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BLOG: IRS Provides Penalty Relief for New Capital Reporting Requirements

January 26, 2021, www.PartnershipRepresentative.com

On January 14, 2021, the IRS issued Notice 2021-13 to provide transition penalty relief to partnerships complying with new rules for reporting partners’ capital account balances.

Before the 2020 tax year, partnerships could report their partners’ capital accounts for the tax year using one of a variety of methods, such as tax basis, GAAP, or section 704(b) book. However, the 2020 Form 1065 Instructions (“the Instructions”) require partnerships to calculate and report all their partners’ capital accounts using the tax basis method. The Instructions explain that if a partnership did not report its partners’ capital accounts using the tax basis method in the 2019 tax year and did not maintain its partners’ capital accounts under the tax basis method, the partnership may determine its partners’ beginning capital accounts for the 2020 tax year using any one of the following methods: the tax basis method, modified outside basis method, modified previously taxed capital method, or section 704(b) method (each as described in the Instructions).     

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