Page 158 - 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
with their amended personal tax returns for the reviewed year.81 If the partnership decides to follow this approach and so elects, the partnership agreement might contain a requirement for reviewed year partners to amend their returns and to pay the required tax for the reviewed year. The partnership nevertheless may have difficulty enforcing this requirement. The partnership agreement might contain some remedy or liquidated damages if a partner fails to amend his return and pay the required tax.
Payments made by reviewed year partners [partners who were partners in the year under audit] with amended returns can reduce the amount of an imputed underpayment.82 The partnership can eliminate the entire imputed underpayment by having all partners file amended tax returns and pay their taxes on the adjustments. The partnership can reduce the imputed underpayment by having some partners file amended tax returns and pay their taxes on the adjustments.
81 I.R.C. §§ 6225(c)(1), (2) (“(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.”).
The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) provides:
Modification procedures: amended returns of reviewed year partners
Payments made by reviewed year partners with amended returns can reduce the amount of an imputed underpayment.208 [208 Sec. 6225(c)(2).] Procedures for modification provide that the amount of an imputed under-payment is determined without regard to the portion of the under-payment taken into account by payment of tax included with amended returns of the reviewed year partners. The amended return relates to the taxable year of the partner that includes the end of the reviewed year of the partnership. The amended return is to take into account all adjustments in the amount of any item of income, gain, loss, deduction, or credit of the partnership (or any partner’s distributive share) properly allocable to each partner, along with changes for any other taxable year with respect to which any tax attribute is affected by reason of the adjustments. Payment of any tax due is to be included with the amended return. In the case of an adjustment that reallocates the distributive share of any item from one partner to another, this modification procedure is only available if amended returns for the reviewed year are filed by all partners affected by the adjustment.
82 I.R.C. § 6225(c)(2).
© Terence Floyd Cuff and Jerald David August, 2016
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