IRS encounters Form 1065 processing glitches

The Internal Revenue Service has posted new information about how to handle possible processing errors when electronically filing Form 1065, “Return of Partnership Income,” and ways to avoid them.

In a Q&A page posted to the IRS website last week, the agency recommends deferring the filing of the form until June 16 in case partnerships encounter a “code ZZ’ error on Line 1 of Schedule K-1 when they try to file the Form 1065. There seems to be a programming error that’s blocking the Form 1065 from being accepted and producing the error message.

“I receive an error in Form 1065, Schedule K-1, Line 20, code ZZ, when I try to electronically file the partnership return. How can I fix the error?” says the question.

The IRS responded, “The Partners Instructions to Schedule K-1 of Form 1065 for 2023 provide that Code ZZ ‘Other’ in Box 20 contains ‘Any other information you may need to file your return not shown elsewhere on Schedule K-1.’ If a partner receives a 2023 Schedule K-1 from a partnership with information in Code ZZ of Box 20 the partner should follow the Partner’s Schedule K-1 instructions in reporting this information on their return. There was a programming error impacting e-filers of Form 1065 for 2023 that blocked e-filed partnership returns from using Code ZZ. The IRS encourages e-filers to extend the filing of their Form 1065 returns and defer until June 16, 2024, when we estimate that the Code ZZ issue will be fixed and Code ZZ can be properly e-filed in Box 20 of Schedules K and K-1.”

In another new Q&A page posted last week, the IRS addresses a programming change that was made for partnerships who want to file the Form 1065, but have a foreign partner who lacks a Social Security Number or Taxpayer Identification Number. They can no longer enter “FOREIGNUS” in Item E of Schedule K-1. Instead the partnership should enter 000-00-0000 in Item E if the partner is an individual or 00-0000000 if the partner is an entity.  

The question says, “For partnerships who e-file, “FOREIGNUS” has been removed as an option in the XML schema for Part II, Item E of the Form 1065, Schedule K-1 and Item C of the Form 1065, Schedule K-3.  What can be entered in those schedules in place of FOREIGNUS?”

The IRS responded, “Form 1065, Schedule K-1, Part II, Item E requires the partnership to enter the partner’s SSN or TIN.  In past years, if a foreign partner did not have an SSN or a TIN because it did not have a U.S. filing or tax obligation, many partnerships entered “FOREIGNUS” in Item E of the Schedule K-1.  For partnerships who e-file, “FOREIGNUS” has been removed as an option in the XML schema.  With respect to foreign partners who are not required to obtain an SSN or TIN, a partnership should enter 000-00-0000 in Item E if the partner is an individual or 00-0000000 if the partner is an entity.  This change in e-file policy at the IRS should not be interpreted by partners, partnerships, and their tax preparers as a policy that partners who were not previously required to obtain an SSN or TIN are now required to do so. 

The same issue with Item E of the Schedule K-1 is present in the Form 1065 Schedule K-3 Item C.  With respect to foreign partners who are not required to obtain an SSN or TIN, a partnership should enter 000-00-0000 in Item C if the partner is an individual or 00-0000000 if the partner is an entity.  This change in e-file policy at the IRS should not be interpreted by partners, partnerships, and their tax preparers as a policy that partners who were not previously required to obtain an SSN or TIN are now required to do so.”