Real Estate Journal — Central New Jersey — August 11 - 24, 2017 — 7B
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C entral n ew J ersey By George Livanos, CPA, MST, SAX, LLP New Partnership Audit Regime – January 1 Implementation
S ince you’ve been wait- ing for guidance on the New Partnership Audit
partner individually. One foreseeable issue to this is if there was a change in ownership between the year being audited and the year of assessment. These new rules could significantly affect purchasers of partnerships or partnership interests, as they may find themselves incurring a tax liability for a prior year’s income tax deficiency. Partnership Representa- tive Under the TEFRA regime, a partnership is required to designate a “tax matters part- ner” to be the liaison between
the partnership and the IRS. With the new audit regime, the BBA created the “partnership representative,” who binds the partnership and its partners, and acts on its behalf on vari- ous tax and IRS matters. The partnership can assign a non- partner or outside entity to this role, as long as they fulfill the criteria put out by the Proposed Regulations: 0ust be able to easil\ meet with the IRS in the United States 0ust have a 86 address and phone number where they can be contacted by the IRS
0ust have a 7axpa\er Identification Number (TIN) Electing Out They’re not for everyone. To be eligible to elect out of an audit of a post-2017 year under the new regime, the partnership must file an an- nual election on a timely filed tax return and must have 100 or fewer eligible partners. An eligible partner does not in- clude a partnership or a trust as a partner. In doing so, the partnership and the partners would move forward under the general non-TEFRA rules that were not modified by BBA.
Imputed Underpayments The imputed underpayment amount “IUA” is the tax, in- terest and penalties resulting from an audit adjustment by the IRS and is sent to the Partnership Representative in the form of a Notice of Pro- posed Partnership Adjustment “NOPPA”. This is determined based upon the highest income tax rate in effect applicable to an individual or corporate partner for the tax year under audit – the “Reviewed Year”. Modifications can be made to the highest applicable income continued on page 16B
Regime, you now have it …. well, al- most. T h e n e w audit system u n d e r t h e B i pa r t i s an Budget Act of 2015 (BBA)
George Livanos
will replace rules that current- ly govern partnership income tax audits, and will have a pro- found impact on existing and new partnerships. Proposed Regulations were released in January 2017, yet were with- drawn soon after in response to the Trump administration’s regulatory freeze. They were then re-published this June and are the only real guidance we have at this point on how the new audit system will be applied post-2017 tax years. The new rules are centered on the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and are intended to increase the IRS’s ability to examine partnerships – spe- cifically large and tiered. They will streamline the complex partnership audit process by assessing and collecting taxes at the partnership level, in- stead of from each individual partner or member. Mandatory implementation of the new audit regime takes effect January 1, 2018, so it is vital that partners and mem- bers become familiar with the BBA and its regulations im- mediately. The IRS is soliciting public comments on the pro- posed regulations until August 14, 2017, and further in-depth guidance on many aspects of the regulations should follow soon thereafter. Here are some need-to-knows with regards to how the new regulations are currently pro- posed, and the main changes they bring about: Partnership vs. Individual Partner Tax Liability Under the new audit system, partnerships and other pass- through entities will pay fed- eral income tax, interest and/or any penalties resulting from an audit by the IRS on the entity level, rather than each partner. This change will allow the IRS to easily audit and collect defi- ciencies from the partnership as a whole, and will save them the time and cost of auditing and collecting taxes from each
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