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September 16, 2019 Due Date to Change and/or Avoid Penalties on GILTI Income

Impacts Partners and S Corporation Shareholders with Less Than 10% Interest in CFCs

Final GILTI regulations issued June 21, 2019 changed the treatment of partners in domestic partnerships and S Corporation shareholders who beneficially own less than 10% of a controlled foreign corporation (CFC).  This change effectively eliminates the pro rata share of the GILTI deemed income of the partnership or S Corporation for these partners or shareholders. 

The problem is that many partnerships and S Corporations had already filed their returns and sent out K-1s, including the GILTI income for these persons.  Now, the decision must be made to either amend the returns (which would involve the partners and S Corporation shareholders also having to amend their returns) or potentially being subject to penalties for filing incorrect returns.  There is also the issue of how to treat the basis in the partnership or S Corporation and how to deal with subsequent distributions from the CFCs.

Notice 2019-46

The IRS released this notice that allows partnerships and S Corporations to stay with the treatment they originally reported, and provide for favorable treatment of the basis and CFC distributions issues, provided they act by September 16, 2019 and send out a Notification to the all partners or S Corporation shareholders advising them of this treatment.  Failure to provide this notification by September 16 would presumably result in potential penalties for incorrect reporting and would not result in the favorable basis and subsequent distribution treatment.

While it may be possible to amend the returns and issue corrected K-1s after this date, there would still be the issue of potential penalties for incorrect reporting on the original K-1s and tax returns.  Also, there can be restrictions on a partnership filing an amended return after the due date of the return unless the partnership has made an election under Sec. 6031(b).

If this situation applies to you, immediate action is required to determine whether to amend the partnership or S Corporation tax return or send out the notification.  Contact us for help in analyzing your alternatives and providing guidance on how you should proceed.

Thank you.  

James-Miesowicz-1

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