IRS Issues New Forms Related to Modification of Imputed Partnership Underpayments

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.