Article

New Reporting Requirements for Partnerships for 2019

Now is the best time to address these issues so that your partnership returns can be filed timely and accurately.

Contact Us
< Back to Insights
Insights  <  New Reporting Requirements for Partnerships for 2019

Now is the best time to address these issues so that your partnership returns can be filed timely and accurately.

On September 30, 2019, the Internal Revenue Service (“IRS”) released drafts of the 2019 Form 1065 (U.S. Return of Partnership Income), and its Schedule K-1 (Partner’s Share of Income, Deductions, Credits). The forms and schedules are near-final, and the final, updated versions will be released in December. Several changes have been made to the forms, especially to the Schedules K-1.[1] One of the most significant changes is the requirement that 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. In 2018, the IRS began requiring that partnerships disclose partners’ tax basis capital accounts when the tax basis capital accounts were negative. The new Schedule K-1 will now require ALL partnerships to report all partner capital accounts on a tax basis. Historically, the responsibility to track the tax basis generally fell on the partners. With this new requirement, the IRS has now shifted that responsibility to the partnership.

It appears that this new requirement is in line with the IRS’s ongoing attempt to better identify situations that are at higher risk for noncompliance.

The new tax basis capital account requirement will likely add a significant amount of time to the tax compliance and reporting process. In order to establish the current tax basis capital accounts of its partners, partnerships will need to recalculate its partners’ historical capital accounts utilizing income tax principles. Now is the best time to address these issues so that your partnership returns can be filed timely and accurately. Please reach out to your blum engagement team to discuss what may be needed to bring your partnership into compliance.

 

[1] Other significant changes include (but are not limited to) new reporting requirements relating to:

  • Each partner’s share of net unrecognized §704(c) gain or loss (resulting from contributions and revaluations of appreciated or depreciated property) at the beginning and end of the year
  • 751 “hot” asset gain or loss
  • Separate reporting of guaranteed payments for services and guaranteed payments for the use of capital
  • Partners who are disregarded entities
  • Partnership liabilities
  • Changes to a partner’s profit, loss, or capital
  • Aggregation of activities for at-risk (§465) or passive activity purposes (§469)

Disclaimer: 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.

Continue the Conversation with Our Team
Get in touch with us.

Contact Us