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Tax News
Proposed Partnership Audit Regulations are Out
January 19, 2017
Administrative Actions
In a 270 page blockbuster release, the IRS laid down the law on the new partnership audit tax regime in proposed reg project REG-136118-15. As a background, Congress repealed TEFRA and replaced it with the Bipartisan Budget Act of 2015 (BBA). The BBA was enacted in a rush and was later followed by the Tax Technical Corrections Act of 2016 (H.R. 6439, S. 3506) which never passed. The main highlight of the new rules is that partnerships could end up liable for the assessed tax as compared to the TEFRA rules where the tax liability passed to the individual partners.  One of the key elements of the new rules, including the proposed regulations, is the “push out” election where the audited partnership can push the adjustments to its partners. Under proposed §301.6226-1(c)(3), a partnership may only make the “push out” election within 45 days of the date the FPA was mailed by the IRS. This time cannot be extended. Furthermore, the election will require only the signature of the partnership representative. 

Unfortunately, the proposed regulations reserve on the issue of whether the “push out” election can be made by upper-tier partners that are themselves partnerships. Perhaps this is due to the fact that this issue was addressed in the 2016 Technical Correction but was never enacted. Once the Technical Correction is reintroduced and passed in the 115th Congress, the IRS will probably reflect the final legislation in the regulations. As a reminder, Sec. 204 of the Technical Correction afforded upper-tier partnerships the ability to make the “push out” election and pass the assessment up the tier.  
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Tags: tefra, audit