Partnership Can Now File Amended Returns for Business Interest Deductions and Qualified Improvement Property
Revenue Procedure 2020-23 allows partnerships to file amended returns and issue amended Schedules K-1 in order for their partners to be able to take immediate advantage of the retroactive tax relief provided by the Coronavirus Aid, Relief and Economic Stimulus (“CARES”) Act.
The CARES Act contained a number of provisions, including the increased limitation applicable to the section 163(j) business interest deduction and the eligibility of Qualified Improvement Property for 100 percent bonus deduction. These changes were made for tax years beginning in 2018 so as to provide immediate relief to taxpayers that could file amended returns.
Under the partnership audit rules that were enacted as part of the Bipartisan Budget Act in 2015, partnerships that do not elect out of the new rules are no longer able to file amended returns or amend Schedules K-1 for taxable years beginning after December 31, 2017. Instead, partnerships are required to file Administrative Adjustment Requests (“AARs”) and issue statements similar to amended K-1s to partners. Partners, in turn, take the adjustments reported on the statements into account when filing their return for the year in which they received the statement.
As a result, if a partnership filed an AAR for taxable year 2018 in 2020, a partner would not effectively realize that adjustment until they filed their taxable year 2020 return in 2021. This process would significantly delay the relief provided in the CARES Act that is intended to be available immediately.
Rec. Proc. 2020-23 allows partnerships that filed returns prior to April 8, 2020, to file amended returns and issue amended Schedules K-1 instead of filing AARs even if those partnerships are not claiming any CARES Act benefits. To take advantage of the option to file an amended return, an eligible partnership must file a Form 1065 with the “Amended Return” box checked, along with amended Schedules K-1, and must write “FILED PURSUANT TO REV. PROC. 2020-23” at the top of the return. The partnership must include the same notation on the top of the amended Schedules K-1 issues to its partners. Such amended returns must be filed no later than September 30, 2020.
Rev. Proc. 2020-23 does not prevent a partnership from filing an AAR for any reason, including obtaining the benefits of the CARE Act or any other benefits to which the partnership is entitled. Additionally, a partnership that files an amended return instead of an AAR still remains subject to the remainder of the partnership audit rules. Finally, a partnership that elected out of the new rules is not affected by this Rev. Proc., as they previously had the ability to file an amended return.