The IRS on June 13 reissued proposed regulations that implement the centralized partnership audit regime enacted by Section 1101 of the Bipartisan Budget Act of 2015, PL. 114-74, and amended by the Protecting Americans From Tax Hikes Act of 2015, PL. 114-113. These proposed regulations were originally posted in January and were scheduled to be published in the Federal Register but were not officially published then as a result of the regulatory freeze announced by the White House on Jan. 20.
The reissued rules, which assess and collect tax at the partnership level, replace the cumbersome unified audit procedures that were enacted by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and the electing large partnership rules. The new audit regime applies to partnership tax years beginning after Dec. 31, 2017, but partnerships can elect to apply them early. In a letter dated the same day the proposed regulations were reissued, the AICPA asked Treasury and the IRS to work with Congress to postpone this effective date by a year.
The new regime generally requires the additional tax on any partnership adjustments (the imputed underpayment) to be paid by the partnership but provides an election under Sec. 6226 that permits a partnership to have the partners in the partnership tax year to which the adjustment relates (the reviewed year) take into account the IRS's adjustments and pay any tax due as a result.
Another change from the TEFRA rules replaces the tax matters partner (TMP) with a partnership representative. Unlike the TMP, the partnership representative need not be a partner but may be any person with a substantial presence in the United States. The IRS may select any person as a partnership representative if the partnership does not have a designation in effect. The proposed rules explain how the IRS's designation works and prohibit the partnership from revoking a designation made by the IRS without the Service's consent.
The partnership representative may be an entity, but if so, the proposed rules require the partnership to appoint an individual to act on the entity's behalf. The rules permit a partnership to designate a partner or a nonpartner, including the partnership's management company, as the partnership representative, provided the person otherwise qualifies. The proposed rules have detailed procedures for designating the partnership representative on the partnership's tax return and for changing it.
The proposed rules...