OUR THOUGHTS ON:

New Form 990 Reporting of Partnership Interests Using K-1 Is Optional for 2011

Not-for-Profit|Tax

By Debra Ries

In January 2012, the IRS published the 2011 Form 990, Return of Organization Exempt from Income Tax, and Form 990-EZ, Short Form Return of Organization Exempt from Income Tax. The instructions to the 2011 forms included a change where a filing organization holding an interest in a partnership or joint venture would be required to report its revenue, expenses, and assets from the partnership or joint venture based on the information reported by the partnership on Form 1065, Schedule K-1.

This disclosure is significantly different from the prior-year Form 990 instructions, which required the filing organization to report in Part VIII, Statement of Revenue, Part IX Statement of Functional Expense and Part X Balance sheet, its proportionate interests in a partnership or joint venture’s revenue, expenses and assets in accordance with accounting used by the filing organization in maintaining its books and records. The IRS indicated that it changed the 2011 instructions to require reporting based upon the Form 1065, Schedule K-1 in an effort to promote greater consistency, accuracy and transparency, including accuracy in reporting unrelated business income (UBI).

Subsequent to the publication of the 2011 instructions, the IRS received many comments suggesting that reporting the filing organization’s interests in partnership assets using the organization’s books and records provides a more accurate value of those assets. In addition, others expressed concern that reporting under the 2011 instructions creates a burden for organizations because some partnerships do not submit the Schedule K-1 until after the filing due date of the Form 990.

In response to the comments received, the IRS issued Announcement 2012-19, which makes this requirement optional for the 2011 tax-year forms for many organizations that may continue to report an interest in a partnership or joint venture based upon its books and records for Parts VIII, IX and X of the core Form 990. Organizations filing Schedule H and Schedule R, however, are required to use Form 1065 Schedule K-1 when reporting certain information on partnerships.

The IRS continues to seek comments on whether and how to use Form 1065 Schedule K-1 when reporting certain information on partnerships. Comments may be sent to:

Internal Revenue Service
Attn: Stephen Clarke (Announcement 2012-19)
SE:T:EO
1111 Constitution Avenue, NW NCA 570-14
Washington, D.C. 20224 

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