On April 8, 2020, the Internal Revenue Service released Rev. Proc. 2020-23, which significantly expands the number of partnerships that are eligible to file amended returns for tax years beginning in 2018 and 2019. Rev Proc. 2020-23 is intended to provide a more efficient method for partnerships that have already filed tax returns for the affected years to obtain tax relief provided by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Without Rev Proc. 2020-23, many partnerships would be unable to amend tax returns filed for past years, which would require them to use alternative procedures to revise previously reported information and delay their ability to take advantage of tax relief provided by the CARES Act.
Rationale behind Rev. Proc. 2020-23
The Bipartisan Budget Act of 2015 (“BBA”) contained a centralized partnership audit regime that generally determines, assess, and collects tax at the partnership level. The BBA’s centralized partnership audit procedures apply to all partnerships, unless the partnership makes a valid election not to have those procedures apply.
After the original due date of a Return of Partnership Income (Form 1065), partnerships subject to the BBA’s centralized partnership audit regime (“BBA Partnerships”) are generally prohibited from amending a previously filed tax return and the related Schedules K-1 furnished to partners. Rev. Proc. 2020-23 allows BBA Partnerships to file amended tax returns and issue amended Schedules K-1 under the circumstances described in the revenue procedure.
The CARES Act provides retroactive tax relief that affects partnerships, including relief for the taxable years ending in 2018, 2019, and in some cases 2020. Without the option to file amended tax returns, as granted by Rev. Proc. 2020-23, BBA Partnerships that already filed their tax returns for the affected years would generally be required to file an Administrative Adjustment Request (“AAR”) to obtain tax relief for those years. BBA Partnerships that use an AAR to revise information reported on past tax returns are generally not able to take advantage of tax relief provided by the CARES Act until they file their current year tax returns, which could take place in 2021. Accordingly, using the AAR procedures would significantly delay the tax relief provided by the CARES Act, which is intended to provide an immediate benefit to taxpayers.
Eligible BBA Partnerships may file amended tax returns for 2018 and 2019
Rev. Proc. 2020-23 allows eligible BBA Partnerships (i.e., those that filed a Form 1065 and furnished Schedules K-1 to their partners for tax years beginning in 2018 or 2019 prior to April 8, 2020) to file amended tax returns. Eligible BBA Partnerships must file amended tax returns and furnish amended Schedules K-1 to their partners before September 30, 2020.
An amended tax return may take into account the tax relief provisions included in the CARES Act as well as “any other tax attributes to which the partnership is entitled by law.” Thus, while the intent of Rev. Proc. 2020-23 is to expedite the ability of partnerships to obtain the retroactive tax relief provided by the CARES Act, it appears that an amended tax return may include adjustments to other items as well, regardless of whether the adjustments are related to the CARES Act.
Filing requirements
An eligible BBA Partnership must file a Form 1065, with the “Amended Return” box checked, and furnish corresponding amended Schedules K-1 to its partners. The BBA Partnership must write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended tax return and attach a statement containing the same notation to each amended Schedule K-1.
The amended tax return may be filed electronically or by mail, but filing electronically may allow for faster processing of the amended tax return.
Special rules for BBA Partnerships currently under examination or who have previously filed an AAR
If a BBA Partnership is currently under IRS examination for tax year 2018 or 2019, the partnership must notify the revenue agent coordinating the examination in writing that the partnership intends to file an amended tax return prior to or contemporaneously with filing the amended tax return, and provide the revenue agent a copy of the amended tax return. If the BBA Partnership has previously filed an AAR for the taxable year it seeks to amend, the partnership should use the items as adjusted in the AAR where applicable, rather than reporting information as filed on its original tax return.