Delay of Game: IRS Postpones Partner Tax Basis Capital Reporting Requirement to 2020

On December 10, the IRS issued Notice 2019-66, providing guidance on various partnership reporting requirements for the 2019 tax year.

Most noteworthy, the requirement to report partners’ shares of partnership capital on the tax basis method has been delayed, and will no longer be effective for 2019 tax years as previously indicated. The requirement will now first apply to partnerships with taxable years that begin on or after January 1, 2020. For the 2019 tax year, partnerships and other persons must report partner capital consistent with reporting requirements in the 2018 forms and instructions, including the requirement to report negative tax basis capital accounts on a partner-by-partner basis. Partnerships tax returns for 2019 must still include a statement identifying under what method partner’s capital is reported.

The motivation behind the tax basis reporting requirement is that the IRS believes many taxpayers are deducting losses they’re not permitted to take. Tax basis capital reporting will inform both the taxpayer and the IRS of the taxpayer’s basis and the deductibility of the loss. The notice also defines the term "partner’s share of net unrecognized Code Sec. 704(c) gain or loss," which must be reported by partnerships and other persons in 2019. Net unrecognized Section 704(c) gain or loss reporting will not apply to publicly traded partnerships and their partners for 2019 and thereafter until further notice.

Notice 2019-66 also addresses the requirement to report to partners certain information about separate “section 465 at-risk activities,” a requirement that will not be effective until the 2020 tax year. Nothing in the notice, however, relieves partnerships and partners from requirements of Form 6198 At-Risk Limitations for the 2019 tax year.

We’ll continue to monitor tax changes and provide insight into their application to help you optimize your own unique situation. Please contact your Schneider Downs representative for additional information on the above and/or for any other tax issues you may be facing.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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