Draft 2020 Form 1065 instructions released, including changes to tax basis capital account reporting

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Overview

The IRS released on October 21 a first draft of instructions for the 2020 Form 1065, U.S. Partnership Tax Return (the Instructions), for public review and comment. Comments are requested specifically with regard to the tax basis capital account reporting change discussed below. Comments should be submitted to the IRS by November 20, 2020. 

The most significant changes in these instructions relate to the reporting of partner capital accounts in Item L of Schedule K-1 (with conforming changes to Schedule M-2). Other changes include instructions for new credits and increased limitations as a result of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), additional guidance for certain items under the new partnership audit rules, and additional requirements for certain foreign reporting and installment sale obligations.

The takeaway

The changes to the Form 1065 instructions are part of a larger effort by the IRS to increase transparency and disclosure on partnership tax returns. The new draft instructions help create a flexible set of rules that should make compliance practical for most partnerships.  Taxpayers should consult with their tax preparers now to identify the appropriate method of calculating and reporting beginning tax basis capital accounts to comply with the new requirements. Any comments or concerns with regard to the new requirements are due to the IRS by November 20, 2020. 

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Julie Allen

National Tax Services Market Leader and Mergers and Acquisitions Tax Leader, PwC US

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