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IRS finalizes central partnership audit partnership representative and early adoption regs

August 7, 2018

IRS has issued final regs on the centralized partnership audit regime, which was enacted into law by the Bipartisan Budget Act of 2015 (BBA; P.L. 114-74, 11/2015). The regs finalize rules regarding: a) the designation and authority of the partnership representative; and b) the election to apply the centralized partnership audit regime to partnership tax years beginning after Nov. 2, 2015 and before Jan. 1, 2018.

Background.  A new centralized partnership audit regime was enacted as part of the the BBA. The new regime added a new subchapter C to chapter 63 of the Code.

In general, any adjustment to items of income, gain, loss, deduction, or credit of a partnership for a partnership tax year (and any partner’s distributive share thereof) will be determined, and any tax attributable thereto will be assessed and collected, at the partnership level. (Code Sec. 6221) The applicability of any penalty which relates to an adjustment to any such item or share will also be determined at the partnership level.

Under the new rules, any adjustment to items of income, gain, loss, deduction, or credit of a partnership for a partnership tax year, and any partner’s distributive share thereof, are determined at the partnership level. In the event of any adjustment by IRS in the amount of any item of income, gain, loss, deduction, or credit of a partnership, or any partner’s distributive share, that results in an “imputed underpayment,” the partnership is required to pay the imputed underpayment in the adjustment year. (Code Sec. 6225(a)(1)) However, a partnership may elect under Code Sec. 6226 to have its partners for the year under audit (the reviewed year partners) take the adjustments into account. This election is the “push out” election.

Final regs.  The final regs make several modifications to proposed regs issued in 2017 regarding the the designation and authority of the partnership representative. They also finalize, without substantive modifications, temporary regs issed in 2016 regarding the election to apply the centralized partnership audit regime to partnership tax years beginning after Nov. 2, 2015 and before Jan. 1, 2018.

The regs are effective on Aug. 8, 2018. They generally affect partnerships for tax years beginning after Dec. 31, 2017.

Checkpoint will provide additional information about the regs in a future Federal Tax Update.

References: For the post-2017 partnership audit rules, see FTC 2d/FIN ¶ T-2400 et seq.; United States Tax Reporter ¶ 62,214.12 et seq.