Expertise Beyond the Numbers

IRS Allowing Partnerships to File Amended 2018/2019 Tax Returns as Result of CARES Act

SC&H’s Key Takeaways

  • The CARES Act makes changes to the tax code that may be advantageous to businesses.
  • Partnerships are generally limited in their ability to amend prior year tax returns to take advantage of CARES Act changes.
  • The IRS recently released Revenue Procedures 2020-23 to make the amendment process easier for CARES act provisions.

In an effort to streamline the economic benefits of the CARES Act, the IRS is allowing partnerships to file an amended partnership tax returns for 2018 and / or 2019. Absent this Revenue Procedure partnerships and their partners would need to follow a much longer process to take advantage of the CARES Act benefits.

Background

The Bipartisan Budget Act (BBA) of 2015 centralized partnership audit regime drastically changed the way partnership returns are amended or otherwise corrected either voluntarily by the taxpayer or by the IRS as the result of an audit. Partnerships subject to the BBA (BBA Partnerships) are generally prohibited from amending their tax returns. Instead, they must follow a new set of complex procedures to make corrections to Form 1065 which includes filing an Administrative Adjustment Request (AAR) and other forms. In order to quickly provide tax relief, the IRS is relaxing these changes for a finite window of time and allowing amended partnership returns.

New Developments

To take advantage of Revenue Procedure 2020-23 BBA Partnership must file amended partnership returns for 2018 and/or 2019 and furnish corresponding Schedules K-1 no later than September 29, 2020. The Form 1065 (with the amended return box checked)  must clearly indicate the application of this revenue procedure by including the phrase  “FILED PURSUANT TO REV PROC 202023” at the top of the amended return and attaching a statement with each Schedule K-1 sent to its partners with the same notation.

The alternative to amending returns prior to September 30, 2020 would be to include the CARES Act changes on an AAR in which case partners would likely not see benefit until 2021 when partners file their 2020 individual tax return. Partnerships might also file a Form 3115, Change in Accounting Method for 2019 if they have not filed their 2019 tax return. The 3115 would allow a “catch-up” in the filing year. Partnerships will want to carefully weigh these various correction methods to determine the most advantageous approach.

Some additional considerations:

  • The amended return may be filed via mail or electronically filed.
  • The amended return can take into consideration the CARES Act and any other tax attribute.
  • If the return that is to be amended is under examination, then the Partnership Representative must first contact the examining agent for the proper procedures in submitting the amended return.
  • If the BBA Partnership had already submitted an AAR for the year in which an amended return is needed, then amended return should use the data from the AAR in lieu of the original return.
  • This revenue procedure is available to BBA Partnerships subject to GILTI Regulations. Those taxpayers should discuss their situation with their tax advisor.

Conclusions

Partnership managing members should discuss with their tax advisors the various aspects of the CARES Act which are retroactive to 2018 or which are effective for a 2019 return that had already been filed without consideration because it was prior to the enactment of the CARES ACT. Attention should be given to timing, the tax and economic impact to individual partners and the interplay with individual tax law changes (i.e. the ability to carryback Net Operating Losses) to ensure maximum benefit to all.

SC&H Group’s Tax team continues to keep a close watch on updates as they take place. If you have any questions on how these changes apply to your organization, please reach out to our team today.