By Kevin O’Connor & Demetrius Robinson
Under the Bipartisan Budget Act of 2015 (BBA), effective after Dec. 31, 2017, the IRS went to a centralized partnership audit regime (CPAR) for most partnerships. Unless the partnership was eligible and made an election to opt-out under Section 6221(b) of the Code, most partnerships were subject to the new audit procedures (Covered Partnerships).
The significant impact of the BBA was that the IRS audited partnerships at the entity level instead of the individual partner level. In addition, CPAR prevented Covered Partnerships from filing amended partnership returns and instead were required to file an Administrative Adjustment Request (AAR) under Section 6227. If the AAR was accepted, any reductions in income would result in a partnership item that could be carried forward as a deduction in future tax years instead of an immediate refund to the individual partner.
The CPAR restrictions have the unintended effect of preventing a Covered Partnership from immediately using the tax provisions outlined under the CARES Act. In response, the IRS issued Rev. Proc. 2020-23 in order to allow eligible BBA partnerships to file an amended Form 1065, U.S. Return of Partnership Income and associated Schedule K-1 (for each partner) for the tax years 2018 and 2019 allowing partners to receive the benefits outlined in the CARES Act.
Eligible BBA Partnerships
The Revenue Procedures provide that Covered Partnerships that have already filed their 2018 or 2019 partnership returns may file an amended Form 1065 and associated Schedule K-1, before Sept. 30, 2020, in order to take advantage of the tax provisions of the CARES Act including the Qualified Improvement Property provision (QIP). BBA partnerships must have already filed their 2018 or 2019 return, before April 8, 2020, in order to be eligible for this relief. BBA partnerships are encouraged to write “Filed Pursuant to Rev. Proc. 2020-23” when filing their amended tax return.
Taxpayers should be aware that IRS operations have slowed significantly in response to the coronavirus pandemic. Therefore, taxpayers are encouraged to either file the amended return electronically or via certified mail in order to document the filing of the amended return. As long as the return is postmarked before Sept. 30, 2020, taxpayers should continue to remain eligible for relief under Rev. Proc. 2020-23.
BBA partnerships are encouraged to take advantage of the significant tax opportunity presented by the CARES Act and Rev. Proc. 2020-23.
If you have any questions about Rev.Proc. 2020-23 or other beneficial tax provisions in the CARES Act, please contact KJK Tax Chair Kevin T. O’Connor at kto@kjk.com or 216. 736.7213, Demetrius Robinson at djr@kjk.com or 614.427.5749 or one of our Tax Professionals.