IRS requests comments on partner tax capital reporting

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June 2020

Overview

On June 5, the IRS released Notice 2020-43 (the Notice), requesting comments by August 4 on two proposed methods for reporting tax basis capital on partnership Schedules K-1 for tax years ending on or after December 31, 2020. The proposal would require use of either a “Modified Outside Basis Method” or a “Modified Previously Taxed Capital Method” to satisfy the reporting of tax basis capital requirement (the Tax Capital Reporting Requirement).The same method must be used for all partners within a tax year, but a method may be changed from one tax year to the next, with disclosure. The Transactional Approach that previously was required by the IRS no longer would be an appropriate method.

The takeaway

The methods proposed in the Notice, if adopted, would require partnerships to recalculate partners’ share of tax capital in accordance with either the Modified Outside Basis Method or the Modified Previously Taxed Capital Method for tax years ended on or after December 31, 2020, while the Transactional Approach no longer would be permitted. This new reporting requirement will impact all partnerships. Affected taxpayers should consider whether to provide comments addressing any potential concerns on these proposed methods before the deadline of August 4, 2020.

Contact us

Craig Gerson

Principal, M&A Tax, PwC US

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