Partnership File Late? The IRS Might Abate

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Earlier this month, the IRS announced it would grant one-time relief to partnerships that failed to file returns on time for their first tax year beginning after December 31, 2015. According to IRS Notice 2017-47, many partnerships failed to file their 2016 year-end returns by the new due dates established by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 while still managing to file in time to meet due dates previously in effect.

 

The new law shifted the due date for partnerships from three and a half months to two and a half months after year-end.  For calendar-year partnerships, this meant a March 15, 2017, due date instead of April 18, 2017, for the 2016 tax return.

Requirements for Abatement

This one-time relief is available to partnerships meeting both of these requirements:

  1. Failed to timely file according to the new due date of two and a half months after year-end (March 15, 2017, for calendar-year filers)

     

  2. Filed the applicable returns (1065, 1065-B, 8804, 8805, 5471) and furnished copies of Schedule K-1 to partners or filed an extension request by the previous due date of three and a half months after year-end (April 18, 2017, for calendar-year filers)

Abated Penalties

The standard penalty for failure to file a partnership return by the mandated due date is $195 per month, per partner, for up to 12 months. These penalties can quickly accumulate. Although there are relief mechanisms for abating these penalties, it’s somewhat difficult to substantiate the claim of reasonable cause required under normal abatement procedures.

In most cases, taxpayers must resort to “first-time penalty abatement” where the IRS removes the penalties under its administrative penalty waiver program, which is only available on a limited basis. However, due to Notice 2017-47, partnerships meeting the criteria listed above won’t be considered to have received first-time abatement treatment and won’t be barred from applying for that relief in the future, assuming the first-time abatement requirements are otherwise met.

Next Steps

Although this relief will automatically be granted to eligible partnerships—meaning no application or request needs to be filed with the IRS—partnerships that previously assessed penalties for late filing can expect to receive a letter within the next several months confirming the abatement is indeed in effect. Taxpayers anticipating abatement coverage under Notice 2017-47 that haven’t received a notification letter by February 28, 2018, should contact the IRS and request penalty abatement pursuant to the notice.

For assistance requesting abatement relief or determining your eligibility, contact your BKD advisor.

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