Current Developments in Partners and Partnerships

Recent rulings and decisions involving partnerships are reviewed and analyzed.

February 2009
by Hughlene Burton/The Tax Adviser

During the period of this update (November 1, 2007 to October 31, 2008), Treasury and the IRS worked to provide guidance for taxpayers on numerous changes that had been made to subchapter K in the past few years. Treasury issued proposed and final partnership regulations about the Sec. 199 deduction, foreign source income, and the substantiality of allocations. The courts and the IRS issued various rulings that addressed partnership operations and allocations.

Form 1065

The IRS has made changes to Form 1065, U.S. Return of Partnership Income, which partnerships use to file their returns. These changes are expected to be effective for tax years ending December 31, 2008. The purpose of the changes was to promote compliance by accurately reflecting the entity’s ownership and to minimize the filing burden. To that end, the new forms add additional questions to existing Schedule B, Other Information. The changes focus on partnerships that have complex ownership structures. Form 1065 filers who must file a Schedule M-3, Net Income (Loss) Reconciliation for Certain Partnerships, will also have to provide more information on related-party transactions.

In addition, effective for 2008 tax returns, the extended due date for Form 1065 will be September 15 instead of October 15.

Recent Tax Law Changes

Worker, Retiree and Employer Recovery Act of 2008

The Worker, Retiree and Employer Recovery Act of 2008, P.L. 110-458, included a provision that increases the penalty for failing to timely file a partnership return or failing to file a partnership return that shows the required information from $85 to $89 a month, for up to 12 months.

The penalty will not apply if the partnership can show reasonable cause for not filing its return or filing a return that does not contain the required information.

This article has been excerpted from The Tax Adviser. Read the full article  here (PDF).

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