Amending U.S. partnership and S corporation returns.

• Author: Kendrigan, James M.

Failure to follow the proper procedures in amending a U.S. partnership or S corporation return can result in the amendment being ineffective and eliminating the possibility of securing the desired adjustments. What follows is a discussion of procedures for filing amended returns for partnerships and S corporations subject to the unified audit procedures for partnerships under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) rules. (Although reference is made only to partnerships, except for the "small" partnership rules, all other rules apply equally to S corporations.) The procedures for amending partnership returns are complicated, not at all intuitive, and represent an area of substantial potential risk for taxpayers and return preparers. "Small" partnerships (non-TEFRA)

In general, all partnerships are subject to the TEFRA rules for partnership tax years beginning after Sept. 3, 1982. However, unless it elects to have the TEFRA rules apply, a "small" partnership is not subject to these rules if all the following requirements are met (Sec. 623 1(a)(1)(B)(ii)).

* The partnership has 10 or fewer partners, each of whom is a natural person or estate. For this purpose, a husband and wife and their estates are treated as one person.

* No partner is a nonresident alien.

* Each partner's share of each partnership item is the same as that partner's share of every other item.

Amending a non-TEFRA partnership return is accomplished simply by filing a new Form 1065, U.S. Partnership Return of Income, with the appropriate boxes checked on page one and the amended Schedules K-1 indicating they are amended forms. Each partner should then file a separate amended return (e.g., Form 1040X for individual partners) reflecting the changes to Schedule K-1 before the statute of limitations expires for the partner's affected tax year.

TEFRA partnerships

Amended return by TMP: In the case of a partnership not subject to the small partnership rules, if the partnership or any partner desires to change its position with respect to a partnership item, an amended partnership return may be filed by the tax matters partner (TMP) within three years after the later of the filing of the original partnership return or the last day for the filing of the return (without extensions) and before any notice of Final Partnership Administrative Adjustment (FPAA) is mailed to the TMP.

Form 8082, Notice of Inconsistent Treatment or Amended Return (Administrative...