IRS grants extension for partnerships to file superseding Form 1065 for centralized audits

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The Internal Revenue Service has issued a revenue procedure giving some partnerships extra time to file a Form 1065 and the accompanying Schedule K-1 as long as they haven’t opted out of the IRS’s new centralized partnership audit regime.

Revenue Procedure 2019-32 grants eligible partnerships an extension of time to file a superseding Form 1065, U.S. Return of Partnership Income, as well as furnish a corresponding Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., to each of its partners. However, the relief only applies to partnerships that, for the applicable taxable year: (1) haven’t elected out of the centralized partnership audit regime; (2) have filed Form 1065 on time; and (3) have furnished all Schedules K-1 on time that were required to be furnished to the IRS (without regard to the extensions of time provided by the new revenue procedure).

The Bipartisan Budget Act of 2015 gave the IRS a centralized audit regime that allows it to audit large partnerships, such as major accounting firms, collectively instead of auditing each partner individually, making the process more efficient for the IRS. However, there are some exceptions. "The centralized partnership audit procedures apply to all partnerships, unless the partnership makes a valid election under section 6221(b) not to have those procedures apply,” said the IRS. “Only certain partnerships that are required to issue fewer than 100 Schedules K-1 are eligible to make the election under section 6221(b).”

Still, the new rules have been a big adjustment for many partnerships that are used to the old unified partnership audit and litigation rules that date back to 1982 under the Tax Equity and Fiscal Responsibility Act, also known as TEFRA. The new rules enable the IRS to audit large partnerships such as private equity firms and hedge funds that have been difficult to audit in the past, prompting hearings in Congress that led to the change in the law in 2015.

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Partnerships Tax audits Tax forms Tax regulations IRS