How do I indicate a "technical termination" for a partnership in Drake Tax?
The Tax Cuts and Jobs Act has repealed technical terminations of partnerships starting with taxable years beginning after December 31, 2017. In Drake18 and future, the checkbox Technical Termination is no longer available on screen 1 and is not included on the updated 1065 form.
A technical termination for most partnerships occurs when there is a sale or exchange of 50% or more of the total interest in partnership capital and profits within a 12-month period. See Section 1.708-1(b) of the IRC.
Note: Unlike other partnerships, an electing large partnership does not terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period. See IRS Publication 541 for more details.
If you are filing the final return and the new initial return in Drake Tax, complete the following steps:
- Prepare the final return first:
- On screen 1, ensure that both check boxes Technical Termination and Final Return are marked.
- Complete any relevant data entry and review the return.
- Print and prepare the return for paper-filing.
- Archive the final return by going to View > Documents > Archive Client Return. (Drake 16 and prior, View > Archive > Archive Client Return) Watch the video Archiving a Return for a demonstration.
- Prepare the new initial return.
- On screen 1, mark both the Technical Termination and Initial Return check boxes.
- Change the return data to reflect the details of the the initial filing year (normally the same EIN is used).
- Print and prepare the new return for paper-filing.
E-filing for 2017 and prior returns is no longer available. Both returns will have to be paper-filed.
For more information about technical terminations, see:
Publication 4163, page 26:
"For TY2017 and prior, Section 708(b)(1)(B) provides that a termination occurs where, “within a 12-month period, there is a sale or exchange of 50% or more of the total interest in partnership capital and profits.” This is known as a type B termination or technical termination. Returns should be prepared for the appropriate tax period reflecting the respective partnership interests during that time. The final return for the period prior to the change in partner interest should have the “Technical Termination” and the “Final Return” checkbox marked. A second return will also be filed to reflect the initial return of the new partner(s)’ interest(s) and should have the “Technical Termination” and the “Initial Return” checkbox marked. For further information, please see the Form 1065 instructions."
2017 1065 Instructions, page 17, Item G:
"A technical termination (box G(6)) occurs when there has been a sale or exchange of 50% or more of the interests in partnership capital and profits within a 12-month period.
If this Form 1065 is being filed for the tax period ending on the date a technical termination has occurred, check box G(2) and box G(6).
If this Form 1065 is being filed for the tax period beginning immediately after a technical termination has occurred, check box G(1) and box G(6). A new EIN isn't needed in a technical termination. The new partnership that is formed will continue to use the EIN of the terminated partnership."