IRS has issued new forms 8988 and 8989, to be used by partnerships to make or revoke, respectively, the election to “push out” partnership adjustments etc. to their partners, under the centralized partnership audit regime.
Background—centralized partnership audit regime generally. A new centralized partnership audit regime was enacted as part of the Bipartisan Budget Act of 2015 (BBA). Generally effective for tax years beginning after Dec. 31, 2017, Sec. 1101 of the BBA repealed the previous (TEFRA) partnership procedures and the existing rules applicable to electing large partnerships, replacing them with the new regime.
Background—imputed underpayments and the push out rules. Under the centralized partnership audit regime, adjustments to partnership-related items are determined at the partnership level. The tax attributable to those adjustments is also assessed and collected at the partnership level in the form of an imputed underpayment determined pursuant to Code Sec. 6225.
A partnership may elect the alternative to payment of the imputed underpayment under Code Sec. 6226 under which it “pushes out” the adjustments determined at the partnership level, in which case the tax attributable to the adjustments is assessed and collected from the partnership’s partners. The election must be made within 45 days of the date on which the final partnership adjustment (FPA) is mailed by IRS. This 45-day period cannot be extended, and once made, the election may only be revoked with the consent of IRS. (Code Sec. 6226(a))
A partnership may make an election with respect to one or more imputed underpayments identified in an FPA. For example, where the FPA includes a general imputed underpayment and one or more specific imputed underpayments, the partnership may make an election with respect to any or all of the imputed underpayments. (Prop Reg § 301.6226-1(a))
A partnership that makes the election must furnish statements to its reviewed year partners (and file those statements with IRS) no later than 60 days after the date all of the partnership adjustments to which the statement relates are finally determined. (Reg § 301.6226-2(b)(1))
Form 8988, election. IRS has now issued the form, Form 8988, for making the election. In completing Form 8988, the partnership must:
… Attach a copy of the Notice of Final Partnership Adjustment and indicate the date of that notice.
… Attach a schedule listing each reviewed year direct partner’s name, address and Taxpayer Identification Number (TIN) and indicate the number of reviewed year partners.
… Indicate whether it is making the election for a general imputed underpayment or a specific imputed underpayment.
… Acknowledge that it must furnish statements to its reviewed year partner’s and file a copy of the statements with IRS.
… Acknowledge that election may only be revoked with the consent of IRS.
Form 8989, request to revoke election. And, IRS has now issued the form, Form 8988, for revoking the election.
The partnership must indicate whether it is revoking the election for a general imputed underpayment for a specific imputed underpayment.
The instructions to the form note: a) IRS will not approve a request to revoke an election made under Code Sec. 6226 after the partnership has furnished statements to its reviewed year partners. Accordingly, any request to revoke the prior election must be submitted and approved prior to the statements being furnished to the reviewed year partners. b) In submitting the request to revoke the prior election, the partnership should understand that it is liable for the imputed underpayment under Code Sec. 6225 as if the original election was never made. Therefore, the partnership must pay the imputed underpayment under Code Sec. 6225 as well as any penalties and interest under Code Sec. 6233.