Unbeknownst to many taxpayers at the time, the IRS changed the filing due date for partnership tax returns for tax years ending after December 31, 2015. As a result, earlier this year, many partnerships that addressed their filing obligations on April 15 as they had in prior years – rather than March 15, the new filing deadline – were shocked to be assessed with delinquency penalties. Fortunately, the IRS recently issued significant guidance in Notice 2017-47. That notice provides penalty relief for returns (or extensions) that would have been timely filed under the prior iteration of I.R.C. § 6072.
Background. The Surface Transportation Act of 2015 amended I.R.C. § 6072 to change the filing date of the annual return of a partnership from the fifteenth day of the fourth month following the close of the taxable year to the fifteenth day of the third month following the close of the taxable year. For many, this changed the due date of the return or an extension from April 15 to March 15, starting for the 2016 tax year. While no tax is typically due with a Form 1065 (partnership tax return), the due date can be important for statute of limitations purposes as well as for penalty assessment purposes. In addition to delinquency penalties relating to the Form 1065, failure to file associated informational schedules (e.g., Schedules K-1, Forms 5471, Forms 8621) by the due date can result in hefty penalties. (For each month a Form 1065 is filed late, the IRS will typically assess a $195/month per partner penalty.)
Relief Provisions. Given the lack of publicity and the sheer number of late filings, the IRS decided to administratively grant relief to many affected taxpayers. For most partnerships, assuming the following conditions are satisfied, the IRS will now grant relief from penalties, pursuant to Notice 2017-47:
- the partnership filed the return required to be filed with the IRS and furnished copies (or Schedules K-1) to the partners (as appropriate) by the date that would have been timely before amendment of the statute (April 18, 2017 for calendar-year taxpayers); or
- the partnership filed Form 7004 to request an extension of time to file by the date that would have been timely before amendment of the statute and files the return with the IRS and furnishes copies (or Schedules K-1) to the partners by the fifteenth day of the ninth month after the close of the partnership’s taxable year (September 15, 2017).
Such relief should be automatic for failure to file penalties relating to returns that are to be included with, or are tied to the due date for, the Form 1065. These include related returns for foreign corporations (Form 5471). If a qualifying partnership has not already receive a letter concerning this change from the IRS, they should receive one in the near future concerning abatement of penalties assessed for the 2016 tax year. If denied or otherwise not granted, those seeking reconsideration must contact the IRS by February 28, 2018. Any relief granted pursuant to Notice 2017-47 will not be treated as having received an administrative waiver (i.e., First Time Abatement).
If your partnership has been assessed with a late filing penalty and you may be eligible for relief or intend to otherwise seek abatement, you should seek competent tax counsel. Rosenberg Martin Greenberg, LLP is experienced in all aspects of federal and state tax laws, including provisions relating to partnership tax procedure, partnership tax penalties, and related penalty abatement (e.g., Rev. Proc. 84-35). Please contact Brandon Mourges at 410.951.1149 or email@example.com for a free consultation.