The November 2015 Bipartisan Budget Act provides for new partnership audit rules that allow the Internal Revenue Service to assess and collect tax at the partnership level instead of at the individual partner level. Proposed regulations were reissued on June 13 in substantially similar form to those originally issued on January 18 and subsequently withdrawn due to a Trump administration executive order limiting new regulations.
The proposed regulations are far-reaching in their grant of IRS authority to adjust, at the partnership level, all items required on a partnership’s return and in its books and records, including interest and penalties associated with such adjustments. To facilitate the IRS’s ability to complete an audit of a partnership, the proposed regulations require the designation of a partnership representative to serve as the point of contact between the partnership and the IRS. The partnership representative must have a substantial presence in the United States and, among other things, be able to meet with the IRS on domestic soil at a time and place determined by the agency.
Certain partnerships with 100 or fewer eligible partners may opt out of a centralized audit and instead require the IRS to separately assess additional tax at the partner level. Opt-out decisions will be carefully reviewed by the IRS to ensure compliance with the rules.
The IRS has scheduled a public hearing on the proposed regulations for September 18, 2017. The proposed rules go into effect for partnerships with tax years ending after December 31, 2017. For additional information please refer to “Partnerships: Congress Has Them In Its Sights” published on January 11, 2016.