The IRS announced recently that it will provide welcome penalty relief to partnerships whose returns are considered late-filed for the first year impacted by the new accelerated filing due dates. This penalty relief potentially waives thousands of dollars in penalties for partnerships mistakenly relying on the former due dates. Affected returns subject to an extension request must still be filed by the fifteenth day of the ninth month after the close of the partnership's year (Sept. 15, 2017 for calendar-year filers).
Historically, Form 1065 for partnerships (and limited liability companies taxed as partnerships) was due 3 ½ months after the end of the tax year, or April 15 for the vast majority of partnerships (that utilize a calendar year-end). For tax years beginning after Dec. 31, 2015, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 accelerated the original due date for Form 1065s to 2 ½ months after the end of the tax year, or March 15 for calendar-year filers. This accelerated due date impacts Form 1065 together with additional returns some partnerships must also file at the same time, such as Form 5471. The due dates for many other common tax filings were also altered by this legislation.
The extension period for Form 1065 also has increased from five months to six months under this legislation, meaning ultimately that the extended due date for Form 1065 has not changed. Hence, the extended due date for calendar year-end partnerships continues to be Sept. 15.
Many partnerships mistakenly relied on the former prescribed time for filing returns or extension requests during the first tax year covered by the new accelerated due date.
New Penalty Relief
In Notice 2017-47, the IRS announced it will grant automatic relief from specified late-filing penalties when either of two conditions is satisfied:
- The partnership filed Form 1065, 1065-B, 8804, 8805, 5471, or other required filing with the IRS and furnished copies (or Schedules K-1) to the partners by the former prescribed time for filing (3 ½ months after the end of the tax year, or April 18, 2017 for calendar-year filers); or
- The partnership filed Form 7004 to request an extension of time to file by the former prescribed time for filing, and files the associated returns with the IRS and furnishes copies (or Schedules K-1) to the partners by the fifteenth day of the ninth month after the close of the partnership's tax year (Sept. 15, 2017 for calendar-year filers).
Partnerships that already have been assessed penalties under these conditions can expect to receive a letter from the IRS within the next several months to notify them of the penalty waiver. Importantly, this penalty waiver will not be treated as falling under the IRS first-time abatement penalty waiver program, leaving open that possibility for later use by a partnership.
The penalty relief comes as great news to partnerships with late-filed returns affected by the new accelerated due dates. Partnerships are subject to a late filing penalty of $195 per partner, per month late (up to 12 months). A two-person partnership with an accelerated due date of March 15 therefore could be subject to a penalty of $2,340, if the return were filed on Sept. 15. It is easy to see how this penalty can quickly reach very high levels with just the addition of a few more partners. Other forms that are deemed filed late, such as Form 5471, also carry a potential late filing penalty of $10,000 per form. Thus, the IRS announcement to waive all of these penalties for qualifying partnerships could amount to very substantial monetary relief.
The IRS announcement did not specify whether relief would also be granted for other consequences of a return filed late, such as elections. Still, this announcement is a win for partnerships that made good faith efforts to timely file their tax returns. For more information on this penalty relief, please contact your local CBIZ tax professional.
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