The IRS this week released draft versions of the following forms for the tax year 2019:
According to the IRS, changes proposed in the draft versions of these forms are intended to assist the IRS in assessing compliance risk and identifying potential noncompliance. The IRS release (IR-2019-160) describes the draft forms as “near-final.” Comments are due within 30 days of the release with the expectation that the forms may be finalized by December 2019.
The IRS has not yet released accompanying instructions.
Assuming the draft forms are finalized without change, significant additional time may be required to comply with the new forms for the 2019 filing season.
Among the more significant changes proposed in the draft version of the Schedule K-1 (Form 1065) is the requirement that a partnership must report each partner’s tax basis capital account roll-forward. For the tax year 2018, by contrast, a tax basis capital account disclosure was required only if a partner had a negative tax basis capital account at the beginning of the year or at the end of the year, and only the beginning and ending negative tax capital accounts were required to be disclosed.
In addition, the updated Schedule K-1 (Form 1065) requires that a partnership must report each partner’s share of:
Notably, although on its face the updated Schedule K-1 (Form 1065) appears limited to disclosure of a partner’s “[n]et unrecognized section 704(c) gain or loss,” the updated Schedule K-1 (Form 1065) would also require that a partnership disclose to its partners certain additional, but currently unspecified, section 704(c) information. Thus, it is possible that the IRS could require additional information to be reported.
The draft 2019 Form 1065 and Schedule K-1 (Form 1065) would further require information that could provide certain audit or statistical data points, including:
Lastly, it is worth noting that, to date, the draft Form 1065 has not been revised to provide specific reporting within the capital gains boxes of long-term capital gains that have a holding period of three years or less for purposes of the “carried interest” rules of section 1061.
Tax professionals expect the numerous proposed changes to the updated Form 1065 and Schedule K-1 (Form 1065) likely will add significant additional time to the tax reporting compliance process. Partnerships need to consider the possible new changes and discuss with their tax advisor what additional effort may be required to comply with the required reporting. Therefore, it will be important for partnerships to assess tax reporting and compliance readiness well in anticipation of filing deadlines.
Contact your KPMG engagement team for further information regarding the updated Form 1065 and Schedule K-1 (Form 1065).
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