The IRS has made major changes for Partnership Tax Returns, Form 1065, beginning with Tax Year 2018. Going forward, the IRS will audit THE PARTNERSHIP’S TAX RETURN and collect tax from the partnership … NOT THE PARTNERS! Partnerships must select a representative to deal with the IRS, which has the sole authority to act on behalf of the partnership; i.e.: his/her actions are binding on ALL partners in the Partnership.
Partnerships with fewer than 100 partners can opt-out of the new audit rules so that the IRS would have to review each partner’s tax return; however, a Partnership cannot opt-out if it issues a K-1 to another Partnership, disregarded entity or trust. If a Partnership issues a K-1 to an S-Corporation, then K-1’s issued to the S-Corporation owners are counted in the 100-partner threshold for the Partnership. Most interesting is the fact that the opt-out provision relies on a new IRS form, “Schedule B-2 of Form 1065”, which, as of February 5, 2019, IS NOT AVAILABLE! That’s correct. If you go on IRS.gov “Forms & Publications” and put in “Schedule B-2 Form 1065”, anything other than what you are requesting comes up, and if you Google “IRS Schedule B-2 Form 1065”, all you will get is the Draft Form B-2, which is emblazoned with: “DRAFT AS OF September 11, 2018 DO NOT FILE”! My review of the “Draft” form would indicate its importance, in that it is where the partnership spells out the partners involved in the partnership; however, a week after filing began, it remains unavailable! Oh well, I guess we can blame the Government Shut Down!