IRS Releases Draft 2019 Form 1065, Schedule K-1 and Related Instructions
By Anthony Clemente, CironeFriedberg, LLP
The IRS released the draft 2019 Form 1065, U.S. Return of Partnership Income, the Schedule K-1, Partner's Share of Income, Deductions, Credits, etc., and related instructions, which include new information requests and reflect TCJA changes.
The draft 2019 Form 1065 includes a new item K on page 1 of the return that adds two check boxes to indicate if the partnership (1), aggregated activities for IRC Section 465 risk purposes and (2), grouped activities for IRC Section 469 passive activity purposes.
Schedule K of the draft 2019 Form 1065 expands line 4 reporting for guaranteed payments to delineate amounts for services and capital.
Part II includes the following revisions to the 2019 draft forms:
Part II Item E reports the partners ID number now specifies not to use the ID number of a disregarded entity.
Part II Item H includes check boxes to indicate ‘domestic’ or ‘foreign’ partner adds a new check box to indicate ‘disregarded entity’ and further requires the name of the beneficial owner.
Part II Item J adds a new check box to indicate whether a decrease to a partner’s profit, loss, and/or capital percentage is due to a sale or exchange of a partnership interest.
Part II Item K reports partners’ share of liabilities, now includes a check box to indicate if the liabilities include amounts from lower-tier partnerships.
Part II Item L includes that the partners’ capital account analysis requires the reporting of tax-basis capital and no longer includes check boxes to indicate reporting as tax-basis, GAAP, and IRC Section 704(b) book.
Tax-Basis Capital Accounts
As mentioned above, the draft 2019 Schedule K-1 requires the reporting of each partner’s tax-basis capital account regardless of whether a partner’s tax-basis capital account is positive or negative. The draft instructions mandate that partnerships use a historic approach to compute their partners’ tax-basis capital accounts and does not provide a safe harbor. To the extent partnerships have not historically maintained tax-basis capital accounts, significant work may be required to procure such capital accounts in anticipation of 2019 tax filings, because the partnerships activities, since its formation, need to be rolled forward using the income tax rules.
Internal Revenue Code Section 199A Items
In 2018, the Form 1065 instructions required partnerships to report each of the IRC Section 199A items under different Schedule K-1 line 20 codes. The 2019 draft instructions condensed the different items into code ‘Z’, instructing partnerships to report partners’ distributive shares of each of the IRC Section 199A items as part of a statement attached to Schedule K-1. In conclusion, partnerships and their advisors should carefully consider the recently released draft instructions in preparation for the 2019 compliance season as significant efforts may be necessary in order to comply.
Please contact us if you have any questions about the new draft form, schedule or instructions.