Statute of Limitations on Limited Partnership Tax Returns

Latest post Fri, Jan 17 2014 6:24 PM by Joe Mastriano, CPA. 6 replies.
  • Wed, Jul 6 2011 9:14 PM

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    Statute of Limitations on Limited Partnership Tax Returns

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    Hi, I have a small family LP that I had to recreate the books for and in doing so I uncovered some errors in the "old" 1065 Tax Returns. Some were to my benefit others, were detrimental and I would guess that the net of the errors is a few hundred dollars. My question is, how long is the statute of limitations for Form 1065 Tax Returns?

    The Tax Returns in question go back to the 1990s and the most current returns (for the past few years) appear to be correct so I would like to know if I should amend Tax Returns that are (in some cases) 15 years old or just leave good enough alone?

    Thank you for your help,

    Bob 

  • Thu, Jul 7 2011 12:57 AM In reply to

    Re: Statute of Limitations on Limited Partnership Tax Returns

    Ok, this is a more complex question than it may seem at first. The reason is that partnerships don't pay income tax. Instead, the income or loss of the partnership flows up to the partners. This is important because the statute of limitations applies to assessment of tax and refund of taxes. That is, in general, the IRS has 3 years after the filing of a return to assess tax for that tax period. Similarly, in general, a taxpayer has 3 years after the return is filed to amend it to claim a refund from that return. (This assumes the return was timely filed; it gets more complicated when the return is filed late.) So, as a starting point, if the partner has filed his 1040 return and it has been more than 3 years since the return was filed, it is too late to file for a refund and too late for the IRS to assess any additional tax on the return. In short, it is the returns of the partners that are the focus.

    But there is an additional wrinkle here. And that is if the partnership is one that would be subject to TEFRA proceedings. With such a partnership, there are TWO statutes of limitations, one for the partnership proceeding under TEFRA and the one for the individual partners. I won't get into all that as it is probably not necessary for your question.

    The bottom line here is that assuming that both partnership and partner returns were filed timely each year, though, you probably only need to worry about any errors on the 2008, 2009, and 2010 returns and perhaps the 2007 returns if they were filed on extension. Errors on old returns dating back to the 1990s are too late to do anything about with one notable exception: some items you need to correct if they impact current returns even though the original error occurred long ago. For example, if you had NOL carryovers and you got the original NOL amount wrong 10 years ago, then even though the tax on 10 year-old return cannot be adjusted, the NOL amount should be adjusted and carried through so that the current unused NOL amount is correct. If you had that kind of circumstance, I suggest you see a CPA or enrolled agent to help you fix, as they will know better the filings needed to do it. (Tax lawyers will charge you more and may not know the answer to that off the top of their head, including me—so I'd refer a client needing that to a CPA.)

  • Thu, Jul 7 2011 9:48 PM In reply to

    • Family LP
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    Statute of Limitations on Limited Partnership Tax Returns

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    Thank you for the detailed explanation Taxagent Lawyer.

    I am 99.6% Partner of the Limited Partnership and have been filing Form1040 (with accompanying K-1s from the LP), on time so I think I'm in the clear.

    FYI, the LP "business" is buying and selling marketable securities and it appears that when I first started the Partnership, I inadvertently mixed my PERSONAL securities with the Partnership securities for the first few years but as you pointed out, the K-1s "flow-thru" to my personal 1040s so taxes WERE paid.

    Thank you again for straightening me out.

    Bob.

    so some were losses others gains, and the net was

  • Mon, Dec 16 2013 11:52 AM In reply to

    • Alex Mac
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    Re: Statute of Limitations on Limited Partnership Tax Returns

    Dear Taxagent,

    I'm co-partner and president of a two-partner LLC in New Jersey. I have a question related to the TEFTA and statute-of- liability issue that you so helpfully addressed in your previous answer to Brandon Marx' question. Your reply was so clarifying that I'd like to try asking you a follow-up question before posting the question more generally. I hope this is okay.

    On November 26 2013, I received the first and only notice from NJ State of an error that the LLC's accountant inadvertently made in the partner filing for its 2004 tax year. The amount owed, including penalties and taxes, is just under $1000 (a substantial amount for us at this point.) The error seems quite understandable, arising from what could be called an ambiguity or obscure rule regarding partnership taxation, and it was made by a NJ CPA who'd done our taxes since our formation in 1998. But this accountant is now out of the picture and at any rate always struggled with serious procrastination issues, so we no longer have the option of asking him for help. Since 2006, we've done our taxes ourselves without incident, since the LLC is low-activity and we may close it pretty soon. (The accountant reviewed our prep of the 2006 return, and from then on we've done our own prep, since subsequent years were quite similar. Cringe?)

    Here's the gist of the question. Clearly, by the Federal definition, we're a non-TEFRA entity. We have two partners and the highest number we've ever had is three. We've never elected TEFRA status. But I'm unsure how to determine if NJ State's law agrees with this assessment. So my question is, how can I view NJ State's rules regarding non-TEFRA entities and the statute of limitations on taxes and penalties for partnerships? The issue is complicated by the fact that, when I asked this question of the tax-practitioner line of NJ State office that specializes in business accounting, the phone rep replied, "What is TEFRA?" and didn't have any information about NJ's statute of limitations for partnership tax-liability. 

    I hope this question isn't annoying in its length. Part of the reason I feel driven to ask it here is that, if I'm forced to seek help from a *new* accounting firm, that step could easily cost at least as much as the penalty. Since we're a very small entity that's winding down, this would be very hard for us.

    I'd also be grateful for any general advice you have about how to present our argument regarding non-TEFRA status to the state of NJ.

    I imagine you're very busy. I don't know if you can help shed any light on our situation. But I'd be grateful for any insight or advice you can give us. Thank you for reading this.

    Regards, 

     

    Alex

  • Tue, Dec 17 2013 8:13 PM In reply to

    Re: Statute of Limitations on Limited Partnership Tax Returns

    Alex Mac:
    I'd also be grateful for any general advice you have about how to present our argument regarding non-TEFRA status to the state of NJ.

    TEFRA is a federal act passed by Congress, and the partnership examination rules found in that act apply only to IRS examinations. States may decide to adopt rules similar to TEFRA for partnership proceedings if they wish, but they are not obligated to do so and most do not. If I get a chance to look at the NJ statutes for limitations on assessment in the next few days I'll post what I find. But it's quite likely that TEFRA like rules will not apply.

  • Fri, Jan 17 2014 6:24 PM In reply to

    Re: Statute of Limitations on Limited Partnership Tax Return...

    Hi, Bob, maybe a little late on this, here's my advice. 

    "Hi, I have a small family LP that I had to recreate the books for and in doing so I uncovered some errors in the "old" 1065 Tax Returns. Some were to my benefit others, were detrimental and I would guess that the net of the errors is a few hundred dollars. My question is, how long is the statute of limitations for Form 1065 Tax Returns?"

    In general, 3 years from when you file it or from the due date if later.

    "The Tax Returns in question go back to the 1990s and the most current returns (for the past few years) appear to be correct so I would like to know if I should amend Tax Returns that are (in some cases) 15 years old or just leave good enough alone?"

    I would leave them alone.

    Joe Mastriano, CPA

     

     

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