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How Partnership Audits may affect you

Published Thursday, February 14, 2019

 

In the past, partnerships were audited at the partnership level.  Any adjustments resulting from the partnership audit were passed through to the partners’ returns.  This will change for tax years beginning after 2017.

 

New Items Under These Rules

  • Partnerships must designate a “partnership representative”, and the partnership representative will have the authority to bind the partnership.  This position will replace the prior “tax matters partner”.
  • Under the partnership audit procedures, the IRS may make adjustments to items of income and apply the highest individual or corporate tax rate to the adjustments.
  • The current partnership and/or partners could be responsible for tax liabilities of prior partners.

 

Planning Consideration

  • Although imputed underpayments, and interest and penalties, are ordinarily imposed at the partnership level, the partnership may elect to have imputed underpayments considered at the partner level.
  • A partnership may elect out of the partnership audit procedures if the partnership has 100 or fewer partners, and none of the partners is a trust, partnership, or disregarded entity.  If an S Corporation is a partner, each shareholder of the S Corporation is included to determine if the partnership has 100 or fewer partners.  A partnership must make the “opt-out” election on its timely filed return for the tax year to which the election applies and must notify its partners of the election within 30 days of the day it makes the election.  This election can be changed on an annual basis.

 

This is a very brief introduction to the complex new partnership audit procedures, and other rules may apply. If you have any additional questions, please contact Wendy Ingram at 770-287-7800 x239 or email at wingram@rushtonandcompany.com.

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Wendy Ingram, CPA
Tax Senior
T: +1 770 287 7800
wingram@rushtonandcompany.com
www.rushtonandcompany.com

 

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