IRS Releases Interim Guidance on BBA Partnership Audit Procedures

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, which are not automatically subject to BBA procedures, may elect for BBA procedures to apply as follows:
    • Within 30 Days of Audit Notification.  The partnership can make the election within 30 days of the date the IRS first notifies the partnership in writing that it has been selected for audit.  To make the election, either the Tax Matters Partner or an individual authorized to sign the return should complete Form 7036, Election under Section 1101(g)(4) of the Bipartisan Budget Act of 2015.
    • Via Administrative Adjustment Request.  The partnership can make the election by filing an Administrative Adjustment Request under section 6227.
  • Appeal Rights.  Whether a partnership elected to be subject to BBA procedures per the above or is automatically covered (for tax years beginning on or after January 1, 2018), the case will have Appeals rights.  The following procedures will apply:
    • If there is a dispute on a case, the agent will issue a “30-day BBA letter?? (Letter 5891, 30-Day Letter - Bipartisan Budget Act Partnership) for the taxpayer to request an Appeals hearing.
    • At least one year must remain on the period of limitations on assessment at the time the protest is received by Appeals; the IRS will use Form 872-M, BBA Consent to Extend Time for Making Adjustments to Partnership-Related Items, if there is less than a year remaining on the period of limitations.
  • Notice of Proposed Partnership Adjustment (NOPPA) and Modification.
    • Appeals will issue the NOPPA to the taxpayer after the Appeals process.
    • The Partnership Representative may request modification of the Imputed Underpayment Amount using Form 8980, Partnership Request for Modification of Imputed Underpayments Under IRC Section 6225(c).
    • Appeals will not reconsider a previously appealed issue if the case is returned to Appeals for a modification hearing.

The original memorandum from the IRS is available here.  Although many of its provisions relate to internal IRS procedures, the guarantee of Appeals rights should be a relief for taxpayers whose cases may not otherwise get full consideration during the audit.

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