Penalty Reliefs for Partnerships

October 01, 2017
New IRS Guidance Helps Many Partnerships

By Stuart R. Josephs, CPA
IRS Notice 2017-47 (IRB 2017-38, Sept. 18, 2017) provides penalty relief to partnerships that filed certain untimely returns or untimely extension requests to file those returns for their first tax year beginning after 2015, by the 15th day of the fourth month following that tax year’s close. 

Background 
The 2015 Surface Transportation and Veterans Health Care Choice Improvement Act (the Act), P.L. 114-41, amended IRC Sec. 6072 to change the date by which a partnership must file its annual return. Its due date changed from the 15th day of the fourth month following the tax year’s close, April 15 for calendar-year partnerships, to the 15th day of the third month following the tax year’s close, March 15 for calendar-year partnerships.  

This new due date applies to partnership returns for tax years beginning after 2015. (See October 2015 California CPA, Page 23.) Partnerships filing the following types of returns are affected by the Act’s amendment:
  • Form 1065, U.S. Return of Partnership Income; and
  • Form 1065-B, U.S. Return of Income for Electing Large Partnerships.
The partnerships also may file:
  • Form 8804, Annual Return for Partnership Withholding Tax (Sec. 1446); and
  • Form 8805, Foreign Partner’s Information Statement of Sec. 1446 Withholding Tax.
These forms, generally, are due to the IRS on the same date as Form 1065 or 1065-B.

Form 1065 filers must furnish their partners with Schedules K-1, “Partner’s Share of Income, Deductions, Credits, etc.” by Form’s 1065’s due date. Form 1065-B filers must furnish their partners with Schedules K-1 by the first March 15 following the partnership’s tax year’s close. Form 8804 filers required to file Forms 8805 also must furnish their partners with their respective copies of Forms 8805 by Form’s 8804’s due date.

Some partnerships also must file additional returns, such as Form 5471, “Information Return of U.S. Persons With Respect to Certain Foreign Corporations” by the due date of Form 1065 or 1065-B.

Six-Month Extensions  
Partnerships can obtain a six-month extension to file Forms 1065, 1065-B or 8804 by filing Form 7004, “Application for Automatic Extension of Time to File Certain Business Income Tax, Information and Other Returns” by the statutory due date of those returns. Partnerships receiving an extension to file Form 1065 receive a concurrent extension to furnish Schedules K-1 to their partners. Also, partnerships receiving an extension to file Form 8804 receive concurrent extensions to file Form 8805 and furnish copies of these forms to their partners.

This six-month extension may apply to additional returns that partnerships may be required to file by the due date of their forms 1065 or 1065-B, but it does not affect the due date for partnerships filing Form 1065-B to furnish their partners with Schedules K-1.

Late Filing Penalties  
Partnerships failing to file Form 1065, 1065B or 8804 by the due date, including extensions, are subject to penalties under secs. 6698 or 6651. Partnerships failing to file Form 8805 by the due date, including extensions, are subject to penalty under Sec. 6721. Partnerships failing to furnish Schedules K-1 or the partner copies of Form 8805 by the due date are subject to penalty under Sec. 6722.

Partnerships failing to file Form 5471 by the due date are subject to penalties under secs. 6038 or 6679. Partnerships failing to file additional returns that they must file by the due date of their forms 1065 or 1065-B also may be subject to other penalties

Problem 
Many partnerships filed the returns discussed above or Form 7004 for their first tax-year beginning after 2015 by the date previously required by Sec. 6072. If not for the Act, these returns and extension requests would have been timely.

IRS Solution  
The IRS will grant relief from the penalties described above for any return described above for any partnership’s first tax year beginning after 2015 if the following conditions are satisfied:
  1. The partnership filed the Form 1065, 1065-B, 8804, 8805, 5471 or other return required to be filed with the IRS and furnished copies or Schedules K-1 to the partners, as appropriate, by the date that would have been timely under Sec. 6072 before the Act’s Amendment—April 18, 2017, for calendar-year, partnerships; or
  2. The partnership filed Form 7004 by the date that would have been timely under Sec. 6072 before the Act’s Amendment and files the return with the IRS and furnishes copies or Schedules K-1 to the partners, as appropriate, by the 15th day of the ninth month after the close of the partnership’s tax year—Sept. 15, 2017, for calendar-year partnerships. If the partnership files Form 1065-B and was required to furnish Schedules K-1 to the partners by March 15, 2017, it must have done so to qualify for relief.  

Stuart R. Josephs, CPA has a San Diego-based Tax Assistance Practice that specializes in assisting practitioners in resolving their clients’ tax questions and problems. He is chair of the Federal Subcommittee of CalCPA’s Committee on Taxation.



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