December 05, 2017 | News
Congress has recently made substantial changes to the tax audit procedures for partnerships and some LLCs taxed as partnerships. These changes are far-reaching, and every partnership and LLC taxed as a partnership should examine the provisions of its governing agreement to determine if changes should be made.
Under previous law, when the IRS audited and assessed deficiencies against partnerships or LLCs taxed as partnerships, the IRS would audit and assess each partner or member. The rule of auditing each partner in a partnership has historically made the task of auditing many partnerships difficult for the IRS. In 2015, Congress changed the tax code to allow the IRS to begin auditing partnerships at the partnership level, rather than requiring an audit of each partner. The law also allows the IRS to assess deficiencies at the partnership level. Partnerships may make an election to push the deficiency to partners by following certain procedures. These changes apply to not just large partnerships but partnership of varying sizes including smaller family partnerships. The new law becomes effective in 2018, and every partnership and LLC taxed as a partnership should review its governing agreement now to determine if amendments should be made to incorporate the new law into the agreement. Finally, it may be possible for some businesses to elect out of the new law if the business meets a number of criteria, such as there not being any partnership or membership interests held by a trust.
Our professionals have substantial experience advising closely held businesses and family limited partnerships. Please contact us to see how we can assist you with a review of your governing documents to make sure you are ready for the new law and advise on whether an election out of the new law may be possible.