In Notice 2017-71 (the Notice), the IRS has provided relief for partnerships, real estate mortgage investment conduits (REMICs), and certain other entities filing partnership returns that perform any act (e.g., filing returns, making elections) for the 2016 tax year under the old deadline in effect for partnership returns. Under the notice, any such act performed for the 2016 tax year will be treated as timely if it would have been timely under the due date for partnership returns in effect before the changes enacted by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Surface Transportation Act).

Background

The Surface Transportation Act moved the filing deadline for partnership returns to one month earlier than they were previously due. Partnership returns became due March 15 (rather than April 15) for tax years beginning after December 31, 2015, for calendar-year partnerships. For fiscal-year partnerships, the due date became the 15th day of the third month (rather than the fourth month) following the close of the fiscal year. Partnerships that fail to file returns or furnish Schedule K-1 to partners by the due dates (including extensions) are subject to penalties.

In Notice 2017-47, the IRS announced that it will not penalize partnerships that file returns, or request extensions to file returns, under the old fourth-month deadline for returns attributable to the first tax year beginning after December 31, 2015. See Tax Alert 2017-1438.

Notice 2017-71

The Notice amplifies, clarifies and supersedes Notice 2017-47. In addition to providing relief with respect to the obligation to file returns with the IRS and furnish copies to recipients, the Notice provides relief with respect to various other actions — such as making elections, contributing to an employee pension plan, or paying tax — that would be due by the due date of the taxpayer's return (either with or without regard to any extension of time to file, depending upon the particular action). The Notice includes a nonexclusive list of examples of such actions.

The relief under the Notice applies to: (1) partnerships, (2) REMICs, and (3) certain other entities that could, and in fact did, file a Form 1065 for their 2016 tax year. The relief is available for the first tax year of such entities that began after December 31, 2015, and ended before January 1, 2017.

Under the Notice, the relief applies if the taxpayer took the act by the date that would have been timely under Section 6072 before amendment by the Surface Transportation Act (i.e., April 18, 2017, for calendar-year taxpayers, because April 15 was a Saturday and April 17 was a legal holiday in the District of Columbia). Nonetheless, taxpayers will still be liable for any interest due under Section 6601 from the date prescribed for payment until the date the payment was actually made.

The Notice states that a taxpayer that has already been assessed a penalty for failure to timely file a return that is deemed timely filed under the Notice can expect to receive a letter within the next several months notifying it that the penalty has been abated. For other acts deemed timely under the Notice, such as elections, taxpayers should file their returns consistent with the treatment of the acts as being timely under the Notice — no further action is needed to obtain relief unless contacted by the IRS.

Implications

It is welcome news that the IRS has expanded the penalty relief previously made available in Notice 2017-47 to elections and other actions. As indicated in Tax Alert 2017-1438, partnerships that receive demand for payment or other collection notices should not wait for further resolution from the IRS and should consider taking corrective action, including the following possible actions:

— Call the IRS number listed on the penalty/collection notices.

— If the IRS identifies a penalty as having been assessed on the partnership's account, request abatement of the penalty based on the Notice and emphasize that the Notice provides that the abatement should not be "coded" on the account as a first-time penalty abatement waver.

— Request that the IRS suspend issuance of any additional penalty/collection notices to the partnership.

Partnerships that have previously been assessed penalties should also consider calling the IRS in the next 60-90 days to ensure that the penalties have been or are in the process of being abated in accordance with the Notice. The best way to confirm abatement of the penalty is to secure an IRS transcript. EY's Account & Interest Group can advise and assist companies to help secure or verify the penalty abatement.

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