Notice 2019-66 — Notice 2019-66

# full

NOT-128773-19

Reporting of Positive Tax Basis Capital Accounts not Required Until 2020 Partnership
Taxable Years; Net Unrecognized Section 704(c) Gain or Loss Defined; Publicly Traded
Partnerships not Required to Report Net Unrecognized Section 704(c) Gain or Loss;
Certain Reporting of Section 465 At-Risk Activities not Required Until 2020 Partnership
Taxable Years; Penalty Relief

Notice 2019-66

BACKGROUND
This notice provides that the requirement to report partners' shares of partnership
capital on the tax basis method will not be effective for 2019 (for partnership taxable
years beginning in calendar 2019) but will be effective beginning in 2020 (for
partnership taxable years that begin on or after January 1, 2020). For 2019,
partnerships and other persons must report partner capital accounts consistent with the
reporting requirements in the 2018 forms and instructions, including the requirement to
report negative tax basis capital accounts on a partner-by-partner basis. This notice
also clarifies the 2019 requirement for partnerships and other persons to report a
partner's share of "net unrecognized Section 704(c) gain or loss" by defining this term
for purposes of the reporting requirement. Additionally, this notice exempts publicly
traded partnerships from the requirement to report their partners' shares of net
unrecognized Section 704(c) gain or loss until further notice. This notice also provides
that the requirement added by the draft instructions for 2019 for partnerships to report to
partners information about separate "Section 465 at-risk activities" will not be effective
until 2020. Finally, this notice provides relief from certain reporting penalties imposed
by the Internal Revenue Code (Code).

REPORTING PARTNER TAX BASIS CAPITAL ACCOUNTS
A draft of the 2019 Form 1065, Schedul e K-1, Item L, and a draft of the 2019
Form 8865, Schedule K-1, Item F, both released September 30, 2019, and related draft
instructions for the 2019 Form 1065, U.S. Return of Partnership Income (to which the
draft instructions for the 2019 Form 8865, Return of U.S. Persons With Respect to
Certain Foreign Partnerships, refer), and the 2019 Form 1065, Schedule K-1, both
released October 29, 2019, proposed to require partner tax basis capital reporting by all
partnerships and certain other persons and to prohibit the reporting of partner capital
under section 704(b) of the Code (Section 704(b)), generally accepted accounting
principles (GAAP), or any other method for 2019.
Based on comments received, the Department of the Treasury (Treasury
Department) and the Internal Revenue Service (IRS) have become aware that certain
persons required to file Forms 1065 or 8865 may be unable to timely comply with the
requirement to report partner capital on the tax basis method for 2019. This notice
provides that partnerships and other persons required to furnish and file Form 1065,
Schedule K-1 or Form 8865, Schedule K-1, will not be required to report partner capital
accounts in Item L of the 2019 Form 1065, Schedule K-1, or in Item F of the 2019
Form 8865, Schedule K-1, using the tax basis method for 2019.
Instead, partnerships and other persons must report partner capital accounts for
2019 consistent with the reporting requirements for the 2018 Forms 1065, Schedule K-
1, or 8865, Schedule K-1, as applicable. This means that partnerships and other
persons may continue to report partner capital accounts on Forms 1065, Schedule K-1,
Item L, or 8865, Schedule K-1, Item F, using any method available in 2018 (tax basis,

Section 704(b), GAAP, or any other method) for 2019. These partnerships and other
persons must include a statement identifying the method upon which a partner's capital
account is reported. The final instructions for the 2019 Forms 1065, Schedule K-1, Item
L and 8865, Schedule K-1, Item F, are expected to include additional details on how
such reporting should be done.
For 2019 partnership taxable years, partner "tax basis capital" must be calculated
as provided in the 2018 Form 1065 and Schedule K-1 instructions. Beginning with the
2018 partnership taxable year, if a partner's tax basis capital was negative at the
beginning or end of a partnership's taxable year, a partnership or other person is
required to report on line 20 of a partner's Schedule K-1, using Code AH, such partner's
beginning and ending tax basis capital. Partnerships and other persons who follow this
notice and report partner capital accounts for 2019 in Item L of the Form 1065,
Schedule K-1, or in Item F of the Form 8865, Schedule K-1, by using a method other
than the tax basis method must continue to comply with the requirement in the 2018
forms and instructions with respect to negative tax basis capital accounts.
The IRS website for Form 1065 Frequently Asked Questions (FAQs), "Negative
Tax Basis Capital Account Reporting Requirements," provides guidance on the
calculation of a partner's tax basis capital account in FAQ 2, and, for clarity, the
definition of tax basis capital includes (A)(v) and (B)(vii) of FAQ 2. Additionally, in lieu of
following the definition of tax basis capital in FAQ 2, partnerships and other persons
may instead use the partner outside basis safe harbor approach referenced in FAQ 6. If
a partnership or other person uses the safe harbor approach, the partnership or other
person must attach a statement to the partner's Schedule K-1 with the information

described in (2)(d)(iii) of FAQ 8. Other than the information described in (2)(d)(iii) of
FAQ 8, the remainder of FAQ 8 is inapplicable for 2019, including the penalty relief and
extension of time to file described therein, which applied only for 2018. The FAQs are
found at: https://www.irs.gov/businesses/partnerships/form-1065-frequently-asked-
questions. In preparation for filing partnership tax returns for the 2020 taxable year,
further guidance will be published that provides, and requests comments on, the
definition of partner tax basis capital.

