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THE DISTRIBUTOR’S LINK
Roman Basi
Roman Basi is the President of The Center for Financial, Legal & Tax Planning, Inc.
Roman graduated from Milliken University obtaining a Bachelor’s of Science Degree
with a minor in Psychology. He earned an MBA from Southern Illinois University with
an emphasis in Accounting and recevied his JD degree from Southern Illinois University.
Roman is a licensed attorney in Illinois, Missouri and Florida and is in high demand for
his expertise in financial, legal and tax matters. His areas of expertise include mergers
and acquisitions, contracts, real estate law, tax and estate planning.
THE COMPLEX RULES OF A SIMPLE PARTNERSHIP
Small Partnership exemptions, do you
understand them?
You have a Partnership, so do you have to file
IRS form 1065?
These are questions you may be asking yourself if
you are one of the many people
in this Country that operate your
business as a Partnership. The
answers to these questions are
Yes, No, and Maybe.
A simple understanding as
to what the IRS wants, comes
in a report of some form or
another that the IRS approved.
Regardless, the fact is you
must file taxes every year as
a either a partnership or an
individual. If the deadline cannot be met, you can apply for
an extension under certain circumstances, which includes
being unprepared to immediately pay taxes (however,
at that point, the question must arise as to how strong
your business is if it’s unprepared for its tax burden).
In regards to partnerships, it is your size (amount of
partners), which determines the type of report to be filed
and whether you will be subject to penalties and interest
if you fail to file that report on time.. Whether it be it in
the form of personal income (schedule C) or a 1065, the
IRS writes the rules, and the IRS punishes those who fail
to comply with such rules. However, to help comply with
IRS rules, the IRS has provided us with Revenue Procedure
84-35.
Revenue Procedure 84-35, created by the IRS in
1984, contains a reasonable cause exception that a
“small partnership” can employ to avoid the tax penalties
levied for failure to file a partnership return. However, when
CONTRIBUTOR ARTICLE
making use of this Procedure, it is extremely important to
understand the factors that qualify an entity as a “small
partnership”. Secondly, it’s vital to have a professional that
understands the case law which interprets the parameters
of how to properly employ the Procedure. Essentially, it’s
important to have a professional
who can mend the accounting
world with the legal field.
A new article in a publication
titled Federal Tax Weekly was
recently released. The article
could easily cause confusion
and worry to a forward thinking
business professional. When
articles like this come out, our
job, as tax professionals is to
interpret them and stay ahead
of the changes and updates for all of our clients and lend
the necessary expertise and knowledge to not only protect
them, but to provide an outlook to maximize all potential
value. Here is a prime example why competent guidance
can provide your company value; the Federal Tax Weekly
article states “small partnership exemptions from 1065
filing requirements do not exist”; however this is not
exactly accurate.
An exemption exists under 26 U.S. Code §6698(a),
which can be summarized by stating that the mandatory
penalties associated when a partnership fails in a
requirement provides that, except for willfulness, if a
partnership is required to file a return under Code Sec.
6031, yet fails to file on time including extensions,
the partnership is liable to severe penalties unless the
failure is due to “reasonable cause.” Clearly an exception
for “reasonable cause” exists, however the question
becomes what is a “reasonable cause”?
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