To File or Not to File an Amended Partnership Tax Return Subject to TEFRA Rules (article)

To File or Not to File an Amended Partnership Tax Return Subject to TEFRA Rules (article)

Someone brings to your attention that a previously filed partnership tax return is incorrect. This may require adjustments to the income, deduction, gain, loss or credit, or allocation of such items, on the original return. Perhaps adjustments are needed to correct the identity of partners and report transfers of ownership not known at the time the original return was filed. The list of reasons why an amended partnership tax return may be required could be endless. Given the impact that an amended partnership tax return can have on all of the partners, careful consideration must be given to the procedures required to effect a change to the tax return.

Generally, an amended partnership tax return is filed on Form 1065X. Every partnership required to file a return, other than a "small partnership," is considered a TEFRA partnership. TEFRA partnerships are subject to consolidated partnership procedures which can be quite intricate. A "small partnership" is one with no more than ten partners at all times during the tax year, each of whom is an individual (or resident alien), a C corporation, or an estate of a deceased partner (and a husband and wife are considered one partner).

Many issues must be considered before amending a partnership tax return; for example, should Form 1065X be filed? Should it be filed as an administrative adjustment request ("AAR") by the tax matters partner ("TMP").and if so, should it be treated as a substituted return request? If the amended return reflects a net increase to taxable income, consider a substituted return. This allows the IRS to assess tax to each partner for his share of the increased taxable income without an IRS audit. If the amended return reflects a net decrease to taxable income, an AAR may be preferable as the IRS is likely to take no action if a substituted return is filed.

Partners who receive an amended Schedule K-1 from a TEFRA partnership should file Form 8082 as an attachment to their original or amended individual tax return, and file a copy of Form 8082 with the IRS Center where the partnership filed its Form 1065 or Form 1065X. If the partnership filed Form 1065X as an AAR that reflects a net decrease to taxable income, the IRS will either start an examination, approve Form 1065X as filed, or take no action. If the IRS taxes no action, the TMP can petition the Tax Court.

If the IRS starts an examination, the TMP should timely provide the name, address and tax identification number of every unidentified indirect partner to the IRS office that issued the notice. Otherwise, the assessment of tax to any unidentified indirect partner can be made anytime until one year after the indirect partner has been identified.

The TMP must continuously update the partnership's partners of all IRS matters concerning the examination since this could impact the partnership's statute of limitations. For example, one or more partners may choose to "opt out" at any time during the consolidated partnership examination, its settlement, its post examination appeals, or its judicial remedies after a Final Partnership Administrative Adjustment Report is issued. Partners who opt out usually are at a disadvantage in their dealings with the IRS given that they may not have sufficient knowledge of the partnership's affairs.

Clearly, these consolidated audit procedures are complex. An amended partnership tax return should be avoided whenever possible. In some situations, however, there may be no choice but to file.

Please contact your local CBIZ MHM tax professional if you have any questions about your rights and responsibilities when a partnership tax returns needs correction.


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To File or Not to File an Amended Partnership Tax Return Subject to TEFRA Rules (article)Partners who receive an amended Schedule K-1 from a TEFRA partnership should file Form 8082 as an attachment to their original or amended individual tax return, and file a copy of Form 8082 with the IRS Center where the partnership filed its Form 1065 or Form 1065X. ...2013-08-27T13:31:00-05:00Partners who receive an amended Schedule K-1 from a TEFRA partnership should file Form 8082 as an attachment to their original or amended individual tax return, and file a copy of Form 8082 with the IRS Center where the partnership filed its Form 1065 or Form 1065X.