RE-ISSUED IRS PARTNERSHIP AUDIT REGULATIONS

by Rebecca McElroy and Jennifer Youngblood

Long awaited IRS regulations governing centralized partnership audits on returns filed after December 31, 2017, were recently re-issued. The regulations are similar to those originally issued on January 18, 2017, and subsequently withdrawn in response to the Trump administration’s regulatory freeze.

The proposed regulations implement provisions of the Bipartisan Budget Act of 2015 repealing the existing procedures for partnership audits enacted under TEFRA, the Tax Equity and Fiscal Responsibility Act of 1982. The proposed regulations essentially replace the previous unified audit regime with a centralized procedure collecting tax attributable to IRS audit adjustments at the partnership level, rather than at the partner level.

The proposed rules also have the potential to significantly impact the partnerships’ allocation of IRS audit adjustments to partners and the partnership. In particular, new partners could bear the burden of the audit adjustment for a year in which they were not a partner. It contains several elections and special procedures that could affect partnerships and their partners, particularly certain partnerships with fewer than 100 members. Consequently, we encourage you to consult your tax advisor to better understand how this regulation may affect you and partnerships of interest.

There will be a public hearing in September on the proposed regulation, which is likely to be finalized under the formal rulemaking process in the Fall. Additional details can be found at https://www.bna.com/reproposed-bba-partnership-b73014453483.

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