Partnership Representative

The Internal Revenue Service (IRS) reports that the first audits conducted under the Bipartisan Budget Act Centralized Partnership Audit Regime (BBA) are wrapping up, with assessments recently issued or forthcoming.  Although the BBA only became mandatory for the 2018 tax year, taxpayers could elect into the BBA regime for the 2016 and 2017 tax years.  Over the past year, the IRS has stressed that partnership audits would be a priority for the agency going forward.  To that end, it has hired at least 50 partnership audit specialists to staff its new Large Partnership Compliance Program ...

On April 14, 2021, the IRS released a memorandum clarifying that partners and partnership representatives of TEFRA or BBA partnerships are entitled to request and receive IRS administrative file records containing partnership returns and return information, including any supporting schedules, attachments, or lists which include identifying information of persons other than the requesting party.  This memorandum serves as guidance to taxpayers pending an update to the Internal Revenue Manual.

Internal Revenue Code section 6103(e) details which parties may access returns ...

On January 14, 2021, the IRS issued Notice 2021-13 to provide transition penalty relief to partnerships complying with new rules for reporting partners’ capital account balances.

Before the 2020 tax year, partnerships could report their partners’ capital accounts for the tax year using one of a variety of methods, such as tax basis, GAAP, or section 704(b) book. However, the 2020 Form 1065 Instructions (“the Instructions??) require partnerships to calculate and report all their partners’ capital accounts using the tax basis method. The Instructions explain that if a ...

On November 20^th, the IRS released proposed regulations (REG-123652-18) regarding the centralized partnership audit regime created by the Bipartisan Budget Act of 2015.  First, these proposed regulations provide that partnerships, that have a partner that is a qualified subchapter S subsidiary (“QSub??), are not eligible to elect out of the centralized partnership audit regime.  In general, a partnership may elect out of the centralized partnership audit regime if it has 100 or fewer partners and each of those partners is an “eligible partner.??  The proposed regulations ...

On September 1st, the IRS launched the new website to serve as the single location for the Partnership Audit related regulations and other instructions and guidance for taxpayers. Please click here to site the new site.

On April 8, 2020, the IRS released Revenue Procedure
2020-23, which allows certain partnerships to file amended partnership returns
and issue amended Schedules K-1 to their partners for taxable years beginning
in 2018 and 2019, in order to claim tax benefits under the CARES Act and other
legislation.

The Bipartisan Budget Act of 2015 rewrote the provisions
governing partnership tax returns and audits. 
The new rules apply to all partnerships, except for a limited category
of partnerships eligible to elect out, and generally took effect with the
taxable year 2018.  

Section 6031 of the ...

On April 1st, the IRS Large Business & International and Small Business/Self-Employed divisions issued a memorandum (LB&I-04-0320-0005) updating prior interim guidance on filing and examining an administrative adjustment request under the Bipartisan Budget Act of 2015 centralized partnership audit regime.

On March 18th, the IRS released clarifications for instructions for Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request under the Bipartisan Budget Act (BBA). These clarifications are updates from the 2015 BBA which implemented new partnership audit procedures.

On February 20th, the IRS provided draft instructions to Form 8978 which reflected the changes to the audit procedures of partnerships under the 2015 BBA. The form is used to compute additional reporting year tax, penalties and interest. Partners will use Form 8978 to report adjustments shown on Forms 8986 received from partnerships that have elected to push out adjustments to partnership-related items to their partners.

The IRS provided interim guidance under Internal Revenue Manual 4.31.9 that would provide field examination procedures for centralized partnership audit regime until new IRM is published. The guidance applies to partnerships for taxable years beginning after December 31, 2017, and partnerships that elect into the Bipartisan Budget Act of 2015 (BBA) regime for taxable years beginning after November 2, 2015, and before January 1, 2018. The guidance is effective October 31, 2019. [LB&I-04-1019-010 (Oct. 24, 2019)].

The IRS office of Appeals on October 18, 2019, released interim guidance on application of the new Bipartisan Budget Act of 2015 (BBA) partnership audit procedures.  The new guidance supplements previous interim guidance AP?08?0319?0005, which was issued on March 25, 2019.  The April 25 guidance set procedures for Appeals employees to follow in screening, assigning, and referring BBA partnership cases.

The October 18 guidance includes the following key points:

• Election into BBA Regime.  Partnerships with taxable years beginning after November 2, 2015, and before January 1, 2018 ...

Partnerships and LLCs that applied to extend their deadline for filing Form 1065 for the 2018 tax year have until September 16, 2019 to submit their return. This deadline is fast approaching, and given recent changes to the partnership audit process, it is important for partnerships to ensure that they can meet their filing requirements by this date. In particular, the Bipartisan Budget Act of 2015 now requires partnerships to appoint a “partnership representative,?? who will have the power to bind the partnership and all partners to any audit determinations. This representative ...

Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return, updated to allow taxpayers, under Designation of Partnership Representativ, to enter all 0s (example: 00-0000000 or 000-00-0000) for the TIN of the partnership representative and designated individual (if applicable).  A preparer tax identification number (PTIN) or centralized authorization file (CAF) number may not be used as a TIN to designate a partnership representative or designated individual.  The IRS noted that the instructions will reflect this change in the next revision of the form. 

