The Centralized Partnership Audit Regime (CPAR) added by the Bipartisan Budget Act of 2015 effectively barred partnerships that did not opt out of the regime from filing an amended return and sending out amended K-1s for prior years. Since many partnerships do not qualify to opt-out of the CPAR regime, a large number of partnerships had no ability to change a previously filed return once the period for filing a superseding return had passed.
This feature of the CPAR regime has now proved a major impediment to partners receiving the sort of retroactive benefits Congress added in the CARES Act, such as the use of bonus depreciation or a 15-year life on qualified improvement property. Recognizing the problem, the IRS has issued a Revenue Procedure allowing CPAR partnerships to temporarily file an amended Form 1065 and issue amended K-1s to partners (Revenue Procedure 2020-23).
The IRS explains the need for relief as follows:
04 The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), P.L. 116- 136, 134 Stat. 281 (March 27, 2020), 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 returns, as granted in section 3 of this revenue procedure, BBA partnerships that already filed their Forms 1065 for the affected years generally are unable to take advantage of the CARES Act relief for partnerships except by filing Administrative Adjustment Requests (AARs) pursuant to section 6227. Filing an AAR would result in the partners’ only being able to receive any benefits from that relief on the current taxable year’s federal income tax return. Thus, if an AAR were filed, the partners generally would not be able to take advantage of CARES Act benefits from an AAR until they file their current year returns, which could be in 2021. This process would significantly delay the relief provided in the CARES Act intended to apply to the affected taxable years and provide an immediate benefit to taxpayers.
Partnerships covered by this rule are found in Section 3.03 of the Procedure:
.03 Eligible BBA partnerships. The filing and furnishing option provided in section 3.02 of this revenue procedure is available only to BBA partnerships that filed Forms 1065 and furnished Schedules K-1 for the partnership taxable years beginning in 2018 or 2019 prior to the issuance of this revenue procedure. For purposes of section 6222, the amended return replaces any prior return (including any AAR filed by the partnership) for the taxable year for purposes of determining the partnership’s treatment of partnership-related items. See section 4.03 of this revenue procedure for a special rule regarding partnerships who have previously filed AARs for an affected taxable year.
Interestingly, Section 3.02 indicates the relief applies not only to CARES Act issues, but other items the partnership may need to change and that the use of an amended return in lieu of an Administrative Adjustment Request (AAR) is optional:
02 Option to file amended return. BBA partnerships that filed a Form 1065 and furnished all required Schedules K-1 for the taxable years beginning in 2018 or 2019 prior to the issuance of this revenue procedure may file amended partnership returns and furnish corresponding Schedules K-1 before September 30, 2020. The amended returns may take into account tax changes brought about by the CARES Act as well as any other tax attributes to which the partnership is entitled by law.
The procedure applies only to taxable years beginning in 2018 or 2019.
The IRS provides the following requirements to take advantage of this option:
.01 Filing requirements. To take advantage of the option to file an amended return provided by section 3 of this revenue procedure, a BBA partnership must file a Form 1065 (with the “Amended Return” box checked) and furnish corresponding amended Schedules K-1. The BBA partnership must clearly indicate the application of this revenue procedure on the amended return and write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended return and attach a statement with each Schedule K-1 sent to its partners with the same notation. The BBA partnership may file electronically or by mail, but filing electronically may allow for faster processing of the amended return.
For partnerships that had previously filed an AAR under CPAR for the year the partnership wishes to now amend, the IRS provides:
.03 Special rule for BBA partnerships who have previously filed an AAR. If a BBA partnership has previously filed an AAR and wishes to file an amended return pursuant to this revenue procedure for the same taxable year, the partnership should use the items as adjusted in the AAR, where applicable, in lieu of any reporting from the originally filed partnership return.
If a partnership is currently under examination, the procedure provides for the following:
.02 Special rule for BBA partnerships whose returns are under examination. If a BBA partnership is currently under examination for a taxable year beginning in 2018 or 2019 and wishes to take advantage of the option to file an amended return provided by section 3 of this revenue procedure, the partnership may only do so if the partnership sends notice to the revenue agent coordinating the partnership’s examination in writing that the partnership seeks to use the amended return option described in this revenue procedure prior to or contemporaneously with filing the amended return as described in section 4.01 of this revenue procedure. The partnership must also provide the revenue agent with a copy of the amended return upon filing.
Similarly, the ruling provides the following for partnerships that had previously reported under Notice 2019-45 (related to GILTI):
.04 Coordination with Notice 2019-46. If, under Notice 2019-46, 2019-37 I.R.B. 695, a partnership has applied the rules of the proposed GILTI regulations under proposed §1.951A-5 for its taxable years ending before June 22, 2019 (Form 1065, Form 8992, U.S Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI), and Schedules K-1), the partnership may continue to apply the rules of proposed §1.951A-5 for purposes of filing an amended Form 1065 for such taxable years under this revenue procedure if the partnership furnishes amended Schedules K-1 consistent with those proposed regulations and provides appropriate notifications to its partners under the principles of section 5.01 of Notice 2019-46 within the period described in section 3.02 of this revenue procedure. Nothing in this revenue procedure changes a partnership’s obligation to provide information described in section 5.02 of Notice 2019-46. If a partnership applies the final GILTI regulations under §1.951A-1(e), any amended Schedules K-1 issued under this revenue procedure must be consistent with those final regulations.