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Partnership penalty abatement Rev. Proc. 84-35

Technical topics regarding tax preparation.
#1
Andrew  
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Anybody used this Rev. Proc? Client's first time filing of form 1065 for 2018 for 2 partners and he wasn't aware of the partnership return deadline. I rather not do a first time abatement which we can use for something else in my client's case, such as underpayment of estimated tax. However, correct me if I'm wrong.

Rev. Proc. 84-35 penalty relief to apply and concluded that it is the same criteria that has been documented in IRM 20.1.2.3.3.1(2):

1. The partnership must consist of 10 or fewer partners. For the purpose of this requirement, a husband and wife (or their estate) filing a joint return is considered one partner.

2. Each partner is either an individual (excluding nonresident aliens), or the estate of a deceased partner.

3. Each partner's items of income, deductions, and credits are allocated in the same proportion as all other items of income, deductions, and credits.

4. The partnership has not elected to be subject to the consolidated audit procedures under I.R.C. §§ 6221 through I.R.C. § 6233 (subchapter C).

5. Each partner reported his or her share of partnership income on his or her timely filed income tax return.
 

#2
juro  
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yes. i do.
 

#3
MWPXYZ  
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You can look up previous discussions, but I believe that Rev Proc 84-35 does not apply to 2018 partnership returns due to the repeal of Section 6231 and the "new" Section 6231 under the BBA, effective for 2018.
 

#4
Andrew  
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Thanks! It took a while to find even anything about this, except for the post on this forum and the links in that post. It appears that if we had elected out of the new audit rules, Rev Proc 84-53 could still be used. I would have expected that internet searches would have netted more results about that Rev Proc 84-53 can no longer be used.
Also, the IRS still has Rev Proc 84-53 on their site dated 2/27/19 under Understanding Your CP162 Notice. Confusing.
If anyone has successfully used it for 2018, please let us know.

https://www.irs.gov/individuals/underst ... 162-notice
Feb 27, 2019 - The partnership had no more than 10 partners for the taxable year. ... to have the penalty removed for reasonable cause under the provisions of Rev. Proc. 84-35 ...
Missing: 84-53 ‎| Must include: 84-53
 

#5
juro  
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Andrew wrote:If anyone has successfully used it for 2018, please let us know.



i did for 2018, several times, the letters of abatement has not yet arrived, but at least the scary demands for payment have stopped, :lol:
 

#6
Andrew  
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Did you elect out of the new audit rules for these partnerships for 2018?
 

#7
MWPXYZ  
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more on 84-35 "expiration"
The definition of small partnership used in the Conference report and Section 6698 is defined in (the former) Section 6231!

The small partnership exception was a TEFRA provision, and now TEFRA is gone.

Here is an interesting article: http://washburnlaw.edu/practicalexperie ... eption.pdf

A quick note here: https://ktllp.com/2018/01/heads-major-c ... uary-2018/

And here is some "reasoning" with the IRS already squeezing the exception: https://www.currentfederaltaxdevelopmen ... equirement
 

#8
Andrew  
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Thanks for posting the links. From the last article, It sounds like it's not set in stone yet that Rev Proc 84-35 cannot be used for 2018. Is that your understanding as well?


While the IRS has not mentioned how or whether that will impact the small partnership relief ruling, the Service may decide that Congress’s intent in passing the revised partnership audit regime is no longer consistent with this grant of relief. Remember that under the new audit rules, a partnership is subject to the consolidated audit procedures unless it timely files a return and elects not to have the rules apply. Arguably, a partnership that fails to file a return beginning with 2018 tax years has forfeited the right to be treated as a small partnership.
 

#9
MWPXYZ  
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The last article, written in 2017, notes how the IRS was pushing back against Rev Proc 84-35; even then. The citations in the article refer to Code Sections that have been repealed & replaced for 2018. Given that the Code Section that stands as the foundation for Rev Proc 84-35 has disappeared I think Rev Proc 84-35 no longer stands for returns filed for 2018 and later.

Juro can let us know in a couple months!

Although, the IRS notices my clients have received over the last couple weeks indicate the IRS is having problems understanding the tax laws.
 

#10
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I've never understood why small partnerships were given relief under a rev proc while small S Corps were not given the same relief.

Yes juro, please update us once you receive a response.
 

#11
juro  
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uh oh, got a IRS notice "assigned to Collection Agency."


this is only one page. weird, they don't even mention our response, or a balance due.
 

#12
sjrcpa  
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How much time elapsed between your response and this collection agency notice?
 

#13
juro  
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sjrcpa wrote:How much time elapsed between your response and this collection agency notice?



May of this year is when i got the first & only notice, and my response was same time.
 

#14
sjrcpa  
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Given that it takes 6, 8 or 12 weeks for IRS to do anything, I am not surprised.
I would call, explain you responded and disagreed, and ask for a hold on collection for the account.
 

#15
juro  
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okay i will.

but when did the IRS begin to use a collection agency?
 

