Electing Out of New Centralized Partnership Audit Regime: New IRS Final Regulations on Opt-Outs

Description

The Treasury recently released the first of its long-awaited final regulations on the new centralized partnership audit rules. TD 9879, released Jan. 2, 2018, provides regulatory guidance on how eligible partnerships may elect to opt out of the audit regime. Tax advisers need to quickly grasp the implications of deciding whether to elect out of the new audit procedures to avoid messy tax consequences.

The new centralized partnership regime allows the IRS to examine, assess and collect tax at the partnership entity level. This could impact new partners, who might find themselves liable for their pro rata share of a tax assessment for a year prior to their ownership of partnership interest. The final regulations address this by allowing partnerships that issue fewer than 100 K-1 Schedules, and all partners are “eligible partners,” to elect out of the entity-level assessment rules.

Partnership tax advisers must determine whether an opt-out election is the optimal tax strategy. By making the election, the partnership chooses to have audit adjustments reflected in the year an audit is concluded rather than in the year being audited. Advisers also must have thorough knowledge of the rules determining who is an "eligible partner" for purposes of determining whether an election is available, and the notification requirements for both partners and the IRS.

Listen as our experienced panel provides a thorough and practical guide to the strategies and mechanics of electing out of the centralized partnership audit rules.