The IRS recently finalized partnership tax forms for the 2019 tax year, which include significant modifications to Form 1065, U.S. Return of Partnership Income (Form 1065), Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc. (Schedule K-1 or K-1), and Instructions for Form 1065 (collectively, 2019 K-1). The IRS previously had released the forms in draft (collectively, Draft K-1). The Draft K-1 included a new requirement that partnerships report partner capital accounts on a tax basis. On December 9, the IRS released Notice 2019-66 suspending the requirement to report tax capital until tax year 2020, as well as providing guidance on a number of other new reporting requirements.
The asset management sector experienced an increased compliance burden in 2018 as a result of the 2017 federal tax reform act. While the delay of tax capital reporting is welcome relief, no delay is provided for any of the additional reporting requirements. The 2019 K-1 will continue to increase the administrative costs and burdens on funds and their investors, as well as to expand the size and complexity of partners’ Schedule K-1.
The 2019 K-1 significantly increases reporting for the asset management sector. Partnerships need to work with their tax preparers now to address the data collection and process changes necessary to comply with these reporting requirements. Perhaps more importantly, the 2019 K-1 provides insight into issues of IRS focus, and provides an opportunity for asset managers to effectively plan and prepare for potential examinations.
Asset Management Tax Leader, PwC US