A new IRS requirement slated for tax years beginning in 2018 requires partnerships to track and report negative tax basis capital, as defined by the IRS, to its partners and the IRS — or face penalties. However, on March 7, 2019, the IRS issued Notice 2019-20, stating a partnership will not be penalized for providing an incomplete or inaccurate return if it issues K-1s to its partners without the new disclosure, as long as it meets certain requirements.
Specifically, the notice states a partnership is entitled to an automatic waiver of the potential penalties if two requirements are met:
- Partner Schedule K-1s are timely filed (including extensions) and include all other necessary information, and
- The partnership provides the negative tax basis capital information to the IRS no later than 180 days after the six-month extended due date for the partnership’s Form 1065. For a calendar-year partnership, the negative tax basis capital information must be provided no later than March 15, 2020.
It may not be readily apparent whether or not a partnership has negative tax basis capital. Consequently, it’s imperative for all partnerships that report capital accounts on K-1s on any basis other than tax basis to conduct an analysis to determine if negative tax basis capital exists. In most cases the analysis and preparation of the proper reports for the IRS will require significant time on the part of your tax advisors. Talk with your tax service team to learn more about this rule or to begin the analysis process.
Please contact a member of your service team, or contact Tony Bakale at firstname.lastname@example.org for further discussion.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.