Recently, the IRS issued guidance for its Office of Appeals about the changes to partnership audit procedures under the Bipartisan Budget Act of 2015 (“BBA”). BBA repealed the TEFRA partnership audit procedures “replacing them with an entirely new centralized partnership audit regime.” Unless a partnership elects out, the IRS may now assess and collect tax underpayments from the partnership rather than pursuing payment from the partners.
The Office of Appeals is an independent office within the IRS that generally attempts to resolve disputes at the conclusion of an audit. Much of this guidance refers to internal Appeals procedures for handling cases under the BBA audit regime. A few things of note, however. First, this guidance reveals that the IRS is treating BBA appeals as a centralized issue and using many of the same employees who handled TEFRA audits. Second, as before, any case going to Appeals must have at least 365 days remaining on the statute of limitations.
Most importantly, this guidance reveals that the IRS has begun preparing for partnership audits under the new BBA procedures to begin reaching Appeals. It also signals that taxpayers may see a significant increase in the number of partnership returns being audited and going to Appeals. Indeed, BBA was enacted in part to ensure more audits of large partnerships.
Anticipating such an uptick in audits, taxpayers should be prepared for them and in particular ensure that their partnership agreements have been updated to ensure compliance with the new BBA rules. We have previously blogged about some of those rules here, here, and here.
If you have any questions about this post, please contact Jeff Erney at Jeffry.Erney@dentons.com or (202) 496-7511 or Peter Anthony at firstname.lastname@example.org (202) 496-7961.