Bipartisan Budget Act of 2015
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Weekly IRS Roundup October 14 – October 18, 2019

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of October 14 – October 18, 2019.

October 15, 2019: The IRS published a news release that discusses several tax benefits available to military families as part of National Work and Family Month.  

October 15, 2019: The IRS published guidance on corporate bond weighted average interest rates and the permissible range of interest rates used to calculate pension plan minimum funding for plan years beginning in October 2019. The IRS updated the yield curve and 24-month segment rates, the 30-year Treasury securities interest rates, and the minimum present value segment rates. 

October 16, 2019: The IRS released a Statistics of Income Bulletin. The statistics show how many Forms 709 were filed in 2018. The report also indicates the amount of gifts given by asset type and gender, including stocks, bonds, real estate, partnership and other business interests. 

October 16, 2019: The IRS published a statement on how it handles passport certifications for people with significant tax debt. In July, the IRS temporarily suspended passport certification procedures on passports for anyone who had a case open with the Taxpayer Advocate Service (TAS). After initially agreeing to that request, the IRS has now reversed its position. The IRS has determined that a blanket, systemic exception for anyone with an open TAS case is overly broad and could undermine the effectiveness of the statute enacted by Congress in the Fixing America’s Surface Transportation Act to collect a seriously delinquent tax debt. 

October 18, 2019: The IRS published interim guidance on partnership audit procedures. The memorandum provides guidance for appeals employees on new case procedures for different phases of the Bipartisan Budget Act of 2015 (BBA) centralized partnership audit regime, including: (1) Early Election into BBA; (2) Administrative Adjustment Request; (3) Notice of Proposed Partnership Adjustment ; (4) Modification Disputes; and (5) Notice of Final Partnership Adjustment.

October 18, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Robbie Alipour in our Chicago office for this week’s roundup.

Ready or Not, Here They Come! The New Partnership Audit Rules

On November 2, 2015, the Bipartisan Budget Act of 2015, (the Act), H.R. 1314, 114 Congress/Public Law No. 114-74, made significant changes to the rules governing US federal income tax audits of partnerships (New Audit Rules). The New Audit Rules are codified at Internal Revenue Code Sections 6221 through 6241. On August 4, 2016, the IRS released temporary and proposed regulations relating to certain aspects of the New Audit Rules. And, on December 6, 2016, technical corrections to the New Audit Rules (Technical Corrections) were introduced in both the House of Representatives, H.R. 6439, and in the Senate, S. 3506.


Substantial Changes to Auditing Partnerships

On November 2, 2015, the Bipartisan Budget Act of 2015 was signed into law, and which instituted significant changes to the rules governing the federal tax audits of partnerships for tax years after 2017.  In the absence of affirmatively electing partner-level adjustment, the new rules impose entity-level tax liability for Internal Revenue Service (IRS) audit adjustments to partnerships.  The new rules are a significant departure from what has historically been merely pass-through treatment of partnerships for US federal income tax issues.

There is a small partnership exception to elect out of the new audit rules.  This election may apply to partnerships with 100 or fewer partners, each of which is an individual, a C corporation, an S corporation or an estate of a deceased partner.  However, any tiered partnership – partnerships that have partnerships as partners – are ineligible for the exception.

The new rules determine IRS audit adjustments at the partnership level for items of partnership income, gain, loss, deduction or credit.  The taxes owed on those adjustments are calculated at the maximum statutory tax rate, and assessed and collected from the partnership in the year that the audit or any judicial review is completed.  Additionally, the partnership is liable for all associated penalties and interest.

Alternatively, the partnership can elect out of the entity-level tax, but must furnish to every partner for each year under examination a statement of the partner’s share of any tax adjustments.  Under this election, each partner will be responsible for paying its taxes, penalties and interest related to the adjustment.

The new rules also change who speaks to the IRS on behalf of the partnership.  Instead of the “tax matters partner,” the new rules provide for a “partnership representative.”  The partnership representative, who no longer must be a partner, has sole power to act on behalf of the partnership during the audit.  Moreover, the partnership representative can bind both the partnership and the partners with respect to the IRS examination and adjustments.

The new partnership audit regime applies to partnership returns filed for tax years beginning after December 31, 2017.  Because the new rules make fundamental changes to the way that partnerships were audited in the past, we are hopeful that the delayed effective date will give taxpayers time to consider the potential effects of the new rules on their partnerships and operative agreements.  The new rules leave open numerous issues, and we expect the IRS to issue substantial guidance in the future.




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