January 7, 2009
Keith M. Jones
Internal Revenue Service
Industry Director - Natural Resources and Construction
Large and Mid-Size Business Division
1919 Smith Street, Stop 1000HOU
Houston, TX 77002
Re: Comments on IR 2008-110, Technical Terminations of Publicly Traded Partnerships
Dear Mr. Jones:
The American Institute of Certified Public Accountants (AICPA) has reviewed IR 2008-110, in which the Internal Revenue Service (IRS) announced that it plans to issue guidance through the Industry Issue Resolution (IIR) program that will address tax issues with respect to the technical termination of a publicly traded partnership (PTP). We applaud your willingness to address these issues and to provide guidance that will prove beneficial to both affected taxpayers and the government. IR-2008-110 lists IIR submissions for 2008 and indicates which were accepted as a 2008 project and which were not. We had an opportunity to review the PricewaterhouseCoopers submission which recommends that the IRS permit a PTP to file a single Form 1065, U.S. Return of Partnership Income, for the calendar year in lieu of two short period Forms 1065 that would otherwise be required. Alternatively, it recommends that the PTP submit two Forms 1065 -- one for each short tax period -- but that it be permitted to file with its second Form 1065 a set of Schedules K-1 (K-1) that would report each investor's tax information for the entire calendar year. A K-1 would not be filed for the first Form 1065.
Although we believe it would be more efficient to only require the filing of a single Form 1065, we believe either approach would be beneficial to taxpayers and the IRS for the following reasons:
- The receipt of two K-1s can be confusing for some taxpayers. Notwithstanding efforts made by the PTP to explain why two K-1s are being received, some taxpayers will likely consider the second K-1 to be a substitute for the first K-1, particularly in situations where the second K-1 is filed soon after or at the same time as the first K-1. In our view, taxpayers, especially individual taxpayers, are more likely to report the correct amount of income if all of their income is reported on a single K-1 that is distributed at the same time that the majority of the taxpayer’s other required tax information is being reported to them by third parties.
- No change in the taxable amounts reported to taxpayers. Although a technical termination is not a taxable event to the partnership, there are tax implications that impact the partnership's computation of taxable income for the periods following the technical termination, such as the restart of tax depreciation and the requirement to make new tax elections, among others. While tax information would be reported to each partner on a single K-1, a PTP would continue to be required to comply with all of the other rules that impact its computation of taxable income. A PTP's taxable income and loss would be properly computed and reported to unit holders for the taxable periods after the termination; however, it would be reported on one K-1 instead of two in a year that includes a technical termination. As stated above, we believe this will enhance compliance by taxpayers.
- Reduces administrative burden to taxpayers and IRS. Because many PTPs have over 20,000 partners (some have more than 100,000 partners), the administrative burden on taxpayers to distribute and file two K-1s instead of one is significant. In addition, it is an administrative burden for the IRS in receiving and processing the additional information.
We also recommend that if the Service continues to require the filing of two Forms 1065 by a PTP, you consider issuing guidance providing that the due date for the tax return for the period ending on the date of termination be extended to coincide with the due date of the calendar year short period return in lieu of the general due date for a partnership tax return (i.e., the fifteenth day of the fourth month after the close of the tax year). In certain cases, a PTP may not realize that it has technically terminated until the due date for the first short period return has passed. This can result because a PTP does not generally receive a full listing of changes in its ownership information until January of the subsequent year. As a result, if a termination occurs early in a tax year, the tax return and the Schedules K-1 for the termination period will be filed late unless an extraordinary extension is granted by the IRS. We believe providing administrative relief without the need for a special request is warranted for PTPs. We also believe any guidance should indicate that any late filing penalties that otherwise may apply would not apply. Furthermore, we believe this guidance should apply to PTPs that terminate more than once during the year (e.g., a PTP that terminates twice during the year should be required to file three Forms 1065 by the fifteenth day of the fourth month following the close of the year, but only one set of K-1s).
The AICPA appreciates the opportunity to comment on the Industry Resolution Program for technical terminations of PTPs and encourages you to issue guidance that would be applicable to 2008 tax filings, if possible. If you would like to discuss our recommendations, please contact Hughlene A. Burton, Chair of the Partnership Taxation Technical Resource Panel at email@example.com or Marc A. Hyman, AICPA Technical Manager at firstname.lastname@example.org.
Alan R. Einhorn, Chair
Tax Executive Committee