While the regulation was issued in temporary form, it was issued before 1989, so the rule causing post-1989 temporary regulations to expire after 3 years likely doesn't apply. 1.6031(b)-1T(a)(3)(ii) indicates information must be furnished to the partners to the extent provided by forms or instructions and IRC Section 6698(b) applies the penalty to partnerships that fail to provide such information. Our efforts didn't turn up much that could be helpful since Reg. Now, in true Tax Warrior fashion, we initially questioned whether the IRS has the authority to impose this requirement (and penalty), given it was not statutorily enacted or included as part of the TCJA. Since it has traditionally been the partners' responsibility to maintain and track their tax basis in their partnership interests, it is not uncommon for partnerships to come up empty handed on this, raising CPA anxiety levels to record highs. However, partnerships that have reported partners' capital on a non-tax basis, such as GAAP, 704(b), or our personal favorites "hybrid" or "books and records," there's a problem if separate tax capital schedules haven't been maintained by the partnership for each partner. For partnerships that have been reporting this capital on a tax basis, the new reporting requirement doesn't cause a stir. ![]() Traditionally, partnerships report each partners' capital in Item L of their Schedule K-1. For a partnership with 25 investors with negative tax capital, that penalty could be $58,500 for one year… even if only one of those partners has negative tax capital. The penalty for nondisclosure is a cool $195 per partner, per month, capped at 1 year. The instructions now require partnerships to report each partners' tax basis capital on Line 20AH of their schedule K-1 if the amount was negative at either the beginning or end of the year. While the tax community was busy building NASA-worthy excel spreadsheets to meet these reporting requirements, the IRS slipped in an additional disclosure requirement for 2018 partnership filings that went mostly unnoticed until a few weeks ago. Keeping most CPA's up all night, coffees full, are the interest expense limitations under IRC Section 163(j) and the Qualified Business Income Deduction rules under IRC Section 199A, both of which require analysis and calculations that test the limits of the human mind. In its simplest form, the TCJA created a nightmare of new limitations, calculations and disclosures for pass-through entities in 2018. The blow-back from practitioners on this sneaky new disclosure was so great the IRS issued penalty relief provisions this week… here's the scoop. Return of Partnership Income, is a new reporting requirement with a whopping noncompliance penalty. By: Chris Catarino, CPA, MT and Joseph Criscuolo, CPAīuried in the 2018 instructions to Form 1065, U.S.
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