Partnership capital reporting requirements postponed until 2020

By Sally P. Schreiber, J.D.

Responding to concerns that some partnerships required to report capital account information may be unable to comply, the IRS is postponing the requirement to report partners’ shares of partnership capital on the tax-basis method for 2019 (for partnership tax years beginning in calendar 2019) until 2020 (for partnership tax years that begin on or after Jan. 1, 2020) (Notice 2019-66).

For 2019, partnerships and other persons must report partner capital accounts consistent with the reporting requirements in the 2018 forms and instructions, including the requirement to report negative tax basis capital accounts on a partner-by-partner basis. This means that for 2019 taxpayers may continue to report capital accounts under any method available in 2018, which includes the tax basis, Sec. 704(b), GAAP, or any other reasonable method.

The IRS also further explained the 2019 requirement for partnerships and other persons to report a partner’s share of net unrecognized Sec. 704(c) gain or loss by defining this term in the notice. Solely to complete the 2019 Forms 1065, U.S. Return of Partnership Income; Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., Item N; and Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, Schedule K-1, Item G, the notice defines a partner’s share of “net unrecognized Section 704(c) gain or loss” as the partner’s share of the net (i.e., aggregate or sum) of all unrecognized gains or losses under Sec. 704(c) in partnership property, including Sec. 704(c) gains and losses arising from revaluations of partnership property.

Additionally, publicly traded partnerships are exempt from the requirement to report their partners’ shares of net unrecognized Sec. 704(c) gain or loss until further notice.

This notice also explains that the requirement in the 2019 draft instructions requiring partnerships to report to partners information about separate Sec. 465 at-risk activities will not be effective until 2020.

Finally, partnerships that comply with the reporting requirements in the notice will not be subject to any penalties, including a Sec. 6722 penalty for failure to furnish correct payee statements, a Sec. 6698 penalty for failure to file a partnership return that shows required information, or a Sec. 6038 penalty for failure to furnish information required on a Schedule K-1 (Form 8865).

Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.

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