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New Form 1065 instructions require disclosure of partner’s negative capital balance, and penalty relief

3/14/19 Updated 3/20/19

If partnerships miss the requirement—which is on page 30 of a 55-page document, they could face penalties of $195 per partner, per month for up to a year.

Even if filing partners follow the reporting requirement, the IRS may take a negative capital balance as a sign that the partner has taken partnership deductions by superficially increasing their property investments in or contributions to the entity and be more likely to examine .

Penalty relief for failure to report negative basis capital accounts is expanded to include relief from penalties under tax code Section 6038. The expanded relief also covers “any other section of the Code for filing or furnishing Schedules K-1 or other forms or statements. Notice 2019-20, 2019-14 I.R.B. __ (Apr. 1, 2019)

Correction to Penalty Relief for Missing Negative Tax Basis Capital Account Info

3/20/19

The penalty relief applies only for tax years beginning after December 31, 2017, but before January 1, 2019.

The IRS will waive the penalty only if both of the following conditions are met:

  • the partner Schedules K-1 are timely filed (including extensions) with the IRS, timely furnished to the partners, and contain all other required information; and
  • the person or partnership required to file the Schedule K-1 or other applicable form or statement files with the IRS, no later than one year after the original, unextended due date of the form to which the Schedule K-1 or other applicable form or statement must be attached, a schedule setting forth the information listed below for each partner for which negative tax basis capital account information is required.

The required schedule must state:

  • (1) the partnership’s name and Employee Identification Number, if any, and Reference ID Number, if any;
  • (2) the partner’s name, address, and taxpayer identification number; and
  • (3) the amount of the partner’s tax basis capital account at the beginning and end of the tax year at issue.

The schedule should be captioned “Filed Under Notice 2019-20” and should accord with instructions and additional guidance provided by the IRS. The schedule should be sent to: 1973 North Rulon White Blvd., Ogden, UT 84404-7843, MS 4700, Attn: Ogden PTE.