Amended partnership return (Amended 1065): Get help for a tricky tax task
4 min read
April 20, 2021 • Block Advisors
Amending your tax return can take several steps for some types of businesses. However, an amended partnership return is possibly one of the most complicated due to the intricate tax laws involved.
If you are wondering, “What is IRS Form 1065“ and “How do I file an amended Form 1065?” Take heart — help is here! We’ll outline everything you need to know, including a potential opt out for certain partnerships using Schedule B-2 (Form 1065). If you’re still stumped on how to file an amended partnership return, Block Advisors small business certified tax pros are ready to help.
Amended partnership return background
First, let’s cover a bit of history to understand what applies now. The Bipartisan Budget Act of 2015 introduced an audit process called the Centralized Partnership Audit Regime (CPAR). It impacts partnerships for tax years 2018 and beyond.
Under CPAR, assessments made following a partnership audit are at the partnership level using the highest individual rate and apply to the assessment year rather than the year under audit.
Previously, partnerships had to follow the Tax Equity and Fiscal Responsibility Act of 1982 “TEFRA” where adjustments from an audit were passed down separately to each partner.
Partnerships that meet certain requirements may elect to opt-out of CPAR.
To qualify for the election, the partnership must have 100 or fewer partners, all of whom are eligible partners. Eligible partners are individuals, C corporations, S corporations, estates of deceased partners, and certain foreign entities.
Partnerships with any of the following types of partners don’t qualify for the election: a partnership, a trust, a disregarded entity (such as a single member LLC), a nominee, an estate of an individual other than a deceased partner, and a foreign entity that would not be treated as a C corporation were it a domestic entity.
The number of partners is determined by the number of Schedule K-1s required to be issued by the partnership plus the number of Schedule K-1s required to be issued by any S corporation partner to its own shareholders.
How to opt out of the centralized partnership audit regime amended return
If you opt out of CPAR, then when you need to change your return, you file an amended Form 1065 and Schedule K-1.
What is Form 1065 and how do you opt out of CPAR? Form 1065 has a checkbox to indicate your partnership is opting out of CPAR. Simply look for the box on Schedule B and check it to opt-out.
The partnership will then move on to Schedule B-2 (Form 1065), Election Out of the Centralized Partnership Audit Regime. It will list each eligible partner. If one of the partners is an S corporation, each shareholder of the S corporation must be listed.
Eligible partnerships should consider if the election is worth it. Keep in mind: if the election is made, partners are subject to audit under the general rules for individual taxpayers.
Under the opt-out election:
- Assessment adjustments apply to the year being audited rather than the year the assessment is made.
- Assessments are conducted at the partners’ individual tax rates rather than the highest individual tax rate, which is 37%.
All partnerships are subject to CPAR unless eligible to opt out and the election must be made annually. If you do opt out, your partnership must notify each of its partners of the election within 30 days of making the election.
What if you don’t elect to opt out of centralized partnership audit regime amended return?
Partnerships that don’t elect to opt out must complete the “Designation of Partnership Representative” information in the area just below Box 25 on Schedule B. The representative doesn’t need to be a partner but must have a substantial U.S. presence. They also have to act as the partnership’s sole authority.
Electing partnerships don’t have to designate a representative but should determine who will handle all tax matters for the partnership and keep that information with the partnership agreement.
What happens if you did not elect out? If you don’t, you will use different rules. Your Block Advisors small business certified tax pro can help you with that process.
Get help with the amended 1065 form
If you think you need to fill out an amended 1065 form for your partnership, get help. (Even well before business taxes are due.)
Our Block Advisors small business certified tax pros are here for you. Our tax pros are available to offer advice and keep you and your business on track.
Schedule a time to meet with your tax pro in person, or via phone, video or chat.