Clarity Over Speed: IRS Delays Requirements for Some Proposed Changes to Form 1065 and Schedule K-1

By Michael W. Hurwitz  |  December 18, 2019

Many readers of our firm’s coverage of changes to Federal Form 1065 and Schedule K-1 will have noted the article I co-wrote entitled “The Future of Disruption,” dated November 22 and published in the fall issue of the Marks Paneth Real Estate Newsletter. In the article, I wrote,The Internal Revenue Service (IRS) recently issued draft versions of the 2019 Federal Form 1065 (U.S. Return of Partnership Income) and the Schedule K-1 (Partner’s Share of Income Deduction Credit, etc.). There are several significant proposed changes aimed to enhance the quality, transparency, and availability of the information reported by partnerships to the IRS and the partners of such business entities.” And, “The forms and related schedules are near completion, and we understand updated final versions will be released before the New Year.”

Well, that New Year is upon us, but with its advent comes news of a welcomed delay in the issuance of those final forms. The IRS, in its Notice 2019-66, states that:

“The reporting of positive tax basis capital accounts is not required until 2020 partnership taxable years…” meaning next year’s partnership returns, and, “Net Unrecognized IRC Section 704(c) Gain or Loss Defined; Publicly Traded Partnerships not Required to Report Net Unrecognized IRC Section 704(c) Gain or Loss; and, Certain Reporting of IRC Section 465 At-Risk Activities not Required to Report until 2020 Partnership Taxable Years. This Notice also provides that the requirement added by the draft instructions for 2019 for partnerships to report to partners information about separate ‘Section 465 at-risk activities’, will not be effective until 2020. Finally, the Notice provides relief from certain reporting penalties imposed by the Internal Revenue Code.” 

Directors and partners in partnerships would be wise to gain a thorough understanding of the impact of this Notice by speaking with their tax advisors. While the delay provides some relief to filers (and their accountants!), the underlying reasons behind the changes to Federal Form 1065 and Schedule K-1 remain the same. Here’s a synopsis I’ve been sharing with Marks Paneth clients.

  • The changes to Form 1065 and Schedule K-1 are clearly aimed to improve the quality of information reported by partnerships both to the IRS and to the partners of such entities.
  • The changes also reflect updates consistent with changes resulting from the Tax Cuts and Jobs Act.
  • The additional information requested is also intended to aid the IRS in assessing compliance risk and identifying potential noncompliance while ensuring that compliant taxpayers are less likely to be examined.
  • The IRS believes that these changes to Form 1065 and Schedule K-1 will improve tax administration in the partnership arena.

What’s the old adage? “The more things change the more they stay the same!” Or is it the Army adage, “Hurry up and wait”? There is some truth to both here, to be certain. As I see it, the goal of the IRS is admirable. Partnership tax returns are important, and isn’t it a good thing to make the rules and requirements easier for filers to follow, and easier for the Service to monitor?

I’d like to hear what you think about these changes and their timing – feel free to reach out to me to keep the conversation going!

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About Michael W. Hurwitz

Michael W. Hurwitz, CPA, MST, is a Partner and REIT Group Leader at Marks Paneth LLP. Mr. Hurwitz brings more than 30 years of experience and a versatile set of skills acquired through working for both public and private companies in the real estate sector.   His industry knowledge spans a vast number of areas including real estate tax issues, public and private real estate investment trusts (REITs), opportunity funds, portfolio restructurings, acquisitions and dispositions, partnership... READ MORE +

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