IRS Provides Temporary CARES Act Filing Relief to BBA Partnerships
The IRS has issued guidance allowing BBA partnerships to claim tax benefits provided under the CARES Act immediately, placing such partnerships on similar footing as corporations
- IRS guidance allows eligible BBA partnerships that filed 2018 or 2019 returns before April 8, 2020 to take advantage of immediate CARES Act tax relief provisions by allowing amended partnership returns for such years
- Amended returns can take into account not only CARES Act relief, but any other adjustments to the partnership’s return
- Amended returns must be filed by September 30, 2020
On April 8, 2020, the IRS issued Revenue Procedure 2020-23 giving Bipartisan Budget Act of 2015 (BBA) partnerships a temporary window to file amended returns (instead of administrative adjustment requests) for their 2018 and 2019 tax years. This procedural fix will allow eligible BBA partnerships to immediately claim tax benefits under the Coronavirus Aid, Relief, and Economic Security Act passed on March 27, 2020 (CARES Act). Of course, actual tax refunds stemming from these benefits must be claimed on amended returns filed by the partners, taking into account the changes in the revised Schedules K-1 issued in conjunction with the amended partnership return.
Under the centralized audit regime of the BBA, effective beginning with the 2018 tax year, a BBA partnership may not file an amended return. Instead, it must file an administrative adjustment request (AAR). When the adjustments in an AAR do not result in a tax underpayment (adjustments claiming CARES Act relief generally would not), the IRS asserts that tax refunds will not be issued but instead those tax benefits can be claimed only as negative adjustments to the partners’ current year tax liabilities. If the negative adjustments exceed a partner’s current tax year liability, the tax benefits would be lost. For this reason, there was significant concern prior to this temporary relief that businesses conducted in entities taxed as partnerships would not be able to benefit from many of the tax provisions provided under the CARES Act. For example, absent IRS relief, partnerships would likely not have been able to take advantage of a CARES Act technical correction retroactively allowing qualified improvement property (QIP) to qualify for 100% bonus depreciation or alternatively reducing the depreciable life of QIP from 39 years to 20 years.
Relief Provided by Rev. Proc. 2020-23
In Rev. Proc. 2020-23, the IRS rectified this problem by allowing BBA partnerships to file amended returns for tax years ending in 2018 and 2019. The relief is available only to those partnerships that have not elected out of BBA treatment and have filed both Form 1065 and all required Schedules K-1 for their tax years beginning in 2018 or 2019 before April 8, 2020. While this relief is intended to allow partners to take advantage of benefits afforded under the CARES Act through refunds for 2018 and 2019 tax years, it is not limited to CARES Act relief—meaning partnerships may make other adjustments to their originally filed returns on these amended returns.
Partnerships amend their returns by submitting Form 1065, U.S. Return of Partnership Income, with the “Amended Return” box checked, and by issuing amended Schedules K-1 to partners. Partnerships whose returns are under audit must notify the agent examining their return if they want to file an amended return and must provide a copy of the amended return to the examining agent. Rev. Proc. 2020-23 relief is available only for original returns filed prior to April 8, 2020. However, partnerships that have not yet filed their 2019 returns may claim CARES Act relief when they file original returns.
Amended partnership returns made pursuant to Rev. Proc. 2020-23 must be filed by September 30, 2020.
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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.