New IRS Partnership Audit Rules: Impact on Private Equity and Hedge Funds

Partnership Level Tax, Push-Out Elections, Partnership Representative Provisions and More

Recording of a 90-minute CLE/CPE webinar with Q&A


Conducted on Wednesday, January 24, 2018

Recorded event now available

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Program Materials

This CLE/CPE webinar will examine the new IRS partnership audit rules and their impact on private equity and investment funds. The panel will discuss the changes that should be made now in partnership and LLC agreements in contemplation of the new rules, the elections available to smaller partnerships to avoid the new partnership level audits, and “push-out” elections which will allow for adjustments for changes in ownership.

Description

For partnerships, including LLCs taxed as partnerships, the new audit rules are a game-changer. Enacted under the Bipartisan Budget Act of 2015, the rules will affect most partnerships, regardless of size, beginning Jan. 1, 2018. Under the new rules, the IRS will assess and collect taxes at the partnership level as opposed to the individual partner level. Any adjustments to the partnership’s income, gains, losses or deductions will be assessed in the year in which a tax audit occurs.

For private equity and hedge funds, in which ownership changes may occur due to redemptions, investor defaults or other events, the assessment of a partnership-level tax in the year in which an audit is concluded may result in current partners being subject to tax liability for periods they may not have been partners or held a different ownership percentage.

PE funds have the ability to make a “push-out” election within 45 days of a final adjustment, but may also need to amend their partnership agreements to address these contingencies.

Going forward, PE funds need to select a partnership representative with broad authority to bind the partnership and its partners to agreements with the IRS. Partners will no longer have the right to participate in a partnership audit. Partnership and LLC agreements must clearly define the responsibilities of, and indemnities available to, this representative.

Listen as our authoritative panel discusses the new partnership audit rules with particular focus on their impact on private equity and other investment funds. The panel will discuss provisions that should be included in partnership or LLC agreements to address the new audit regime and the opt-outs and exclusions available.

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Outline

  1. The Bipartison Budget Act of 2015 and phase-in of the new partnership audit rules
  2. Exceptions and opt-out rules
  3. Implications of partnership level tax vs. individual partner level tax
  4. Special issues for private equity and other investment funds
  5. Partnership representative
  6. Suggested amendments to existing partnership or LLC agreements

Benefits

The panel will review these and other key issues:

  • What options are available to smaller partnerships and LLCs who wish opt out of the partnership-level taxation requirement?
  • How should private equity funds address tax inequities resulting from changes in ownership from one year to the next?
  • What amendments should be made to include a “partnership representative” in existing partnership or LLC documents?

Faculty

Hazel, Kristen
Kristen E. Hazel

Partner
McDermott Will & Emery

Ms. Hazel has extensive experience representing clients in US and international aspects of federal tax matters,...  |  Read More

Spencer, Kevin
Kevin Spencer

Partner
McDermott Will & Emery

Mr. Spencer's practice focuses on federal tax controversy and litigation issues, and he represents several large...  |  Read More

Tully, Madeline
Madeline Chiampou Tully

Partner
McDermott Will & Emery

Ms. Tully represents clients on federal income tax matters relating to taxable and tax-free mergers, acquisitions and...  |  Read More

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