#16
EADave  
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For about a year now. They tried this program a few years ago and the program failed, which I’m hoping this one will too.

So frustrating. You call the CBE Group, one of the collection agencies, and they don’t authorize any payment plan beyond 60 months. You ask why and they tell you the Installment agreement beyond 60 months request needs the IRS’s permission to be granted. You call the IRS and they say, “Your client’s account has been assigned to a collection agency.” Back and forth you go. It’s driving me a bit batty.

I’m thinking when the Millennial generation (no offense meant here) take over the IRS there will be safe spaces available for taxpayers and forgiveness of tax debts if a taxpayer feels anxious/nervous about their liability or if the “IRS” triggers a sensory overload. Also, they will immediately ship you a service animal and a box of crayons for comfort. That’s my hope anyway.
 

#17
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Aye, Dave, but they will have to remove all the blue and green crayons in case the recipient draws something resembling algae, which then freaks out the emotional support animal.

Seriously, isn't there a clear process by which you can require that the file be reassigned to the IRS? Never had to worry about that since they started outsourcing again. If they don't do that, at what point does one ask the TA to get involved?
 

#18
juro  
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why did my response get ignored by the IRS?

what if i ignore the collection agency?
 

#19
sjrcpa  
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Your response was probably not ignored. It probably hasn't been dealt with yet. If you have a POA on file you can call and discuss. If you don't, anty reponse IRS makes will go to your client.
 

#20
juro  
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sjrcpa wrote:Your response was probably not ignored. It probably hasn't been dealt with yet. If you have a POA on file you can call and discuss. If you don't, anty reponse IRS makes will go to your client.


my client uses my office address, as he is a non-res alien.
 

#21
EADave  
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Hilarious! I hadn’t thought about sensory sensitive service animals! Hey Spell, is that alliteration or onomatopoeia? Me thinks alliteration.

SJ is on point, I too, would recommend contacting PPS if you have a POA just as SJ suggested and then contact the Collection Agency (or ask PPS) to request a collection hold until the response is worked. Please don’t forget to update us on the outcome. I do fear a favorable response from the IRS because if it was just a “fluke”, I’d hate to rely on it as Gospel, but maybe it will spur the IRS to provide some clear(er) guidance.

Also, from what I was told, the case does not get kicked back to IRS until the collection agency makes the determination they are not authorized to work the case. This happened to my client recently. You and the client, if under POA, will receive a letter indicating the case was returned to the IRS. Like, who’s on first Scooby???
 

#22
Andrew  
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Some of you already indicated that penalty abatement under Rev. Proc 84-53 is no longer available. If you elect out of the new partnership audit rules, you may still be able to use Rev. Proc. 84-53. Can a partnership return be amended to change the election so a client becomes eligible for 84-53?
 

#23
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Wow, yet another reason to elect out.
 

#24
sjrcpa  
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#25
EADave  
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That "timely filed return" thing is a double-edged sword indeed. You can't amend if you file late, and if you file late, the election is invalid anyway. So, if you file late, and the election to opt out must be made on a timely filed return, when you file late are you giving the IRS permission to use the audit regime if they select your return for audit?

Sounds like filing late, as long as you file the K1s and the individuals file their returns timely, may not be so bad after all? Or, did I just open a portal that can never be closed?
 

#26
Andrew  
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Sjrcpa, thanks for posting the link. Next year I may just mark the box "opt out" of centralized partnership audit regime.
 

#27
MWPXYZ  
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Rev Proc 84-35 Section 3.01 and .02 states:

".01 A domestic partnership composed of 10 or fewer partners and coming within the exceptions outlined in section 6231(a)(1)(B) of the Code will be considered to have met the reasonable cause test and will not be subject to the penalty imposed by section 6698 for the failure to file a complete or timely partnership return, provided that the partnership, or any of the partners, establishes, if so requested by the Internal Revenue Service, that all partners have fully reported their shares of the income, deductions, and credits of the partnership on their timely filed income tax returns.

.02 Partnerships having a trust or corporation as a partner, tier partnerships, and partnerships where each partner's interest in the capital and profits are not owned in the same proportion, or where all items of income, deductions, and credits are not allocated in proportion to the prorata interests, do not come within the exception provisions of section 6231(a)(1)(B) of the Code and, are subject to the penalty imposed by section 6698. "

It seems that one needs Section 6231(a)(1)(B) for Rev Proc 84-35 to be applicable.

Pub. L. 114–74, title XI, § 1101, Nov. 2, 2015, 129 Stat. 625, 638, provided that, applicable to returns filed for partnership taxable years beginning after Dec. 31, 2017, section 6231 was repealed.

A new Section 6231, "Notice of proceedings and adjustment" stands in its place.
 

#28
Joan TB  
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I have been reading all this about the FT penalty abatement as it pertains to partnership, and I am still confused. Partnership of 2 individuals. If we just can't get it finished today, would the FTA still be available? It is amazing the time I have spent on their books trying to get things cleaned up (to the detriment of other clients) and now holding my breath if I am gonna get it done today. Finishing it in order to have both their individual returns filed timely shouldn't be a problem -- I really want all this off my desk! It is just TODAY that might be a problem. Since the partners are Mom & Son, I guess losing the opportunity to opt out of the audit regime probably won't be too bad.

