IRS Issues Partnership Audit Temporary Regulations

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On August 4, 2016, the Treasury Department issued its first temporary regulations under the new partnership audit and collection regime found in the Bipartisan Budget Act of 2015 (“BBA”).  For partnership tax procedure practitioners, the regulations are interesting reading.  These new regulations provide insights into the internal deliberations and policy goals at Treasury and IRS headquarters.

The new regulations relate to the “early opt-in” option—that is, despite the January 1, 2018 effective date, the BBA provides that partnerships and LLCs may opt-in to the new regime before the January 1, 2018 date.

Interestingly, the new regulations provide that a partnership or LLC can only elect into the BBA rules early, if the IRS notifies the partnership or LLC that it has been selected for examination.  The regulations discuss how the early opt-in election is to be made, to whom the early opt-in election is sent, and what the early election opt-in must say.  Furthermore, the regulations require that the partnership certify that it is solvent, does not reasonably expect to become insolvent, and has the money to pay any potential tax underpayment.  If the partnership is not selected for audit, it can still do an early opt-in election if it wishes to file an administrative adjustment request (“AAR”).

Finally, the preamble states that “[t]he Treasury Department and the IRS expect to issue additional guidance regarding designation of a partnership representative, including who is eligible to be a partnership representative, under section 6223 as amended by the BBA.”  Of course, any entity that opts-in to the new regime must designate a partnership representative at that time.

For further information, please contact Coby Hyman at General Tax Counsel, PLLC.  Mr. Hyman can be reached by phone at (972) 740-0161 or via email at chyman@generaltaxcounsel.com.