Partnerships eligible to take advantage of the beneficial tax provisions introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act have just a few more weeks to file an amended partnership return for the 2018 and 2019 tax years. While the Internal Revenue Service (IRS) normally prohibits filing an amended partnership return once the partnership has filed Federal Form 1065 and provided Schedules K-1 to its partners, the organization made an exception to provide relief from the economic impact of COVID-19.

Once the amended return exception expires, the centralized partnership audit regime’s procedures will apply for those tax years, which could result in some partners not being able to obtain a full refund, compared with what they would receive if the partnership files amended returns by the current September 30 deadline.

Amended Return Tax Benefits

One of the key provisions provided by the CARES Act is immediate current cash flow benefits and relief to taxpayers by a long sought-after fix to a legislative glitch. Some of these key tax advantages include:

  • Bonus depreciation: Based on a technical correction under the CARES Act, a qualified improvement property (QIP) placed in service in 2018 and after is now a 15-year property and is eligible for 100% bonus depreciation. It also changes the alternative depreciation system recovery period for QIP to 20 years, from 40 years.
  • Business interest deduction limitation: The CARES Act also increased the business interest deduction limitation from 30% to 50% of adjusted taxable income for tax years 2019 and 2020, while providing special rules for partnerships.

Audit Regime Returns After Sunset

Once the deadline for amended returns expires, the administrative adjustment request (AAR) process under the centralized audit regime returns for partnerships. Under the audit regime, partnerships subject to the regime must file AARs for amended returns.

If the result of an AAR is an imputed underpayment, the partnership can pay that amount or elect to use rules based on the push-out election in which reviewed-year partners would pay the amounts. However, if an AAR filing doesn’t result in imputed underpayment, rules similar to the push-out regime apply and review-year partners must take these adjustments into account in the year they were received, and refunds are generally available.

Act Now

Several tax practitioners have argued more time is needed to understand the complex guidance recently released by the IRS to ensure partnerships that amend returns remain in compliance. However, partnerships must act soon with anticipation that the September 30 deadline will not be extended.

To determine whether your partnership is eligible for amending returns to their tax benefit, contact Doeren Mayhew’s tax advisors today.