The American Institute of CPAs is recommending a set of changes to the Internal Revenue Service’s proposed partnership audit regulations.
The Bipartisan Budget Act of 2015 paved the way for the new Centralized Partnership Audit Regime, making it easier for the IRS to audit large partnerships such as major private equity firms, hedge funds and CPA firms by auditing the firm itself and not all the individual partners.
In a comment letter Monday, the AICPA made a number of recommendations about various ways to improve the IRS’s proposed regulations. The AICPA asked for changes in the ability to use the “push-out” election by tiered partnership structures and in how to properly reflect adjustments under the new audit regime in a partner’s basis and capital account. The push-out election option allows each partner from the reviewed year pick up the assessed tax liability on their individual returns, but the election needs to be made within 45 days of the postmark date of the final partnership adjustment. The AICPA also asked for an expansion of the types of partners who are eligible for an opt-out, and for changes in the procedures for the appointment and replacement of a partnership representative.
“It is our interpretation of the language in the proposed regulations that a partnership making a valid election to opt out is not required to appoint a partnership representative,” wrote AICPA Tax Executive Committee chair Annette Nellen in the letter. “However, we think that it is in the best interest of a partnership to have a partnership representative. If the IRS should subsequently determine that the election to opt out was invalid, it would benefit both the partnership and the IRS to have a partnership representative. Also, various sections of the proposed regulations state that an upper-tier partnership, which is itself a partner in an audited partnership, is subject to any provisions which apply generally to partners of the audited partnership. To assure that an upper-tier partnership will have the ability to push-out any adjustment to its own partners, the designation of a partnership representative at the time of filing their original return is warranted.”
The AICPA also asked for changes in the rules in a partnership’s right to challenge different types of IRS actions and decisions with the IRS Office of Appeals.
The IRS issued proposed regulations in June, and they would generally affect partnerships for taxable years starting after Dec. 31, 2017.
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