Where is the TurboTax help anymore? There is a new "Schedule B-2 (Form 1065) Election Out of the Centralized Partnership Audit Regime"
However, there is ZERO guidance in TurboTax Business.
The product used to guide users with plain English assistance on difficult topics, but it seems that anymore, it just leaves us flailing and searching google to find the guidance. If the software is not going to provide assistance in matters that we who are not tax pros cannot understand, we may as well just fill out the free forms that are available to us.
C'MON Intuit! Some of us need help in understanding new laws.
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Partnership tax is in general complicated once it deviates from the plain vanilla partnership.
As a result, the IRS has struggled over the decades in attempting to streamline the audit process of a partnership entity. These entities range from a simple 2-person return to ones which can have hundreds of partners.
Effective for tax years beginning on or after 1/1/2018 the new centralized partnership audit process became effective. At a high level, a partnership with more than 100 K-1's cannot opt out of the centralized audit process. The instructions provide guidance on the determination of how to determine who is a partner for this determination. Further, in order to elect out, each of the partners must be either an individual, a C corporation, a foreign entity that would be treated as a C corporation if it were a domestic entity, an S corporation, or an estate of a deceased partner.
Under the centralized audit process, the IRS deals with one specific individual that represents the partnership and only that person. Should there be an audit adjustment, the partnership is responsible for paying the additional tax and any penalties. All partners are "bound" with this position. There are options as to whether the partnership just pays the tax or whether the tax will be allocated to the partners.
If a partnership is eligible to opt out, and in fact does so, then should there be an adjustment at the partnership level, the IRS is required to made any adjustments at the partner level; dealing with each partner separately.
As you can see, this is a somewhat involved area. This election is made on an annual basis.
Hopefully you now at least have a general understanding and can make your decision.
Partnership tax is in general complicated once it deviates from the plain vanilla partnership.
As a result, the IRS has struggled over the decades in attempting to streamline the audit process of a partnership entity. These entities range from a simple 2-person return to ones which can have hundreds of partners.
Effective for tax years beginning on or after 1/1/2018 the new centralized partnership audit process became effective. At a high level, a partnership with more than 100 K-1's cannot opt out of the centralized audit process. The instructions provide guidance on the determination of how to determine who is a partner for this determination. Further, in order to elect out, each of the partners must be either an individual, a C corporation, a foreign entity that would be treated as a C corporation if it were a domestic entity, an S corporation, or an estate of a deceased partner.
Under the centralized audit process, the IRS deals with one specific individual that represents the partnership and only that person. Should there be an audit adjustment, the partnership is responsible for paying the additional tax and any penalties. All partners are "bound" with this position. There are options as to whether the partnership just pays the tax or whether the tax will be allocated to the partners.
If a partnership is eligible to opt out, and in fact does so, then should there be an adjustment at the partnership level, the IRS is required to made any adjustments at the partner level; dealing with each partner separately.
As you can see, this is a somewhat involved area. This election is made on an annual basis.
Hopefully you now at least have a general understanding and can make your decision.
@Rick19744 . My wife and I have a multi-member LLC, both of us are partners. I understand individuals can elect out. Would my wife and I be considered individuals and there fore qualify to elect out? Something else I read states that partnerships (an LLC with multiple owners) can NOT elect out. Very confusing. Where do we fit in?
You are able to elect out, but only under certain circumstances:
@Rick19744 Thank you for your reply. I failed to mention that my wife and I live in Florida, which is not a community property state. But we finished our taxes and filed a 1065 so we are squared away. We have another question though. What is the best way for us to pay our quarterly taxes? We understand that we are not required to pay them, as a multi-member LLC, but would like too. For 2020 we chose to make the four payments, two to my social and two to my wife's social. This got a little confusing, although we don't feel will be a problem with the IRS. We also setup our LLC with the IRS's EFTP's system, but since it was with the LLC's EIN I believe this was wrong as again we are not required to pay taxes through the business. Would it be better to just pick one of us and just make all the payments through that one social, since we file a joint tax return? Or what is the most ideal way for us to pay our estimated quarterly taxes?
Looks like you are getting a solid understanding of what you are needing to do, and working through the few hiccups you have encountered.
Follow-up comments:
@Rick19744Makes sense. Thank you for all your help!
You are welcome.
See Jhart 9869 post 2/26/2021
I will repeat the Jhart context here and some more precise details to fix the Turbotax business 2021 issue with getting error messages for filling out entity data when on form 1065 p1-3 partnership. when you only want to use a partner name instead of an entity.
Go to frorm 1065 p1-3
go to line 29and check the yes box (elect out of centralized paartneship audit regime)
quick zoom to Schedule B-2
fill out schedule B-2 -( names, ssn with dashes, select I for individual . you should see the quantity of individuals appear on 1065 line 29 from B-2 part III line 3
I spent 5 hours to figure out this work around for a turbotax problem that has been around for a long time
PS make sure you have NOT checked the box "this is not a person" - cant find that box now but it is burried somewhere in this massive mess of tax law and turbotax
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