IRS Provides Partnerships a Big Break to Amend 2018 and 2019 Tax Returns for CARES Act Changes and Corrections 

April, 2020 - Leigh Griffith, Nicole Dressler

On April 8, 2020, the IRS published Revenue Procedure 2020-23 (Rev. Proc. 2020-23) that provides partnerships a limited opportunity to amend their 2018 and 2019 tax returns and issue amended Schedule K-1s to partners to take advantage of the retrospective Coronavirus Aid, Relief, and Economic Security (CARES) Act changes. As discussed below, this will allow partnerships to amend their tax returns to reflect the “fix” for the qualified improvement property which may be significant for many taxpayers! The CARES Act also eased interest deduction limitations and made other modifications. Partnerships can, for a limited time, amend their returns and send Schedule K-1s to their partners who can in turn file amended returns (and even carry back losses) claiming refunds. While partners filing amended returns electronically should receive refunds more quickly, paper amendments are permitted.

The centralized partnership regime requires a partnership to file an administrative adjustment request (AAR) rather than simply filing an amended return. The AAR only provides partners relief on the current taxable year’s federal income tax return, which in the present case generally would not be filed until 2021. This would deny partners the prompt tax benefits the CARES Act intended to provide. Now, partnerships can amend 2018 and 2019 tax returns under the circumstances discussed below and take into account the CARES Act changes andany other tax attributes to which the partnership is entitled by law.This permits the partners to file amended returns for refunds.

The CARES Act provides not only stimulus and relief for struggling businesses and industries during the COVID-19 crisis, but also makes technical corrections left undone after the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA). TCJA erroneously excluded qualified improvement property, which generally includes improvements made to the interior of a non-residential building such as retail and restaurant remodels, from 100 percent bonus depreciation and stuck such improvements with 39-year depreciation. The CARES Act corrects this error, known as the “retail glitch,” allowing taxpayers to take 100 percent bonus depreciation on qualified improvement property retroactively for past tax years and going forward. If bonus depreciation is not taken, the property may be depreciated over 15 years.

 

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