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Relief Provided for Missing Negative Tax Basis Capital Account Info

MAR. 7, 2019

Notice 2019-20; 2019-13 IRB 1

DATED MAR. 7, 2019
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Citations: Notice 2019-20; 2019-13 IRB 1
[Editor's Note:

On March 14, 2019, the IRS reissued Notice 2019-20 to include penalty relief under section 6038 and other penalty provisions.

]

Penalty Relief for Missing Negative Tax Basis Capital Account Information

Part III — Administrative, Procedural, and Miscellaneous

This Notice provides penalty relief under sections 6722 (failure to furnish correct payee statements) and 6698 (failure to file partnership return) of the Internal Revenue Code to certain partnerships that file and furnish Schedules K-1 to Form 1065, U.S. Return of Partnership Income that fail to report information about partners' negative tax basis capital accounts for the partnership's taxable year that began after December 31, 2017 but before January 1, 2019.

BACKGROUND

Item L of Schedule K-1 to Form 1065 requires reporting of a partner's capital account. Generally, a partnership may report partner capital to a partner using tax basis, Generally Accepted Accounting Principles, section 704(b) book, or some other method. Pursuant to updates, the 2018 Instructions for Form 1065 and Partner's Instructions for Schedule K-1 (Form 1065) to Item L now require a partnership that does not report tax basis capital accounts to its partners to report, on line 20 of Schedule K-1 using code AH, the amount of such partner's tax basis capital both at the beginning of the year and at the end of the year if either amount is negative (negative tax basis capital account information).

The Treasury Department and Internal Revenue Service (IRS) have become aware that certain partnerships may be unable to comply timely with this new requirement.

PENALTY RELIEF

The IRS will waive penalties under section 6722 for furnishing a partner a Schedule K-1 and section 6698 for filing a Schedule K-1 with a partnership return that fails to report negative tax basis capital account information if both the following conditions are met:

1. The partner Schedules K-1 are timely filed, including extensions, with the IRS and furnished to the partners and contain all other required information.

2. The partnership files with the IRS no later than 180 days after the six-month extended due date for the partnership's Form 1065 or, for a calendar year partnership, no later than March 15, 2020, a schedule setting forth, for each partner for whom the partnership is required to furnish negative tax basis capital account information, the partner's name, address, taxpayer identification number, and the amount of the partner's tax basis capital account at the beginning and end of the tax year at issue in accordance with instructions and additional guidance posted by the IRS on IRS.gov. Whether or not a partnership files a Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, it can use the six-month extended due date in calculating the due date for filing the required schedule described in this paragraph. The schedule should be sent to the following address:

1973 North Rulon White Blvd.
Ogden, UT 84404-7843
MS 4700
Attn: Ogden PTE

This penalty relief applies only for a partnership's taxable year beginning after December 31, 2017, but before January 1, 2019. To receive a waiver of the penalty, a partnership is not required to furnish amended Schedules K-1 to its partners or to file an administrative adjustment request under section 6227, and partnerships should not delay issuing partner Schedules K-1 on account of this Notice. The timely furnishing, including extensions, of Schedules K-1 to partners is a requirement to be eligible for relief under this Notice. The IRS will post instructions and additional information about the relief provided by this Notice in the coming weeks on IRS.gov, where forms, instructions, and other tax assistance are available.

The penalty relief under this Notice will allow additional time for partnerships to provide the negative tax basis capital account information with respect to the partnerships' taxable years beginning after December 31, 2017, but before January 1, 2019.

CONTACT INFORMATION

The principal author of this Notice is Isaac Brooks Fishman of the Office of the Associate Chief Counsel (Procedure and Administration). For further information regarding this Notice contact Isaac Brooks Fishman at (202) 317-6844 (not a toll-free call).

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