Tax advisers who work with small partnerships have long been aware of the late filing relief provided by Revenue Procedure 84-35.  But some have wondered that since the procedure refers to a provision removed from the Internal Revenue Code by the Bipartisan Budget Act of 2015 for tax years beginning on or after January 1, 2018, does it continue to apply?

In Program Manager Technical Advice 2020-01[1] the Chief Counsel’s office addressed that question, determining Revenue Procedure 84-35 still is available for taxpayers to use to obtain relief from partnership late filing penalties under IRC §6698.

The IRS has decided to push back by one year the requirement that all partnerships report partners’ capital on Schedules K-1 on the tax basis of accounting in Notice 2019-66.[1]  The IRS had originally only provided the option to report capital on the tax basis of accounting on the draft Form 1065 for 2019.

The IRS received a number of comments on that requirement that indicated both that there was not a clear definition of the tax basis of accounting for these purposes and that many taxpayers would be unable to prepare such returns either at all for 2019 or at least not until much later than their partners expected to receive the K-1s.

Due dates for tax returns don’t change very often—so rarely that most taxpayers likely assume they simply won’t. But Congress in 2015 proved that such dates can be changed and that Congress is willing to do so, changing several dates. Matters are tougher when Congress moves the due date forward, as they did for partnerships.

Many partnerships, unaware of that requirement, either filed their Form 1065 or their request for an extension on Form 7004 after March 15, but on or before April 15, this year.  Notice 2017-47 provides relief from late filing penalties for partnerships in that situation who meet the requirements provided for in the notice.

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In Chief Counsel Advice 201733013 the IRS concluded there is not an exemption from filing a tax return for small partnerships under any of the below authorities:

• IRC §6031;
• IRC §6693; or
• Revenue Procedure 84-35.

IRC §6031(a) imposes the requirement that each partnership must file an annual partnership return. IRC §6698 imposes a per month penalty when the partnership fails to file a return—and for 2017 returns that penalty amount is set at $200 per month.[1]  This penalty can be waived if the failure to file is due to reasonable cause. [2]

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The fact that the IRS waives a penalty in one year does not require that the IRS must waive the penalty in a later year was the holding of the United States District Court of the District of South Dakota in the case of Battle Flat, LLC v. United States, Docket No. 5:13-cv-05070 (2015 TNT 184-15).

The issue in this case involved a partnership that filed its returns late for a number of years.