Page 152 - 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
The partnership may seek relief from the comparatively harsh regime for reallocations of income and credits by electing the regime to push out adjustments. This likely will be a common scenario for partnerships that face large reallocations of income among partners. Many partnerships rely on partners’ interests in the partnership. These partnerships may be vulnerable to income and loss reallocation among partners.
Significantly, the economic burden of the imputed underpayment falls on the adjustment year [the year in which the audit is concluded] partners than the reviewed year [the year under audit] partners.
Net amount of adjustments is multiplied by highest Section 1 or Section 11 tax rate for the reviewed year.
The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) clearly contemplates computational adjustments that will be contained in regulations.
e. Adjustment of Tax Rates.
Rates are subject to exceptions by be provided by regulations:
 Imputed underpayment may be reduced to the extent partners voluntarily file amended tax returns and pay any tax due for the reviewed year [the year under audit] [the year under audit], or
 The partnership demonstrates that partnership items are allocable to partners either not subject to tax (in the case of a tax-exempt entity) or taxed at reduced corporate or capital gain rates.76
76 I.R.C. § 6225(c) (“(c) Modification of imputed underpayments. – (1) In general. – The Secretary shall establish procedures under which the imputed underpayment amount may be modified consistent with the requirements of this subsection. (2) Amended returns of partners. – (A) In general. – Such procedures shall provide that if – (i) one or more partners file returns (notwithstanding section 6511) for the taxable year of the partners which includes the end of the reviewed year of the partnership, (ii) such returns take into account all adjustments under subsection (a) properly allocable to such partners (and for any other taxable year with respect to which any tax attribute is affected by reason of such adjustments), and (iii) payment of any tax due is included with such return, then the imputed underpayment amount shall be determined without regard to the portion of the adjustments so taken into account. (B) Reallocation of distributive share. – In the case of any adjustment which reallocates the distributive share of any item from one partner to another, paragraph (2) shall apply only if returns are filed by all partners affected by such adjustment. (3) Tax-exempt partners. – Such procedures shall provide for determining the imputed underpayment without regard to the portion thereof that the partnership demonstrates is allocable to a partner that would not owe tax by reason of its status as a tax-exempt entity (as defined in section 168(h)(2)). (4) Modification of applicable highest tax rates. – (A) In general. – Such procedures shall provide
© Terence Floyd Cuff and Jerald David August, 2016
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