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IRS Issues Regs On New Partnership Audit Regime

by Glen Shapiro, Tax-News.com, New York

10 August 2016


The US Internal Revenue Service (IRS) has issued temporary regulations regarding an election to apply the new regime for auditing partnerships, including private equity and hedge funds, which was enacted as part of the Bipartisan Budget Act of 2015 (BBA).

Prior to the enactment of the BBA, the IRS experienced serious difficulties in auditing large partnerships – those with 100 or more partners and assets exceeding USD100m – largely because of their structural complexity.

Currently, all partnerships are taxed on a pass-through basis, with income reported on partners' income tax returns. According to Section 1101 of the BBA, partnership audit rules will be streamlined into a single set of rules for auditing partnerships and their partners at the partnership level.

The BBA stipulated that the new regime will be effective for tax years beginning after December 31, 2017, although partnerships can elect for parts of the new regime to apply to partnership taxable years beginning after November 2, 2015, and before January 1, 2018.

The new temporary regulations provide the time, form, and manner for making an election into the new regime, and particularly affect those partnerships that do elect for its early application. Once made, an election may only be revoked with the consent of the IRS.

TAGS: individuals | compliance | tax | business | tax compliance | law | audit | Internal Revenue Service (IRS) | tax authority | United States | regulation | individual income tax

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