After several rounds of revisions and reversals, the IRS is about to release its final version of instructions for partnerships to use when calculating and reporting their partners’ capital accounts on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc. The instructions, which the IRS is expected to finalize within a few weeks, will apply to the 2020 tax year—the tax preparation season that is already underway for most organizations.
The IRS says it will provide penalty relief for the 2020 requirement as long as partnerships “take ordinary and prudent business care in following the form instructions”. On January 21, 2021, the IRS issued Notice 2021-13 providing additional penalty relief applicable to the calculation of beginning capital balances. Compliance could require considerable data gathering and complex calculations, so partnerships should begin working on these tasks immediately. (more…)