As we get ready to file 2018 partnership
tax returns new rules audit have been implemented which require close examination
of the partnership and its partners. This is because the Centralized Partnership
Audit Regime (CPAR) is now the methodology used by the IRS to audit partnership
tax returns for 2018 going forward. If the partnership can elect out of the
CPAR an would be under the pre-TEFRA rules. In order to implement the
requirements of the CPAR the IRS has issued new forms.
Under the CPAR, adjustments to
partnership-related items are determined at the partnership level. The tax
attributable to those adjustments is also assessed and collected at the
partnership level in the form of an imputed underpayment determined pursuant to
Code Sec.
6225. The imputed underpayment is determined by netting, in the
manner described in Code Sec.
6225(b), all partnership adjustments with respect to the reviewed
year and applying the highest rate of tax in effect for that year under Code Sec. 1 or
Code Sec. 11.
The Code requires IRS to establish
procedures under which adjustments may be modified to reflect a lower level of
tax due because of (i) payment of the tax by the partners either through
amended returns or by the use of an alternative procedure in which the partners
otherwise take the adjustment into account, (ii) the fact that the partnership
has one or more tax-exempt partners, (iii) lower rates applying to the
partners, (iv) special rules relating to specified passive losses of publicly
traded partnerships (as defined in Code Sec.
469(k)(2) ), or (v) as otherwise specified by IRS regs. or other
guidance. ( Code Sec.
6225(c) )
Code Sec. 6227 provides a mechanism
for a partnership to file an administrative adjustment request (AAR) to correct
errors on a partnership return for a prior year. A partnership may file a
request for administrative adjustment in the amount of one or more items of
income, gain, loss, deduction, or credit of the partnership for any partnership
tax year. ( Code Sec.
6227(a) )
Under Prop Reg §
301.6227-2(a)(2), in the case of an AAR, a partnership would be able
to reduce the imputed underpayment as a result of certain modifications allowed
under Prop Reg §301.6225-2
that relate to tax-exempt partners, rate modification, modification
related to certain passive losses of publicly traded partnerships, modification
applicable to qualified investment entities described in Code Sec. 860,
and other modifications to the extent allowed under future IRS guidance. Other
types of modification-such as modifications with respect to amended returns and
closing agreements-would not be available in the case of an AAR.
New Tax Forms
Form 8980, Partnership Request for Modification of
Imputed Underpayments Under IRC Section 6225(c).
Form 8980 is a 12-page form that should be
submitted by a partnership to request the modification of an imputed
underpayment under Code Sec.
6225(c). An imputed underpayment is reported to a partnership in a
notice of proposed partnership adjustment (NOPPA).
Form 8980 is also used by a partnership
which is applying certain permitted modifications to an imputed underpayment
included in the filing of an AAR. In the case of an AAR which includes
modifications to an imputed underpayment, the partnership should complete and
attach Form 8980 (including all required Form 8980 supporting forms and
attachments, and any supporting documents) to the AAR when filed.
Form 8982, Affidavit for Partner Modification
Amended Return Under IRC §6225(c)(2)(A) or Partner Alternative Procedure under
IRC §6225(c)(2)(B).
Form 8982 is a supporting form that the
partnership representative attaches to Form 8980. It is used to affirm that a
relevant partner has either: a) filed modification amended return(s) that meet
the requirements under Code Sec.
6225(c)(2)(A) (Use Form 8982, Section A); or b) in lieu of filing
modification amended return(s), has met the requirements under the alternative
procedure in Code Sec.
6225(c)(2)(B) (Use Form 8982, Section B).
Form 8982 must be completed and signed by
a relevant partner after the partner files the appropriate modification amended
returns or meets the requirements under the alternative procedure. The relevant
partner must then provide Form 8982 to the partnership representative.
Form 8983, Certification of Partner Tax-Exempt
Status for Modification under IRC §6225(c)(3).
Form 8983 is used to certify: a) that a
relevant partner in a partnership requesting modification of an imputed
underpayment under Code Sec.
6225(c)(3) is, in the reviewed year, a domestic partner that is
either a tax-exempt entity within the meaning of Code Sec.
168(h)(2)(A), or a foreign partner that is a exempt from tax under Code Sec.
501(a); and (b) that, for the reviewed year, all or a portion of the
relevant partner's distributive share of the partnership's adjustment is not
subject to tax under any section of the Code.
The partner should complete and sign Form
8983 and provide it to the partnership representative. The partnership
representative will submit Form 8983 along with the partnership's Form 8980.
Form 15028, Certification of Publicly Traded
Partnership to Notify Specified Partners and Qualified Relevant Partners for
Approved Modifications Under IRC §6225(c)(5).
Form 15028 is used by a partnership that
is a publicly traded partnership (PTP) that is requesting modification under Code Sec.
6225(c)(5) , in order to certify to IRS that the partnership will
report to each specified partner or qualified relevant partners their
respective amount of reduction to their suspended passive activity loss
carryover based on the partnership's approved modification under Code Sec.
6225(c)(5) . Form 15028 is a required attachment to Form 8980 for
any modification requests under Code Sec.
6225(c)(5).
Form 15028 should be completed by the
partnership under the assumption that the partnership's requested modification
under Code Sec.
6225(c)(5) will be approved by IRS. If IRS approves the modification
under Code Sec.
6225(c)(5) and approves the amounts reported on Form 15028, IRS will
send the PTP an approved copy of Form 15028. If the modification request is
disallowed in whole or in part, a corrected Form 15028 will need to be
submitted by the PTP and approved by IRS. IRS will contact the PTP if a revised
Form 15028 is required.
