Rev. Proc. 2019-32 for partnership superseding returns

I've seen this mentioned several times in other places and after reading the accompanying stories, still can't figure out what it's about.

IRS permits certain partnerships to file superseding partnership returns

Can anyone explain in simple terms why someone would want to file a superseding return under this rev proc? And what exactly would be changed from the original return?

Rev. Proc. 2019-32 PROVIDES RELEIF ( by granting an extension of time) TO: partnerships that already filed Form 1065 for the 2018 taxable year may have made errors, including not properly reporting all of the required information on the Schedules K-1. These BBA partnerships, having timely filed, did not request an extension of the deadline to file and, due to the restrictions on amending Schedules K-1 under section 6031(b), may not amend the Schedules K-1, including for the 2018 taxable year.
BBA means Section 1101(a) of the Bipartisan Budget Act of 2015 (BBA)

Just spitting back the text of the article doesn't help. What "required information on Schedules K-1" would typically not be properly reported? Why would relief only be needed for 2018, and not future tax years?

makbo, thanks for asking the question. I didn't really get it either. Is this for entities that have partners with negative capital accounts where the partnership did not complete the capital account reconciliation and just realized that they are going to be penalized if they don't make the disclosure (relief allowing late disclosure provided by the IRS recently)? That's all I could think of.

What "required information on Schedules K-1" would typically not be properly reported? Why would relief only be needed for 2018, and not future tax years?

I imagine one time mistakes regarding items of QBI or box 20AH negative tax capital account disclosure if the partnership doesn't report the K-1 Schedule L on tax basis.

One year of relief due to the s*** show earlier this year.

I hadn't thought about 199A. If not for this relief, if tax preparer had not disclosed that info, then partners would not be able to claim that deduction? Is that right? Seems crazy.

I think maybe, due to the BBA reference, some partnerships did not elect out of the new audit regime or did not designate a Partnership Representative.

Can anyone explain in simple terms why someone would want to file a superseding return under this rev proc?

So that the partnership itself doesn’t have to pay the additional tax/penalty. The Rev Proc only applies to partnerships that didn’t elect out of the centralized regime.

Why would relief only be needed for 2018, and not future tax years?

It might be needed for future tax years, but the IRS isn’t gonna give it to you. This is a relief provision associated with a new law that we had to deal with, for the first time, in 2018. Under that law, partnerships that did not elect out cannot amend their returns once the filing due date (or extended due date) has passed.

How does this differ from the normal superseding return that has existed for some years?

The below summarizes my understanding:
https://www.cpajournal.com/2016/07/06/a ... n-do-over/

In the article you cited: "When a superseding tax return is filed, it is as if the original return were never filed"

This Rev Proc provides relief from filing penalties (mentioned by Jeff) in 3.02 of the Rev Proc.

Also
Election must be made with a timely filed return (6221(b)(1)(D)(i). I don't think an amended return qualifies as timely filed; that would allow for delaying the decision on how to deal with an audit right through the time of the audit.

From Section 1 of the Rev Proc:
Section 6031(b) requires that a partnership required to file a return under section 6031(a) furnish a copy of the Schedule K-1 to each partner that includes such information as may be required to be shown by regulations. In general,
section 6031(b) also prohibits BBA partnerships from amending the information required to be furnished to its partners after the due date of the return.

How does this differ from the normal superseding return that has existed for some years?

A normal superseding return is one that is filed after an original return, but is still filed by the original due date (or the extended due date if the original return was extended).

So, if partnership doesn’t request an extension, and files its ’18 return on 3/15/19, there is no chance for a valid superseding return. Now, if the partnership had extended it’s return (and still filed it’s original return on 3/15/19), then the partnership could file a superseding return all the way up to the extended deadline.

The guidance that Makbo cites deal with certain partnerships that filed by 3/15/19, but who didn’t request an extension. They normally cannot file a superseding return…but the relief in the Rev Proc says, “We’ll let you file a superseding return this one time, even though you don’t meet the requirements.”

Under that law, partnerships that did not elect out cannot amend their returns once the filing due date (or extended due date) has passed.

No amended returns for partnerships who don't elect out? Where is this provided for?

How does this differ from the normal superseding return that has existed for some years?

A normal superseding return is one that is filed after an original return, but is still filed by the original due date (or the extended due date if the original return was extended).

So, if partnership doesn’t request an extension, and files its ’18 return on 3/15/19, there is no chance for a valid superseding return. Now, if the partnership had extended it’s return (and still filed it’s original return on 3/15/19), then the partnership could file a superseding return all the way up to the extended deadline.

The guidance that Makbo cites deal with certain partnerships that filed by 3/15/19, but who didn’t request an extension. They normally cannot file a superseding return…but the relief in the Rev Proc says, “We’ll let you file a superseding return this one time, even though you don’t meet the requirements.”

Awesome, thanks Jeff.

Is this for entities that have partners with negative capital accounts where the partnership did not complete the capital account reconciliation and just realized that they are going to be penalized if they don't make the disclosure (relief allowing late disclosure provided by the IRS recently)? That's all I could think of.

I think this is the answer to my previous question, "What 'required information on Schedules K-1' would typically not be properly reported?" The ability to amend QBI info is just a side effect, I think.

I don't know where the restriction on amending comes from, but I easily believe it's in there. I remember this whole partnership audit change was a greatly increased complexity of the tax law.

I'm glad I the taxpayer elected out of CPAR for all my partnership clients. [I wanted to get "CPAR" in here for the benefit of future keyword searches].

Election out is not allowed if an interest is held by a trust, even if it is the standard revocable trust used for estate planning purposes that doesn't become irrevocable until death. That made the election n/a for several of my clients.

I was not aware of the "no amending" rule also. I understand that the partnership pays the tax if there is an increase in income. What if an expense was omitted in error? What if 199A information is omitted? What if the activity is a rental, generating a loss, and partnership takes the position that it is an investment activity, and it is later determined to be a trade/business? In that case, the 199A loss should reduce the partner's overall 199A deduction. What happens then?

What if an expense was omitted in error?

Then the partnership would file an AAR with the IRS, similar to TEFRA. And each partner would be given a “statement” in accordance with 301.6227-1(d) and (e). See Reg. Sec. 301.6227-2 and -3. Any tax benefit from the missed deduction would be accounted for in the year the partner receives the statement from the partnership.

Wait! What? If a partnership does not (cannot) elect out of CPAR, they are prohibited from amending their tax return. Is that right? Why not? How does a partnership fix an error?

Wait! What? If a partnership does not (cannot) elect out of CPAR, they are prohibited from amending their tax return. Is that right? Why not? How does a partnership fix an error?

An amended return for a partnership not electing out of CPAR is a very different looking filing than anything I've done in the past.
The partnership can still affect a filing to correct errors, but they have some elections available regarding taking the change into account in the year the filing is made or pushing that out (back) to the affected year. I had to do one earlier this year. I'd have to go back and look at it again carefully if I were to do another.

As to the penalty for not disclosing negative tax capital, our recent CPE instructor mentioned such 1065s could be considered incomplete, which would trigger a nonfiling penalty. A potential major OUCH!

Wait! What? If a partnership does not (cannot) elect out of CPAR, they are prohibited from amending their tax return. Is that right? Why not? How does a partnership fix an error?

Form 1065 instructions:

"A partnership that is subject to the BBA [Bipartisan Budget Act of 2015] centralized partnership audit regime must file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), to request an administrative adjustment in the amount of one or more partnership-related items rather than an amended return."