TaxNewsFlash-Exempt Organizations

July 31, 2008
No. 2008-67

PRINTABLE VERSION

IRS Releases Updated Draft Form 1120 and Draft Form 1065 for Public Comment

The IRS announced the release of drafts of corporate and partnership tax forms for public comment. These draft forms are intended for use for tax years ending on or after December 31, 2008.

According to the IRS release (IR-2008-92, July 30, 2008), the draft revisions to Form 1120, U.S. Corporation Income Tax Return and Form 1065, U.S. Return of Partnership Income (and certain related schedules) include new Schedule B for Form 1120 and Schedule C for Form 1065.

The IRS reported that the draft forms reflect changes suggested in comments received from the initial drafts released in August 2007. Comments on the releases are due by August 25, 2008.

The draft forms and related schedules are available electronically on the IRS Web site: http://www.irs.ustreas.gov/businesses/article/0,,id=185271,00.html

Changes to Draft Form 1120

The IRS stated that a major change to Form 1120 is to Schedule K and involves reporting direct and indirect ownership. When ownership meets certain percentage thresholds, it must be reported on Schedule K. Certain questions on Schedule K have been revised for this reporting.

The new Schedule B (Form 1120) is required of corporations that file Form 1120 Schedule M-3. Schedule B (Form 1120) will provide IRS information about allocations, transfers of interest, cost sharing arrangements, and changes in methods of accounting.

Changes to Draft Form 1065

The IRS reported that major changes to the Form 1065 also concern ownership issues. When ownership satisfies certain percentage thresholds, it must be reported on Schedule B (Form 1065). Revised Schedule B (Form 1065) also will be used to provide information about cancelled debt and like-kind exchanges that the partnership may have participated in at any time during the tax year.

For small partnerships, the asset threshold for filing Schedules L, M-1 and M-2 with Form 1065 has been increased from $600,000 to $1 million.

The new Schedule C (Form 1065) will be required of Form 1065 filers that file Schedule M-3, to report information about related-party transactions, allocations, transfers of interest, cost sharing arrangements and changes in methods of accounting. .

New instructions for Item J of Schedule K-1 (Form 1065) clarify how partnerships are to determine partners’ percentage share in the profit, loss, and capital at beginning and end of the partnership’s tax year.

For more information, contact Rick Speizman, National Partner-In-Charge, KPMG’s Exempt Organizations Tax Practice (ExoTax), at (202) 533-3084 or rspeizma@kpmg.com

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