REPORTING PARTNERS' SHARES OF NET UNRECOGNIZED SECTION 704(c)
GAIN OR LOSS
A draft of the 2019 Forms 1065, S chedule K-1, Item N and 8865, Schedule K-1,
Item G, released September 30, 2019, and related draft instructions for the 2019 Form
1065 (to which the draft instructions for the 2019 Form 8865 refer), and the 2019 Form
1065, Schedule K-1, both released October 29, 2019, proposed to require partnerships
to report partners' shares of net unrecognized Section 704(c) gain or loss as of the
beginning and end of the partnership's 2019 taxable year. The draft instructions to
these forms did not include a definition of "net unrecognized Section 704(c) gain or
loss." Solely for purposes of completing the 2019 Forms 1065, Schedule K-1, Item N,
and 8865, Schedule K-1, Item G, this notice defines a partner's share of "net
unrecognized Section 704(c) gain or loss" as the partner's share of the net (net means
aggregate or sum) of all unrecognized gains or losses under section 704(c) of the Code
(Section 704(c)) in partnership property, including Section 704(c) gains and losses
arising from revaluations of partnership property.

Commenters have requested additional guidance with respect to Section 704(c)
computations, such as guidance with respect to the issues described in Notice 2009-70,
2009-34 I.R.B. 255. For purposes of reporting for 2019, partnerships and other persons
should generally resolve these issues in a reasonable manner, consistent with prior
years' practice for purposes of applying Section 704(c) to partners.
Net unrecognized Section 704(c) gain or loss reporting will not apply to publicly
traded partnerships (defined in section 7704 of the Code) and their partners for 2019,
and thereafter, until further notice.

AT-RISK ACTIVITY REPORTING
The draft of the 2019 Form 1065, Item K, released September 30, 2019, requires
partnerships to indicate if they have aggregated activities for purposes of the at-risk
limitation rules under section 465 of the Code (Section 465). The draft of the
instructions for the 2019 Form 1065, Schedule K-1 (to which the draft instructions for
the 2019 Form 8865 refer), released October 29, 2019, included a new paragraph at
page 12, At-Risk Limitations, At-Risk Activity Reporting Requirements, that would
expressly require partnerships or other persons that have items of income, loss, or
deduction reported on the Schedule K-1 from more than one activity that may be subject
to limitation under Section 465 at the partner level to report certain additional
information separately for each activity on an attachment to a partner's Schedule K-1.
The new paragraph would require the partnership or other person to identify the at-risk
activity, the items of income, loss, or deduction for the activity, other items of income,
loss, or deduction, partnership liabilities, and any other information that relates to the

activity, such as distributions and partner loans. This requirement in the draft
instructions for the 2019 Form 1065 is in addition to longstanding at-risk reporting
requirements included in the instructions to the Form 1065. See Part II, Information
About the Partner; Item K Partner's Share of Liabilities.
Based on comments received, the Treasury Department and the IRS have
become aware that certain partnerships and other persons may be unable to timely
comply with the newly added requirement to report additional information about each at-
risk activity separately for 2019. Partnerships and other persons required to furnish and
file Form 1065, Schedule K-,1 or Form 8865, Schedule K-1, will not be required to
report information for each at-risk activity separately for 2019 that was not previously
required to be reported for the 2018 partnership taxable year. Partnerships must still
indicate in Item K on Form 1065 whether they have aggregated activities for Section
465 at-risk purposes for 2019.
Nothing in this notice relieves partnerships and partners from complying with the
requirements of Form 6198, At-Risk Limitations, for 2019. In particular, partnerships
must continue to comply with the instructions to Form 6198 for 2019, which require
partnerships to furnish their partners with a separate statement of income, expenses,
and deductions for each at-risk and not-at-risk activity.

PENALTY RELIEF
Taxpayers who follow the provisions of this notice will not be subject to any
penalty for reporting in accordance with the guidance provided in this notice, including a
penalty under section 6722 for failure to furnish correct payee statements, section 6698

for failure to file a partnership return that shows required information, and section 6038
for failure to furnish information required on a Schedule K-1 (Form 8865).

CONTACT INFORMATION
The principal author of this notice is Kara Altman of the Office of the Associate
Chief Counsel (Passthroughs and Special Industries). For further information regarding
this notice, contact Kara Altman at 202-317-5576 (not a toll-free number).