I have a new client, a partnership, with several foreign partners that had an involuntary conversion back in 2014. They deferred the gain on income they received from an eminent domain transaction. They were suppose to purchase similar property to replace by the end of 2017 following section 1033 but did not. So we are suppose to amend 2014 return to report the gain.
Another problem is the original preparer did not include the proper statements to elect this. They just moved the gain to the balance sheet and called it "Deferred Income".
The big issue now is if we amend 2014, then it is my understanding that we have to withhold at the highest tax rates. The credits get passed to the partners and they would file for the refund. However, being past the deadline, I don't know if there is a way to file for refunds (special election, appeal to IRS director, etc) on a return year that is outside of the statute of limitations.
Without penalties and interest, this 1446 withholding tax is in the ballpark of $85,000.
Any suggestions would be greatly appreciated.