Partnership Tax Reporting Changes
December 3, 2019 | Amber Mueller
The IRS has released draft forms of the 2019 partnership return and partnership K-1. Where previously partnerships had the option of reporting a partner’s capital accounts on IRC section 704(b), GAAP, tax or other basis, now partnerships are required to report a partner’s capital accounts on the K-1s on tax basis.
The tax capital K-1 reporting requirement was in effect for 2018 only if a partner’s capital account went negative. For 2019 and future years, this is a requirement regardless of whether the capital account is negative or not. The IRS has provided no safe harbor for computing tax basis capital, and the partnership may need to go back to formation to compute its tax basis capital. For many this will only cause some additional extra work, but for others going back to formation to roll forward tax basis capital will be time consuming.
For those partnerships whose capital accounts went negative in 2018 and were required to disclose beginning and ending tax basis capital accounts but were unable to disclose due to inadequate notice from the IRS, the service has offered a relief from penalties. The partnership must send in a statement, before March 15, 2020, with the partnership’s name and EIN, the partners’ names, addresses and taxpayer identification numbers and each respective tax basis capital account balance at the beginning and the end of the year. The partnership should note on the statement “Filed Under Notice 2019-20.”
Other new additions to the partnership K-1s in 2019 are to Part II for the reporting of 704(C) gains and losses (i.e. contributions of appreciated property), additional information to report when K-1s are issued to disregarded entities (i.e. single member entities), and boxes to indicate if the partnership has more than one activity for at-risk purposes and/or passive activity purposes.
Please consult your tax advisor for additional information regarding the new K-1 discloses and reporting relief under Notice 2019-20.