IRS Issues Notice on Reporting of Partner Capital

David Gibbs, CPA, CCIFP. MBA
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February 17, 2020

As reported in Accounting Today on December 10, 2019, the IRS issued a notice ( Notice 2019-66 ) delaying a requirement for reporting partners’ share of partnership capital.

Notice 2019-66 provides that the requirement to report partners’ shares of partnership capital on the tax basis method will not be effective for 2019 (for partnership taxable years beginning in calendar 2019) but will be effective starting in 2020 (for partnership taxable years that start on or after January 1, 2020). 

For 2019, partnerships and other persons must report partner capital accounts consistent with the reporting requirements in the 2018 forms and instructions, including the requirement to report negative tax basis capital accounts on a partner-by-partner basis.

The notice clarifies the 2019 requirement for partnerships and other persons to report a partner’s share of net unrecognized Section 704(c) gain or loss by defining this term for purposes of the reporting requirement. In addition, the notice exempts publicly traded partnerships from the requirement to report their partners’ shares of net unrecognized Section 704(c) gain or loss until further notice.

The notice also says the requirement added by the draft instructions for 2019 for partnerships to report to partners information about separate Section 465 at-risk activities will not be effective until 2020. Lastly, the notice provides relief from certain penalties.

The IRS was given the ability by Congress to audit large partnerships such as hedge funds and private equity firms by auditing the entire partnership, rather than partner by partner. However, the IRS has needed to draw up some detailed regulations to deal with the capability, which promises to ultimately simplify its ability to audit large partnerships.

Feel free to call any member of our team to discuss your situation at 610-828-1900 (PA) or 732-341-3893 (NJ). You can contact David Gibbs, CPA, partner at David.Gibbs@MCC-CPAs.com or me at Marty.McCarthy@MCC-CPAs.com . We are always happy to help. 

Martin C. McCarthy, CPA, CCIFP
Managing Partner 
McCarthy & Company, PC 

Source: Accounting Today. December 10, 2019.

Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).