Partnership Audit and Adjustment Rules

Partnership audit and adjustment rules

Overview

The centralized partnership audit regime under the Bipartisan Budget Act of 2015 (BBA) became effective for partnerships with tax years beginning after Dec. 31, 2017. The new regime significantly impacts how the IRS will audit partnership returns and collect any resulting taxes.

Under the new regime, audit decisions on behalf of the partnership are made by a key individual, referred to as the partnership representative. The partnership representative has the sole authority to act on behalf of the partnership and its partners. This is a significant change from the role of the tax matters partner under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).

Based on the number and types of partners in a partnership, there are opt-out provisions. And, there are other optional provisions that must be carefully considered, such as a partnership may elect to “push out” adjustments to reviewed-year partners.

There are many complexities of the new audit regime and it’s important for practitioners to understand the new rules and advise clients accordingly.

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Reviewed March 15, 2019