The recently-enacted CARES Act makes many retroactive changes to the Internal Revenue Code for various provisions included in the Tax Cuts and Jobs Act of 2017 (“TCJA”).
Many of these provisions may have a significant and favorable impact on previously-filed partnership tax returns. One of these changes is the favorable depreciation rules that are now applicable to qualified improvement property. Taxpayers can now depreciate these interior improvements to nonresidential real property over 15 or 20 years, rather than over 39 or 40 years, and can even claim 100% bonus depreciation, depending on the depreciation system used.
Unfortunately, the Bipartisan Budget Act of 2015 (“BBA”) limited the ability of certain partnerships to file amended tax returns, namely those subject to the Centralized Partnership Audit Regime. These partnerships, commonly referred to as BBA Partnerships, are required to incorporate any changes to their returns via an Administrative Adjustment Request (“AAR”). The AAR, however, limits the retroactive application of the CARES Act because it requires the changes to be implemented in the year in which the AAR is filed. In the case of a BBA Partnership filing an AAR for changes to its 2018 tax year, this limits the benefit for partners to the current tax year, 2020, and the returns for this year are not filed until 2021.
Realizing this limitation, the IRS provided relief for BBA Partnerships in Revenue Procedure 2020-23. The Revenue Procedure allows these partnership to file amended partnership returns for the 2018 and 2019 tax years and to provide the corresponding Schedules K-1 to all partners before September 30, 2020. Moreover, a partnership amending returns under this procedure can include any beneficial changes allowed by existing law, not just those relating to the CARES Act. This will allow the partners of such partnerships to amend their individual tax returns to more quickly realize the tax benefits of the CARES Act and other provisions.
contact a member of Withum’s Tax Group.
In order to take advantage of the relief provided in Rev. Proc. 2020-23, a BBA Partnership must file a Form 1065 with the “amended” box check and must furnish corresponding amended Schedules K-1 to its partners. It must also indicate “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended return and attach a statement to each amended Schedule K-1 with the same notation. Special rules apply for partnerships currently under audit or those that may have files a previous AAR.
This relief provides BBA partnerships with a unique opportunity to amend prior-year partnership tax returns and pass along significant tax benefits to their partners.
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