What are the IRS Centralized Partnership Audit Procedures?
Taxpayers have been asking the new their tax attorneys about the new BBA partnership audit procedures. In a nutshell, the salient points are outlined here. Under the new centralized partnership audit rules, the IRS partnership audit is conducted at partnership level. This applies to all partnerships unless they are eligible to and timely elect out. There isn’t a small partnership exception. All partnership‐related items are determined in the partnership proceeding. Only the partnership‐level statute of limitations is relevant. The partnership must pay the “imputed underpayment” unless it
elects to “push out” the adjustments to reviewed‐year partners. If the partnership does not pay or push the tax liability to the partners, the IRS can assess the tax liability against partners according to their proportionate share of the imputed underpayment.
How does a partnership elect out of the BBA Centralized Partnership Regime?
Partnerships with 100 or fewer eligible partners make make an election out of the centralized audit procedures. This 100 threshold is based on the number of K‐1s required to be furnished. Eligible Partners include:
• Individuals (and estates of deceased partners),
• C Corporations (including any foreign entity that would be treated as a corporation if
domestic), and
• S Corporations
Ineligible Partners include: nominees, trusts, DEs, partnerships, and estates other than the estate of a deceased partner. Notice 2019‐6 contains special rule for QSub partners. If election out of BBA is made, the IRS must propose adjustments and then assess and collect from each partner individually.
Make Sure Your Partnership Complies with the IRS BBA Partnership Audit Regime
If you have questions about how the new regulations for the IRS centralized partnership audit regime work, contact a tax attorney today. If your partnership receives a notice of administrative proceeding, which is an IRS audit letter, contact a tax attorney today to discuss what that means and how to prepare.
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