IRS eases penalties on due dates for partnerships

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The Internal Revenue Service has issued a notice providing more time for partnerships, real estate mortgage investment conduits and some other types of businesses to file their returns.

Notice 2017-71 provides that any act performed for the 2016 taxable year of a partnership, REMIC, or certain other entities will be treated as timely for all purposes under the Tax Code, except with respect to interest, if the act would have been timely if the Surface Transportation Act had not changed the due date for partnership returns.

Notice 2017-71 amplifies, clarifies, and supersedes the earlier Notice 2017-47 by saying that additional acts, including the making of various elections, of partnerships, REMICs, and certain other entities made by the date that would have been timely prior to amendment by the Surface Transportation Act will be treated as timely. An earlier release of Notice 2017-71 provided the relief only to taxpayers whose taxable years began and ended in 2016, but newly revised guidance on Dec. 14, 2017 also applies to fiscal-year filers whose taxable years began in 2016 but did not end until 2017.

The 2015 legislation had accelerated the due date to March 15 for filing partnership returns and issuing K-1 schedules to partners instead of the traditional due date of April 15. However, the bill provoked objections and in September the IRS issued guidance providing penalty relief for some types of partnerships that didn’t file the required returns by the new due date for tax years beginning in tax year 2016. The new notice appears to expand that relief to REMICs.

A REMIC isn’t a partnership, the IRS noted, but under Section 860F(e) of the Income Tax Regulations it’s generally treated as a partnership for purposes of the Tax Code. For example, the due date and availability of an extension of time for filing a REMIC’s annual return are determined as if it were a partnership. As a result, the new due date also applies to the returns of a REMIC for taxable years beginning after Dec. 31, 2015.

A partnership can get a six-month extension of time to file Form 1065, 1065-B, or 8804, and a REMIC can receive a six-month extension to file Form 1066, by filing Form 7004, “Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns,” by the statutory due date. A partnership that receives an extension of time to file Form 1065 receives a concurrent extension to furnish its partners with Schedules K-1. Also, a partnership that receives an extension of time to file Form 8804 receives a concurrent extension of time to file Forms 8805 and to furnish copies of the forms to its partners. The six-month extension can apply to additional returns that a partnership may be required to file by the due date of its Form 1065 or 1065-B, but that doesn’t affect the due date for a partnership to furnish partners with K-1 schedules.

An entity that fails to timely meet its obligations to file and furnish returns is still subject to penalties, the IRS cautioned, including those that fail to file Forms 1065, 1065-B, 1066, 8804 and 8805 by the due date.

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