Short Year 1065 Returns for Terminated Partnerships: Avoiding Penalties For Failure to Report

The Section 708(b) “technical termination” is a peculiarity of partnership tax law that leads to unexpected tax penalties. The sale of greater than 50% of the partnership’s assets or profits within a 12-month period, among other circumstances, can terminate the partnership for tax purposes though the entity is actively conducting business.

When a technical termination occurs, the partnership is deemed to have closed its tax books. The Code considers the partnership’s assets to be contributed on a tax-free basis to a successor partnership or LLC and deems ownership interests in the successor partnership distributed to the remaining members of the terminated partnership.

A partnership subject to a technical termination must file two “short-year” Form 1065 income tax returns: One for the period up to the termination event and a second for the successor partnership after the termination. Failure to comply leads to penalties for failure to timely file the initial short-year return and for issuing inaccurate K-1s to the partners.

Tax advisers must know when a technical termination occurs, make sure capital accounts are accurately carried over to the successor partnership, and review the status of existing elections to accurately file the short-year returns.

Listen as our experienced panel provides a practical guide to preparing “short-year” partnership income tax returns for terminated partnerships.

1. Identifying technical terminations under Section 708(b)
2. Recording deemed transfer of assets and partnership interests
3. Applying elections from terminated partnership to successor partnership
4. Completing short-form 1065 returns
5. Penalties for noncompliance

The panel will discuss these and other important issues:

• What constitutes a “sale or exchange of greater than 50% interest in capital or profits” within a 12-month period that causes a technical termination?
• How do multiple sales or dispositions impact the Section 708(b) analysis?
• How must advisers handle and report prior 754 elections made by the partnership?
• What opportunities for new elections are presented in technical termination/short-year scenarios?

Learning Objectives

After completing this course, you will be able to:

• Identify technical termination scenarios which require partnerships to file short-year returns
• Decide whether a series of transactions constitute sale or exchange of greater than 50% of partnership capital or profits interests
• Recognize filing date requirements for short-year 1065 returns
• Determine impact of technical termination on prior and successor tax elections

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years' accounting or tax experience preparing partnership tax returns and completing tax work papers; at least one year supervising other preparers' returns; knowledge of partnership capital account allocations; familiarity with IRC 708(b) and filing Form 1065.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).