IRS Releases Reporting Guidance for Partnership Interests Held in Connection With the Performance of Services
The IRS recently posted a set of frequently asked questions (FAQs) detailing reporting directions for certain passthrough entities and taxpayers reporting of partnership interests held in connection with the performance of services.
The FAQs contain sample worksheets that may be required in reporting partnership interests held in connection with the performance of services for tax returns filed after Dec. 31, 2021, in which a passthrough entity applies the final regulations. The FAQs also contain additional instructions for those who are not required to file the sample worksheets but must provide similar information and must disclose whether the information was determined under the proposed regulations or another method for tax returns filed after Dec. 31, 2021, for a taxable year beginning before Jan. 19, 2021.
A 2017 tax law change recharacterized certain net long-term capital gains of a partnership that holds one or more applicable partnership interests (APIs) as short-term capital gains. The provision generally requires that a capital asset be held for more than three years for capital gains allocated with respect to any API to be treated as a long-term capital gain.
The purpose of the FAQs is to provide guidance relating to both Passthrough Entity filing and reporting requirements and Owner Taxpayer filing requirements in accordance with Department of the Treasury regulations revised in TD 9945.
This updated reporting guidance will also be added to the next revision of Publication 541-Partnerships, which will be released in 2022.