Page 145 - The TEFRA Partnership Audit Rules Repeal:

ALI CLE Live Video Webcast / “The TEFRA Partnership Audit Rules Repeal: Partnership and Partner Impacts” June 7, 2016, Jerald David August and Terence Floyd Cuff
as of the close of the reviewed year. For example, adjustments are made to a partnership’s rental income from property A and its depreciation deductions with respect to property B. A corporate partner has a 20 percent distributive share of rental income from property A, a 15 percent distributive share of depreciation deductions from property B, and a 20 percent distributive share of any gain in the reviewed year. However, if the partnership had sold its assets at fair market value as of the close of the reviewed year, the gain would have been $100, and based on its capital account, the corporate partner’s distributive share would have been $20. Thus, the portion of the imputed underpayment to which the lower rate applies with respect to the corporate partner is 20 percent.
Modification procedures: additional procedures
Additional procedures to modify the amount of an imputed underpayment may be provided by the Secretary on the basis of factors the Secretary determines are necessary or appropriate to carry out the purposes of the provision. These procedures allow partnerships to demonstrate tax attributes or information with respect to the reviewed year and with respect to reviewed year partners that could permit modification of the imputed underpayment to more closely approximate the amount of tax due with respect to the reviewed year if the partnership and partners had correctly reported and paid the tax due.
In the absence of regulations or guidance specifically addressing the manner in which these modifications or calculations are made, it is anticipated that partnerships will furnish to the Secretary the necessary documentation, data, and calculations to determine the amount of the reduction of the imputed underpayment with a reasonably high degree of accuracy.
b. Adjustment that does not Result in Imputed Underpayment
A partnership audit adjustment does not necessarily create a tax deficiency. The adjustment does not necessarily create an imputed underpayment. The partnership might be in a position that it believes that it is entitled to a tax refund based on partnership adjustments.
Any adjustment of a partnership item, or any partner’s distributive share, that does not result in an imputed underpayment is taken into account by the partnership in the adjustment year [the year in which the audit concludes] (the year in which the audit is concluded), not in the reviewed year.
© Terence Floyd Cuff and Jerald David August, 2016
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