Do Partnerships Now Need to Reserve for Taxes?

By and on June 6, 2016
Posted In Uncategorized

The Bipartisan Budget Act of 2015, P.L. 114-74, added new partnership audit rules, which are generally effective for tax years beginning in 2018. These new rules will allow the Internal Revenue Service (IRS) to assess and collect tax due on partnership adjustments at the entity level. Some partnerships will be able to elect out of these rules. For partnerships that cannot elect out, practitioners are pondering whether the new audit rules will cause partnerships, historically pass through entities for tax purposes, to now be required to make a tax provision/reserve on their financial statements. In a tiered partnership context, even if an upper-tier partnership has elected out of the regime, practitioners are wondering whether the upper-tier partnership may still need to make a tax provision/reserve if a lower-tier partnership elects to push out adjustments to its partners, resulting in an entity level tax for the upper-tier partnership.

See our prior discussion of the new partnership audit rules. Also see Tax Notes Today, “New Partnership Audit Rules Could Require Tax Provision Review,” June 3, 2016.

Gale E. Chan
Gale E. Chan focuses her practice on federal and international tax matters involving partnerships, limited liability companies and corporations. Gale advises clients on energy tax issues, including advising on renewable energy projects and nuclear energy decommissioning, and state audit examinations involving challenges to complex partnerships and limited liability company structures. Read Gale Chan's full bio.


Kevin Spencer
Kevin Spencer focuses his practice on tax controversy issues. Kevin represents clients in complicated tax disputes in court and before the Internal Revenue Service (IRS) at the IRS Appeals and Examination divisions. In addition to his tax controversy practice, Kevin has broad experience advising clients on various tax issues, including tax accounting, employment and reasonable compensation, civil and criminal tax penalties, IRS procedures, reportable transactions and tax shelters, renewable energy, state and local tax, and private client matters. After earning his Master of Tax degree, Kevin had the privilege to clerk for the Honorable Robert P. Ruwe on the US Tax Court. Read Kevin Spencer's full bio.

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