The IRS has issued procedures for eligible partnerships to file amended income tax returns and partners’ Schedule K-1s in order to receive benefits under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Partnerships subject to the centralized partnership audit regime (BBA partnerships) that filed Form 1065 and gave partners’ Schedule K-1s for tax years beginning in 2018 or 2019 can file amended returns before September 30, 2020. Generally, BBA partnerships are prohibited from filing an amended return and are required to file an Administrative Adjustment Request (AAR).
This guidance allows BBA partnerships the option to file an amended return to accelerate the benefits under the CARES Act, instead of through an AAR. The AAR process would significantly delay any tax benefits the BBA partnership is entitled until the current year 2020 return is filed in year 2021. A BBA partnership that files an amended return pursuant to this guidance is still subject to the centralized partnership audit procedures enacted by the BBA.
Under the post-2017 audit regime provided by the Bipartisan Budget Act of 2015 (BBA), the IRS will audit all partnerships (domestic or foreign) and their partners and assess all taxes and penalties resulting from a partnership audit at the partnership level, unless the partnership has 100 or fewer qualifying partners and elects to opt out of the new audit regime. Specifically, under the new centralized partnership audit regime, the IRS will examine partnership-related items at the partnership level and make adjustments at the partnership level. A partnership-related item is any item or amount with respect to the partnership that is relevant in determining the income tax liability, including any imputed underpayment, interest, and penalties of any person.
Under this procedure, BBA partnerships have the option to amend their partnership tax return if they satisfy the eligibility requirements below for the applicable tax year beginning in 2018 or 2019:
- have not elected out of the BBA partnership audit regime;
- has timely filed Form 1065, U.S. Return of Partnership Income and required Schedules K-1; and
- timely file an amended return and schedules by September 30, 2020.
Please contact the Crosslin tax team to review your partnership return. Our team can help you determine if you qualify to amend your 2018 or 2019 tax return to apply for benefits under the CARES Act. We are here to help!