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Legislation Creates Default Rule: All Partnerships to be Audited at Entity Level

November 6, 2015 Business & Tax Blog Legislation

On November 2, 2015, President Obama signed into law The Bipartisan Budget Act of 2015 (H.R. 1314) which, among other things, imposes a new audit regime on tax partnerships beginning in 2018. Under the new regime, unless a partnership is eligible to elect out and does so timely, IRS can now collect tax due on partnership adjustments at the entity level, which takes a fundamental premise of partnership taxation – that the entity pays no tax – and turns it on its head. The new regime has many significant impacts. Not the least of which is that the IRS can send a bill for a prior-year tax underpayment to the partnership itself, and therefore the current year partners would bear this burden. Our initial analysis is that tax partnerships that are eligible will likely want to elect out of the new regime. A link to the full Act (Title XI – starting on page 42 – is the relevant portion of the Act) is here:

Michael J. Wilson