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CARES ACT: IRS Releases Guidance Allowing Partnerships to Amend 2018 and 2019 Tax Returns

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Today, April 8, 2020, the IRS released Rev. Proc. 2020-23 which will allow partnerships to amend their 2018 and 2019 tax returns, allowing partnerships to retroactively take advantage of new tax breaks for years in which they have already filed.

Background

The CARES Act included a technical correction that retroactively changed the recovery period for qualified improvement property (QIP) from 39 years to 15 years, thereby allowing it to qualify for bonus depreciation.  However, partnerships subject to the centralized audit regime (BBA Partnerships) cannot file amended returns to take advantage of the retroactive legislation. Instead, they would generally be required to file an Administrative Adjustment Request (AAR) which would result in only the partners’ being able to receive any benefit from the CARES Act QIP retroactive relief on the current year (2020) federal income tax return, delaying the relief for the partners’ until 2021 (when they would file their 2020 returns). Therefore, on April 8, 2020, the IRS released Rev. Proc. 2020-23 to provide relief to those affected partnerships and provides the following:

  • The Rev. Proc allows “eligible partnerships” to file amended returns for tax years beginning in 2018 and 2019. The amended returns need to be filed before September 30, 2020.
  • The partnership should file a Form 1065 with the “Amended Return” box checked as well as issue an amended K-1 to each of its partners. The BBA partnership should clearly indicate the application of the Rev. Proc. on the amended return and write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended return and attach a statement with each Schedule K-1 sent to its partners with the same notation.
  • BBA Partnerships are not prevented from filing an AAR if they prefer to do so.
  • Eligible partnerships are defined as BBA partnerships that filed Forms 1065 and furnished Schedules K-1 for the partnership taxable years beginning in 2018 or 2019 prior to the issuance of this revenue procedure. Therefore, you should be careful not to file BBA partnership returns going forward that do not take into account the CARES Act provisions as returns filed after April 7, 2020 will not be eligible for the amended return relief. AARs will need to be filed for those returns.
  • There are special rules for BBA partnerships whose returns are under examination or have previously filed an AAR.
  • International Considerations – GILTI (global intangible low-taxed income) inclusions: Under Final regulations §1.951A-1, partnerships with GILTI amounts are not to include these amounts at the partnership level rather to pass through the information to the partners to determine if they have a GILTI inclusion (must be a 10% U.S. shareholder to have the inclusion). However, some returns had been issued by the time the regulations went final. Notice 2019-46 allowed for partnership that had applied the proposed rules under §1.951A-5 to continue to file as reported and calculate GILTI at the partnership level.This notice allows that if a partnership files an amended return and has followed Notice 2019-46 they may choose to continue to follow that notice, as long as they provide appropriate notifications to its partners under the principles of section 5.01 of Notice 2019-46 within the period described in section 3.02 of this revenue procedure.

The Rev. Proc. provides that the amended returns for 2018 and 2019 can take into account tax changes brought about by the CARES Act as well as any other tax attributes to which the partnership is entitled by law.

Many tax professionals were hoping that the IRS would also issue guidance to allow businesses who made the irrevocable electing real property trade or business election to reassess their election (due to the QIP changes). On April 10th, the IRS provided that relief in Rev. Proc. 2020-22 allowing taxpayers who made the electing real property trade or business election in 2018, 2019, or 2020 to withdraw that election. Generally, taxpayers wishing to withdraw the election must file an amended Federal income tax return, amended Form 1065, or Administrative Adjustment Request (as applicable) for the taxable year in which the election was made.

We will continue to keep you apprised as additional information and guidance is provided. If you have specific questions, please reach out to your blum partner or contact us here.

 
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Disclaimer:  The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.

Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law. 

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