A revenue procedure allows partnerships to amend their returns because the Coronavirus Aid, Relief, and Economic Security Act
, which President Donald Trump signed March 27, provides retroactive tax relief that affects partnerships, the government said. The Internal Revenue Code generally prevents partnerships from filing amended returns unless specifically authorized by Treasury."Without the option to file amended returns … partnerships that already filed their Forms 1065 for the affected years generally are unable to take advantage of the CARES Act relief for partnerships except by filing Administrative Adjustment Requests (AARs)," the government said.
The AAR process "would significantly delay the relief provided in the CARES Act intended to apply to the affected taxable years and provide an immediate benefit to taxpayers," the government said.
The taxation of partnerships has undergone significant changes since 2018. Before that year, partnerships were taxed under the Tax Equity and Fiscal Responsibility Act of 1982
, or TEFRA, under which the IRS had to go after the individual partners of a partnership when conducting an audit. TEFRA was replaced by the centralized partnership audit regime with the enactment of the Bipartisan Budget Act of 2015 , which has generally shifted the administrative burden so that partnerships now have to figure out and pay any tax liability.The centralized partnership audit regime falls under Sections 6221
through 6241 of the Internal Revenue Code, and a so-called BBA partnership's tax filing requirements are under Section 6031, the IRS said. Under Section 6031(a), a partnership must file a Form 1065 with Schedules K-1, which are then sent to each partner.Under the revenue procedure, BBA partnerships that properly filed a Form 1065 and provided all required Schedules K-1 in 2018 or 2019 are allowed to file amended partnership returns with adjusted Schedules K-1 before Sept. 30, 2020, the IRS said.
Amended returns can account for tax changes that resulted from the CARES Act and any other tax attributes a BBA partnership is entitled to take under the law, the government said. But filing an amended return will replace any prior tax return, including any administrative adjustment request, the IRS said.
To amend a return, a BBA partnership must file a Form 1065, include amended Schedules K-1 and clearly indicate that the partnership is using this revenue procedure by writing "Filed pursuant to Rev. Proc. 2020-23" at the top of the return, the government said. In an amended return, a partnership must attach a statement with each Schedule K-1 and then send those Schedules K-1 to its partners with the same notation, the revenue procedure said.
The amended return can be filed by mail or electronically, though electronic filing may result in faster processing of the return, the government said.
If a BBA partnership is under examination and wants to file an amended return, the partnership can do so only if it sends a notice in writing to its revenue agent that says it seeks to file an amended return, the revenue procedure said. Then the partnership must send a copy of the amended return to the revenue agent, the IRS said.
Under Section 6227,
a partnership can file an administrative adjustment request, but that generally only allows partners to receive tax benefits on the current taxable year's federal income tax return, the IRS said. Because a filed AAR has this time limitation, partners may not be able to use tax benefits from the CARES Act until they file current tax year returns, which could be 2021, which is why the government decided to allow partnerships to also file amended returns, the revenue procedure said.The revenue procedure does not prevent a partnership from filing an AAR, the revenue procedure said. If a partnership has previously filed an AAR and wants to file an amended return, the partnership should use the partnership items as adjusted in the AAR, the government said.
The revenue procedure also addressed how a partnership may have determined global, intangible low-taxed income under Section 951A
.In August the IRS issued Notice 2019-46,
which said partnerships that relied on proposed regulations for determining their GILTI income will not have to submit corrected tax information about their partners based on final rules that changed how GILTI inclusion is calculated.If, under Notice 2019-46, a BBA partnership applied the rules of the proposed GILTI regulations, it may continue to apply the rules when filing an amended Form 1065 as long as the partnership furnishes amended Schedules K-1 that are consistent with the proposed rules, the revenue procedure said. But nothing in the revenue procedure changes a partnership's obligation to share information as required by Notice 2019-46, the government said.
"If a partnership applies the final GILTI regulations ... any amended Schedules K-1 issued under this revenue procedure must be consistent with those final regulations," the revenue procedure said.
The IRS did not immediately respond to questions from Law360.
--Additional reporting by Natalie Olivo. Editing by Vincent Sherry.
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