IRS unveils website devoted to partnership audits
The Internal Revenue Service introduced a section of its website Tuesday dedicated to the Centralized Partnership Audit Regime, which allows the agency to audit large partnerships such as hedge funds, private equity firms and major accounting firms, on an entity-wide basis, as opposed to auditing each partner individually.
The change in audit approaches was allowed under the Bipartisan Budget Act of 2015. It replaces the earlier partnership audit rules under the Tax Equity and Fiscal Responsibility Act of 1982, and is effective for tax years starting in January 2018. Under the BBA, the IRS generally assesses and collects any understatement of tax (called an imputed underpayment) at the partnership level.
The ability to audit large partnerships at the entity level is something that the IRS long fought for and that makes it easier to audit large partnerships, rather than laboriously auditing each partner. But industry groups were able to win some important exceptions when the regulations were proposed and finalized.
Eligible partnerships — those with 100 or fewer partners, all of whom are either individuals, C corporations, foreign entities that would be treated as C corps if they were domestic, S corporations, or estates of deceased partners — are eligible to make an annual election out of the BBA on a Form 1065 that's filed on a timely basis.
The new webpage aims to be a one-stop location for anything BBA-related, including regulations and other guidance and instructions related to the partnership representative , electing out of the centralized audit regime, administrative adjustment requests, and what to expect during a BBA administrative proceeding.
The IRS plans to update the site regularly with the latest material related to partnership audits, including electronic submission instructions for forms related to a BBA examination when those instructions become available.