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IRS Delays Tax Basis Capital Reporting Requirement for Partnerships to 2020

On December 9, 2019, the IRS released Notice 2019-66 informing taxpayers that the requirement to report partners’ shares of partnership capital on the tax basis method will not be effective for 2019 but will be effective beginning in 2020.

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Insights  <  IRS Delays Tax Basis Capital Reporting Requirement for Partnerships to 2020

On December 9, 2019, the IRS released Notice 2019-66 informing taxpayers that the requirement to report partners’ shares of partnership capital on the tax basis method will not be effective for 2019 but will be effective beginning in 2020.

On November 19, 2019, we alerted you to new reporting requirements for partnerships for tax year 2019. One of the most significant changes is the requirement that ALL partnerships report partners’ capital accounts on a tax basis. Previously, partnerships could present partner capital accounts on Schedule K-1 on a tax, GAAP, 704(b) or other method and simply check the box noting the selected method. 

On December 9, 2019, the IRS released Notice 2019-66 informing taxpayers that the requirement to report partners’ shares of partnership capital on the tax basis method will not be effective for 2019 but will be effective beginning in 2020The IRS noted that the delay in the requirement was in response to concerns that partnerships may be unable to timely comply with the requirement to report partner capital on the tax basis method for 2019. This means that for tax year 2019, partnerships may continue to report partner capital accounts on Schedule K-1, using any method that was available in 2018 (tax basis, Section 704(b), GAAP or any other method). The Notice emphasizes that the 2018 requirement to report negative tax basis capital accounts on a partner-by-partner basis will continue to be applicable in 2019.  

As we noted in the November 19 alert, in order to establish the current tax basis capital accounts of their partners, partnerships will need to recalculate their partners’ historical capital accounts utilizing income tax principles. While the IRS is providing a oneyear delay due to concerns of partnerships to timely comply, we would encourage partnerships to actively address this issue as soon as possible to ensure timely compliance for the 2020 requirement.   

Please reach out to your blum engagement team to discuss what may be needed to bring your partnership into compliance.   

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