I appreciate any additional explanations. Going on 2 hours sleep today as it is.
 

#29
Doug M  
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No, don't use up your FTA with this, if you meet the requirements of Rev Proc 84-35. Its like an automatic abatement. I haven't used it for any 2018 returns, but I doubt it would be denied.

https://www.bradfordtaxinstitute.com/En ... _84-35.pdf

Andrew spelled them out in his post #1. BTW, the penalty is only for one month if you have valid extn and file by 10/15.
 

#30
utsllc  
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I have a client that came to me late for a partnership return and there is no way to finish it today.

Can somebody clarify whether the Rev. Proc 84-35 is available in either of the cases of opting in or out of the centralized partnership audit regime under section 6221(b)?

The partnership is simple, just two family members.

Thank you!
 

#31
Joan TB  
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Post 27 says
It seems that one needs Section 6231(a)(1)(B) for Rev Proc 84-35 to be applicable
and that

Pub. L. 114–74, title XI, § 1101, Nov. 2, 2015, 129 Stat. 625, 638, provided that, applicable to returns filed for partnership taxable years beginning after Dec. 31, 2017, section 6231 was repealed.


That is why I am confused. So it appears that Rev.Proc. 84-35 cannot be used for 2018 and later. And yes, I anticipate
the return will get done by tomorrow, if not today.
 

#32
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Years ago I had a partner that said if he could not get a return done he did guesses and would amend the return later. I always thought you had trouble for filing wrong information. His response was guesses have always been permitted in filing tax information. As far as I know he never got into trouble.
 

#33
utsllc  
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Joan TB wrote:
That is why I am confused. So it appears that Rev.Proc. 84-35 cannot be used for 2018 and later. And yes, I anticipate
the return will get done by tomorrow, if not today.


Has anybody used it successfully for 2018 and if so what were the circumstances? Or have you gotten a rejection/etc.?
 

#34
Joan TB  
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Just sent the partnership return (about 10:45pm here) so I won't need to test the availability of the Rev Proc for 2018 partnership returns -- YAY!!
 

#35
MWPXYZ  
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"BTW, the penalty is only for one month if you have valid extn and file by 10/15."

Doug, would you have a cite for this?
 

#36
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#37
EADave  
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I swear, I’d rather read translated VCR instructions than IRS speak sometimes.

What does this part of the revised Rev Proc mean?

“The partnership has not elected to be subject to the consolidated audit procedures under I.R.C. §§ 6221 through I.R.C. § 6233.”

Does this mean the Partnership will qualify for relief if they didn’t make the audit regime election on their return? I thought it was a given since the election must be made on a timely filed return. Why even mention this in the Rev Proc? If they timely file, they don’t need the Rev Proc?

Or, am I misinterpreting this sentence? Wouldn’t be the first time!!
 

#38
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Just received a Rev Proc 84-35 for a 2018 1065. i thought it was gone but asked anyway. Had used up their FTA two years ago.
 

#39
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Good to know! Thanks for sharing!
~Captcook
 

#40
juro  
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lenraphael wrote:Just received a Rev Proc 84-35 for a 2018 1065. i thought it was gone but asked anyway. Had used up their FTA two years ago.


did u get a letter saying it hot waived? i got several in process myself.
 

#41
juro  
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got a waiver today :D
not the first time for this entity.
 

#42
EADave  
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Congrats! I sent off 6 of them last week (same owners of all six and partners timely filed personal returns). I’ll let you know once we receive response from the KGB, err, I mean the IRS.
 

#43
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set me straight on one point: what is the effect on getting 84-35 relief if the audit regime is elected?
 

#44
juro  
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lenraphael wrote:set me straight on one point: what is the effect on getting 84-35 relief if the audit regime is elected?


i always select the Yes box for q#25.

Is the partnership electing out of the centralized partnership audit regime under section 6221(b)? Yes.
 

#45
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is that a year by year or annual election, or permanent one?
 

#46
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is that a year by year or annual election, or permanent one?
Annual
 

#47
dave829  
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The IRS has issued Program Manager Tax Advice (PMTA-2020-01) stating that Rev. Proc. 84-35 is not obsolete despite the repeal of 6231(a)(1)(B) by the Bipartisan Budget Act of 2015, and that it will continue to apply relief from the late filing penalty to small partnerships.

https://www.irs.gov/pub/lanoa/pmta-2020-01.pdf
 

#48
MWPXYZ  
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Good news! Considering prior IRS resistance to the abatement I assumed that they would allow this relief to die.

We can add 6231(a)(1)(B) to the list of obsolete Code Sections that are still part of the tax law along with 48(l)(3)(A)(ix) and 48(l)(15) that define Alternative Energy Property and Biomass Property!
 


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