Most partnerships already utilize this method, the IRS said. However,  they were previously allowed to use multiple methods. The IRS believes the use of only one method will make it less likely returns will be examined.

Under the method, partnerships reporting partner contributions, the partner's share of partnership net income or loss, withdrawals and distributions and other increases or decreases will use tax-basis principles instead of using other methods such as GAAP.

Partnerships that did not use the tax capital method for 2019 or maintain tax basis capital accounts in their books and records for each partner's beginning tax-basis capital account balance for 2020 can use the Modified Outside Basis Method, the Modified Previously Taxed Capital Method, or the Section 704(b) Method, as described in the instructions, including special rules for publicly traded partnerships.

The IRS intends to provide penalty relief for the transition during tax year 2020 and only for returns due in 2021. The agency will not assess a partnership a penalty for errors in reporting its partners' beginning capital account balances if the partnership takes ordinary and prudent business care in following the form instructions to calculate and report the beginning capital account balances. 

The draft instructions are intended to give tax practitioners a preview of the changes and software providers the information they need to update systems.