Rev. Proc. 2020-24 for Amending Partnership Returns

The Internal Revenue Service (IRS) introduced Revenue Procedure 2020-23 as a specific form of relief for certain taxpayers. This guidance was issued in response to legislative changes within the Coronavirus Aid, Relief, and Economic Security (CARES) Act that had a retroactive impact. The core purpose of this revenue procedure was to provide a method for certain partnerships to file amended returns, allowing them to take advantage of new tax benefits for prior tax years.

This guidance established a temporary and alternative pathway for making adjustments, deviating from standard procedural requirements. It permitted these entities to file an amended Form 1065, the U.S. Return of Partnership Income, which was a significant departure from the prevailing rules. The procedure was designed to streamline the process for claiming benefits enacted after the original filing deadlines had passed.

Eligibility for Relief

To utilize the special relief, a partnership had to meet specific criteria. The primary requirement was that the partnership must be subject to the audit regime established by the Bipartisan Budget Act of 2015 (BBA). The BBA created a centralized system for auditing partnerships, assessing, and collecting tax at the partnership level, a shift from prior rules where adjustments flowed through to individual partners.

The procedure was not open-ended and was strictly limited to partnership tax years beginning in 2018 or 2019. This narrow window was intentional, as it aligned with the retroactive tax law changes introduced by the CARES Act. For instance, the CARES Act corrected a drafting error in the Tax Cuts and Jobs Act of 2017 (TCJA) related to qualified improvement property (QIP), retroactively making it eligible for 100% bonus depreciation.

The relief enabled partnerships to quickly pass along the benefits of CARES Act provisions to their partners. These provisions included the fix for QIP, more favorable rules for net operating losses, and an increased limitation on the deductibility of business interest expense.

A partnership seeking this relief must have previously filed a Form 1065 and furnished the corresponding Schedules K-1 to its partners for the tax year it intended to amend. The option was available even to BBA partnerships that were already under examination by the IRS. In such cases, the partnership was required to notify the assigned revenue agent and provide them with a copy of the amended return.

The Alternative Under BBA Rules

The significance of the relief is best understood by examining the standard process it allowed partnerships to bypass. Under the BBA, the typical method for correcting a previously filed partnership return is not to amend it, but to file an Administrative Adjustment Request (AAR). An AAR is a formal request to change items on a filed return and serves as the sole mechanism for a BBA partnership to make corrections outside of an IRS examination.

A fundamental distinction of the AAR process lies in how tax adjustments are handled. When a partnership files an AAR, any resulting tax impact is accounted for by the partners in the year the AAR is filed, not the original year to which the adjustment relates. For example, if a partnership filed an AAR in 2021 to correct a 2019 return, the partners would report their share of the adjustments on their 2021 tax returns.

This “current year” treatment can lead to complications. The partnership must calculate an imputed underpayment, which is the tax that would have been due if the adjustments were made in the original year, and may have to pay this amount itself. Alternatively, it can elect to “push out” the adjustments to the partners, who then must take them into account on their own returns in the year they receive the adjusted K-1s.

Filing an AAR involves filing Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), along with a revised Form 1065 and updated Schedules K-1. The complexity and timing of the tax consequences under the AAR system made the option to file a straightforward amended return a valuable simplification.

Procedural Steps for Filing an Amended Return

For an eligible partnership to take advantage of the relief, it had to follow a clear set of procedural steps. The primary action was to file a Form 1065, U.S. Return of Partnership Income, for the 2018 or 2019 tax year and check the box designated for an “Amended Return.” This signaled to the IRS that the filing was being made under the special allowance.

To properly identify the filing, partnerships were instructed to write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended Form 1065. Concurrently with filing the amended partnership return, the entity was required to furnish amended Schedules K-1 to each of its partners. These revised K-1s would reflect each partner’s share of the items as changed on the partnership’s amended return.

Upon receiving an amended Schedule K-1, the partners had a corresponding obligation. Each partner was then required to file their own amended federal income tax return for the affected year. For example, an individual partner would file a Form 1040-X, Amended U.S. Individual Income Tax Return, to report the changes from the amended K-1 and recalculate their tax liability.

This relief was not indefinite and came with a firm deadline. All of these actions had to be completed before September 30, 2020. Missing this deadline meant the partnership would lose the ability to use this simplified process and would have to revert to the more complex AAR system to make any changes.