IRS Expands Relief for Late Actions by Partnerships and Certain Other Entities

(Parker Tax Publishing December 2017)

The IRS issued guidance which provides that any act performed for the 2016 tax year of a partnership, real estate mortgage investment conduit (REMIC), or certain other entities will be treated as timely for all purposes under the Code, except with respect to interest under Code Sec. 6601, in situations where the act would have been timely if the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 had not changed the due date for partnership and certain other returns. This guidance supersedes Notice 2017-47, which gave only partial relief for 2016 late filings. Notice 2017-71.

Background

The Surface Transportation Act amended Code Sec. 6072 and changed the date by which a partnership must file its annual return with the IRS. The due date for filing the annual return of a partnership changed from the fifteenth day of the fourth month following the close of the tax year (April 15 for calendar-year taxpayers) to the fifteenth day of the third month following the close of the tax year (March 15 for calendar-year taxpayers). The new due date applies to the returns of a partnership for tax years beginning after December 31, 2015.

While a real estate mortgage investment conduit (REMIC) is not a partnership, it is generally treated as a partnership under Code Sec. 860F(e) for purposes of subtitle F, Procedure and Administration, of the Code. For example, under Reg. Sec. 1.860F-4(b)(1), the due date and availability of any extension of time for filing a REMIC's annual return are determined as if the REMIC were a partnership. As a result, the new due date enacted under the Surface Transportation Ace also applies to the returns of a REMIC for tax years beginning after December 31, 2015. Further, the due date for the return of a bank with respect to a common trust fund, commonly filed on Form 1065, is administratively tied to the due date of the return of a partnership. Similarly, under Reg. Sec. 1.6033-2T(e), the annual return filed by a religious or apostolic association or corporation on Form 1065 is to be filed on the due date of a partnership return. Other returns affected by the due date change in the Surface Transportation Act are Form 1065 B, U.S. Return of Income for Electing Large Partnerships; Schedules K-1 of Form 1065; Form 8804, Annual Return for Partnership Withholding Tax (Section 1446); and Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax. 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 1065-B.

A partnership can obtain a six-month extension of time to file Forms 1065, 1065 B, or 8804, and a REMIC can obtain a six-month extension of time to file 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. A partnership that receives an extension of time to file Form 1065 receives a concurrent extension of time to furnish its partners with Schedules K-1. Also, a partnership that receives an extension of time to file Form 8804 receives a concurrent extension of time to file Forms 8805 and to furnish respective copies of the Forms 8805 to its partners. The six-month extension may apply to additional returns that a partnership may be required to file by the due date of its Form 1065 or 1065-B, but it does not affect the due date for a partnership filing Form 1065-B to furnish its partners with Schedules K-1.

Compliance Tip: An entity that fails to timely meet its obligations to file and furnish returns is subject to penalties. An entity that fails to file Form 1065, 1065-B, 1066, or 8804 by the due date (with regard to extensions) is subject to penalty under Code Sec. 6698 or Code Sec. 6651. A partnership that fails to file Forms 8805 by the due date (with regard to extensions) is subject to penalty under Code Sec. 6721. A partnership that fails to furnish Schedules K 1 or the partner copies of Forms 8805 by the due date is subject to penalty under Code Sec. 6722. A partnership that fails to file Form 5471 by the due date is subject to penalty under Code Sec. 6038 or Code Sec. 6679. An entity that fails to file additional documents that it is required to file by the due date of its Form 1065, 1065-B, or 1066 may also be subject to other penalties.

Observation: In addition to the obligation to file returns with the IRS and furnish copies to recipients, an entity may be required to take various other actions, such as making elections (e.g., an election under Code Sec. 475(e) to elect mark-to-market accounting), contributing to an employee pension plan, or paying tax, by the due date of its return, either with or without regard to any extension of time to file, depending upon the particular action.

In Notice 2017-47, the IRS provided penalty relief to partnerships and REMICs that filed 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. The relief was 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 was tied to the due date of Form 1065 or Form 1065-B.

Relief under Notice 2017-71

In Notice 2017-71, the IRS has expanded the penalty relief first issued in Notice 2017-47 to include additional acts, and not just the acts of filing a return or an extension request. According to Notice 2017-71, the IRS will treat acts of any (1) partnership, (2) REMIC, or (3) entity that may properly file a Form 1065 - such as a bank (with respect to the return of a common trust fund), or a religious or apostolic association or corporation - and in fact filed a Form 1065, as timely for the first tax year that began after December 31, 2015, and ended before January 1, 2017, if the entity took the act 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). However, the entity will be liable for any interest due under Code Sec. 6601 from the date prescribed for payment until the date the payment was actually made.

Procedures for Entities That Have Already Been Assessed a Penalty

An entity that has already been assessed a penalty for failure to timely file a return that is deemed timely filed under Notice 2017-71 can expect to receive a letter within several months after November 30, 2017, notifying it that the penalty has been abated. For other acts deemed timely under Notice 2017-71, such as elections, an entity should file its returns consistent with the treatment of the acts as being performed timely as provided by Notice 2017-71, and need not take further action to obtain relief unless contacted by the IRS.

For reconsideration of a penalty covered by Notice 2017-71 that has not been abated by February 28, 2018, taxpayers should contact the number listed in the letter that notifying the taxpayer of the penalty or should call (800) 829-0115 and state that relief is being requested under Notice 2017-71.

Taxpayers who qualify for relief under Notice 2017-71 will not be treated as having received a first-time abatement under the IRS's administrative penalty waiver program.

Notice 2017-71 supersedes Notice 2017-47.

For a discussion of filing dates for partnership and REMIC tax 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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