The IRS has granted relief to partnerships that did make the proper election allowed by the Centralized Partnership Audit Regime (the new partnership audit rules, CPAR) or which did not provide the information required by the CPAR such as the designation of the partnership representative. If a partnership filed its 2018 Form 1065 by March 15, 2019, and timely issued Schedule K-1s to its partners, or filed after that date but before the date of the issuance of Rev. Proc. 2019-32 (July 25, 2019), but did not make the CPAR election or include the requirement, it now has until Sept. 15, 2019, to file a superseding Form 1065 and include that election.
The CPAR essentially requires that, in the case of an increase in taxable income, the partnership at the time of the audit is responsible for the taxes on the changes—not the partners during the year being audited. Partnerships with fewer than 100 partners, and no ineligible partners, may elect out of this regime on an annual basis. Eligible partners include individuals, C corporations, S corporations and estates of deceased partners. Partnerships with foreign partners, single member LLCs or other partnerships as partners, and certain other partners cannot make the election. (For more information on electing out, see regulations under Section 301.6221(b).)
The election is made on Form 1065, Section B, question 25. If a partnership that qualifies did not make the election on a return filed prior to March 15, 2019, it should consider doing so under this new relief.
TXCPA’s Federal Tax Policy Committee recently commented to the IRS with concerns regarding the new tax basis reporting requirements in the 2018 Instructions to Form 1065.