Wednesday, December 18, 2019

Partnership Capital Account Reporting

Draft versions of the 2019 Schedule K-1 for both Forms 1065 and Form 8865 proposed to require
partner tax basis capital account reporting by all partnerships and prohibit the reporting of partner capital accounts under generally accepted accounting principles (GAAP), or any other method of accounting for 2019.

The IRS has decided to make this reporting requirement effective for partnership tax years that begin on or after January 1, 2020 rather than 2019. Thus, for 2019, partnerships must report partner capital accounts consistent with the reporting requirements in the 2018 forms and instructions, including the requirement to report negative tax basis capital accounts on a partner-by-partner basis.

Notice 2019-66 also clarifies the 2019 requirement for partnerships to report a partner's share of net unrecognized Section 704(c) gain or loss by defining this term for purposes of the reporting requirement.

The notice also exempts publicly traded partnerships from the requirement to report their partners' shares of net unrecognized Section 704(c) gain or loss until further notice.

The notice also provides that the requirement for partnership to report to partners information about separate Section 465 at-risk activities will not be effective until 2020.

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