Form 8981, Waiver of the Period Under IRC Section 6231(b)(2)(A) and Expiration of the Period for Modification Submissions Under IRC Section 6225(c)(7), and Form 8984, Extension of the Taxpayer Modification Submission Period Under Section 6225(c)(7), released March 14 to reflect changes to partnership audit rules under the 2015 BBA.

Form 8981 allows the partnership representative to waive the restriction on mailing the notice of final partnership adjustment (FPA) described in tax code Section 6231(b)(2)(A). Form 8984 is used to request an extension of the 270-day modification ...

Attorneys in Caplin & Drysdale's Tax Controversy Group -- Members Charles Ruchelman and Rachel Partain and Associate Aaron Esman -- co-authored the article "Planning For Partnership Representatives In The New Year" for Law360.  To view the full article, please visit this link.  You can also visit this link to view the article on Law360's website (subscription required).

On December 19, 2018, the United States Tax Court announced that it had adopted interim and proposed amendments to its Rules of Practice and Procedure pertaining to “Partnership Actions?? under the BBA.  The new rules are at Rules 255.1 through 255.7 and have been published in proposed form to allow for notice and public comment.

The rules generally track the structure of the rules pertaining to partnership actions under TEFRA, while substituting in key definitional and procedural changes as set forth by the BBA.  Among other rules, Rule 255.6 grants the court the power to take such ...

Final Partnership Audit Regulations (December 21, 2018) READ MORE

On November 28, 2018, the Internal Revenue Service (the “IRS??) published a draft version of the instructions for Form 8979, Partnership Representative Revocation, Designation, and Resignation Form (click here).  When read in conjunction with the previously published draft of Form 8979, taxpayers now have a clearer idea as to the process for how to change a previously selected partnership representative or designated individual. 

Per the instructions, only the partnership or the partnership representative may file a Form 8979.  Additionally, both the form and the ...

Summer 2018 proved to be an active time in the implementation cycle of the new partnership audit regime, created under the Bipartisan Budget Act of 2015 (“BBA??). As this is the first tax year in which the new regime will apply to partnership audits, the Internal Revenue Service (“IRS??) issued a plethora of proposed and final regulations to assist taxpayers in navigating the audit process. Partnerships that have not yet reviewed their agreements, should take steps now to comply with the new rules and regulations. With the year coming to a close, we at ...

The Bipartisan Budget Act of 2015 (“BBA??) fundamentally changed the rules by which partnerships, and entities taxed as partnerships (such as limited liability companies), interact with the Internal Revenue Service (“IRS??) in an audit or litigation. The new rules apply to partnership tax years beginning on or after January 1, 2018. We outlined these significant changes to the partnership audit rules in a prior Alert. The BBA repealed the 30 year-old TEFRA partnership audit regime, upending or creating uncertainty with respect to previously-settled partnership tax rules ...

The Multistate Tax Commission (MTC), an organization that develops uniform tax laws for states, will soon provide formal feedback to a coalition of industry groups finalizing a model statute regarding partnership audits.

Interested parties have proposed a model uniform statute and regulation and presented it to the MTC for its review.  The proposed model is designed to promote uniformity among states conforming with the new federal partnership audit regime, thereby aiding multistate entities with compliance. The interested parties hope that the MTC, which itself develops ...

The Treasury Department released a memo on June 29, 2017 from the LB&I (Large Business and International Division) and SB/SE (Small Business/Self-Employed Division) providing interim guidance for examiners on how to handle “early elect in?? partnerships who filed returns after November 2, 2015 and before the January 1, 2018.

The memo addresses the temporary regulations (§301.9100-22T) for the “early elect in?? and explains the process of an election which must be made within 30 days of the partnership receiving written notice that their return has been selected for ...

Forthcoming IRS regulations are expected to grant broad powers to those representing partnerships during audits, but these added capabilities could expose representatives to new risks, liabilities and potential misconduct claims from partners.

Partnership agreements will have to be very specific about the decision-making powers of partnership representatives and the process for designating and terminating them, said Charlie Ruchelman of Caplin & Drysdale.

Similarly, representatives will want these agreements to contain indemnification clauses and ensure ...

The Internal Revenue Service is working to develop better ways to find the partners or other investors who owe tax—and represent the most risk—in immensely complex partnership structures.

The agency said it will be focusing big resources on finding what it called “terminal investors??—those responsible for tax—in a new compliance strategy known as a campaign.

. . .

New Procedures, Technology

In the unnumbered document detailing all 13 issues the agency is targeting, IRS said the partnership campaign “focuses on developing new procedures and technology to work ...

The IRS’ proposed partnership audit rules were withdrawn from The Office of the Federal Register following a government-wide executive order from President Donald Trump freezing all new and pending regulations, with some exceptions for health, national security and other emergency situations.

What’s the impact for practitioners and their clients?  Caplin & Drysdale’s Charles Ruchelman says “The regulations are likely to be re-proposed in 60 days, possibly with changes to the original proposals.  Practitioners and their clients should stay tuned to ensure they’re ...

On January 19, 2017, the IRS published proposed regulations regarding implementation of section 1101 of the Bipartisan Budget Act of 2015 (BBA)...