Just when you thought all was calm, the IRS shook up the partnership tax world. The recently released IRS proposed 2019 instructions for Form 1065 highlight changes. Here is one proposed change we don’t think will go away:
In prior years, partnerships could report partner capital on a GAAP, tax, book, or other specified basis. Starting with 2019,partnerships must now solely report tax basis partners’ capital. Not all partnerships tracked partners’ tax capital. Many companies report financials on a GAAP or book basis and don’t calculate or track a partner’s tax capital. Sometimes different firms prepared the partnership returns and the computations were ignored or not prepared correctly. Since the IRS wasn’t demanding it, unless there was a sale or other event where tax basis was needed, everyone pretty much ignored it. Until now.
Preparing tax basis calculations are time consuming. Partnerships must gather all available tax records from inception to the current period. If past returns or records are not available, the partnership must discuss with their tax preparer alternative ways to get the needed information.
Once this was announced, practitioners and taxpayers voiced questions and are pushing back. Efforts by industry professionals to grant extensions for these schedules has begun; however, discussions with the IRS tells TheTax Warriors® that tax basis is where the IRS will end up--now or very soon.
As news continues to develop, we will keep you informed. But we recommend partnerships address this issue now.
If you have comments or questions regarding the changes, please leave them below. If you are a client or are seeking to engage us as your tax advisors, contact us with the details of your query. We are eager to advise you based on your specific facts and circumstances.