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IRS Releases Draft 2019 Schedule K-1: What That Means for You

On September 30th, 2019 the IRS issued a draft of the tax year 2019 Schedule K-1 for form 1065, U.S. Return of Partnership Income. You may recall in 2018 there were last minute changes to the K-1 instructions related to Tax Reform that caused some headaches. However, per the IRS the 2019 Draft is considered “near-final” and meant to give tax practitioners a preview of what to expect before the final version is released in December.

How can you start to plan and prepare for what these changes will entail?

There were three major changes that were implemented which could impact you:

  • The first major change involves Section L and the reporting of the Partner’s Capital Account. No longer do you have the option to report the basis on GAAP, Section 704(b), or other. Instead, you will now be required to use the tax basis for Capital Account. This change has potential to create additional work for those partnerships that have not historically maintained capital accounts on a tax basis. You may now find yourself reworking partnership activities from day one, using the tax basis in order to accurately report the beginning and ending tax basis.
  • Another major change this year involves Section N and the disclosure related to the Partner’s Share of Net Unrecognized Section 704(c) Gain or (Loss). Partnerships will now be required to display any gain or loss at the beginning of the year and at the end of the year relating to contributions or revaluations of appreciated/depreciated property. Please note that it is still unclear what information the IRS will require to be disclosed related to this. This new requirement, however, will be particularly difficult for those publicly-traded partnerships (PTPs) due to their units being traded on securities exchanges. Because of this they cannot accurately track who is buying or selling these units, making it impossible to disclose the 704(c) gain or loss amounts.
  • A third significant change that will cause some additional preparation is related to Line 4 and Guaranteed Payments. Line 4 is now being broken out between 4a – Guaranteed Payment Services, 4b – Guaranteed Payment Capital, and 4c – Guaranteed Payment Total. In prior years the Guaranteed Payment amount was disclosed as a single amount, regardless of which category they fell into. For 2019 additional information will be needed to decipher between the two categories.

If you are impacted by these changes and would like to learn more about how to prepare for this upcoming tax filing season, please contact our professionals by filling out the form below.

Author: Anthony Aniello, CPA  |  aaniello@withum.com and Brett Campbell  |  bcampbell@withum.com

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