). The new due date applies to the returns of partnerships and REMICs for tax years beginning after December 31, 2015.

Partnerships filing Form 1065, U.S. Return of Partnership Income, and Form 1065 B, U.S. Return of Income for Electing Large Partnerships, as well as REMICs filing Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return, are affected by the Surface Transportation Act amendment. The partnerships may also file Form 8804, Annual Return for Partnership Withholding Tax (Section 1446), and Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, which are generally due to the IRS on the same date as the partnership's Form 1065 or Form 1065-B. Filers of Form 1065 must furnish their partners with Schedules K-1, Partner's Share of Income, Deductions, Credits, etc., by the due date of the Form 1065, and filers of Form 1065-B must furnish their partners with Schedules K-1 by the first March 15 following the close of the partnership's tax year. Filers of Form 8804 that are required to file Forms 8805 must also furnish their partners with their respective copies of Forms 8805 by the due date of the Form 8804. Some partnerships must also file additional returns, such as Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, by the due date of the Form 1065 or Form 1065-B.

Partnerships and REMICs can obtain a six-month extension of time to file Form 1065, Form 1065 B, Form 8804, and Form 1066 by filing Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, by the statutory due date of those returns. Partnerships that receive an extension of time to file Form 1065 receive a concurrent extension of time to furnish their partners with Schedules K-1. Also, partnerships that receive an extension of time to file Form 8804 receive concurrent extensions of time to file Forms 8805 and to furnish respective copies of the Forms 8805 to their partners. The six-month extension may apply to additional returns that partnerships may be required to file by the due date of their Forms 1065 or 1065-B, but it does not affect the due date for partnerships filing Form 1065-B to furnish their partners with Schedules K-1

Partnerships and REMICs that fail to timely meet their obligations to file and furnish returns are subject to penalties. Partnerships and REMICs that fail to file Form 1065, Form 1065-B, Form 8804, or Form 1066 by the due date (with regard to extensions) are subject to penalty under Code Sec. 6698 or Code Sec. 6651. Partnerships that fail to file Forms 8805 by the due date (with regard to extensions) are subject to penalty under Code Sec. 6721. Partnerships that fail to furnish Schedules K 1 or the partner copies of Forms 8805 by the due date are subject to penalty under Code Sec. 6722. Partnerships that fail to file Form 5471 by the due date are subject to penalty under Code Sec. 6038 or Code Sec. 6679. Partnerships that fail to file additional returns that they are required to file by the due date of their Forms 1065 or 1065-B may also be subject to other penalties.

Issue

Many partnerships and REMICs filed the returns discussed above or Form 7004 for the first tax year beginning after December 31, 2015, by the date previously required by Code Sec. 6072; thus, the returns were filed late. If not for the Surface Transportation Act, these returns and requests for extension of time to file would have been timely.

IRS Relief

The IRS will grant relief from the penalties described above for any return described above for the first tax year of any partnership that began after December 31, 2015, if the following conditions are satisfied:

(1) the partnership or REMIC filed the Form 1065, 1065-B, 8804, 8805, 5471, or other return required to be filed with the IRS and furnished copies (or Schedules K-1) to the partners (as appropriate) by the date that would have been timely under Code Sec. 6072 before amendment by the Surface Transportation Act (April 18, 2017, for calendar-year taxpayers, because April 15 was a Saturday and April 17 was a legal holiday in the District of Columbia), or

(2) the partnership or REMIC filed Form 7004 to request an extension of time to file by the date that would have been timely under Code Sec. 6072 before amendment by the Surface Transportation Act and files the return with the IRS and furnishes copies (or Schedules K-1) to the partners (as appropriate) by the fifteenth day of the ninth month after the close of the partnership's taxable year (September 15, 2017, for calendar-year taxpayers). If the partnership files Form 1065-B and was required to furnish Schedules K-1 to the partners by March 15, 2017, it must have done so to qualify for relief.

The relief under Notice 2017-47 is granted automatically for penalties for failure to timely file Forms 1065, 1065-B, 8804, 8805, 1066, and any other returns, such as Form 5471, for which the due date is tied to the due date of Form 1065 or Form 1065-B. Partnerships and REMICs 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 reconsideration of a penalty covered by Notice 2017-47 that has not been abated by February 28, 2018, taxpayers should contact the number listed in the letter that notified the taxpayer of the penalty or call (800) 829-1040 and ask for relief under Notice 2017-47. Taxpayers who qualify for relief under Notice 2017-47 will not be treated as having received a first-time abatement under the IRS's administrative penalty waiver program.

For a discussion of the due dates for partnership and REMIC tax returns and the penalties for late filing of those returns, see Parker Tax ¶28,550 and ¶49,135, respectively.

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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