Page 182 - 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
be appropriate, since the managing member, manager, or general partner represents partnership leadership. The managing member, manager, or general partner will not always represent the best partnership representative. The partnership representative must have cool temperament. The partnership representative should understand tax issues – or, at least, should be capable of understanding tax issues. The partnership representative should be even handed and be able to balance the competing tax interests within the partnership. The partnership representative perhaps should be someone who will accept instruction from the partners or partnership management. In appropriate circumstances, the partnership representative must be someone willing and able to devote substantial time to the partnership tax audit. In some circumstances, a manager or general partner may have significant tax interests that conflict with the tax interests of the other partners. This manager or general partner may not make the best partnership representative. The partners should be especially concerned about rifts between partners that may develop over the course of an audit.
The partnership representative may need unusual diplomatic skills. The partnership representative must deal with the Internal Revenue Service, partnership management, and partners. Partners may not have consistent tax interests. The partnership may be in bankruptcy at the time of the audit. The partnership representative will have to manage the relationship with the bankruptcy court. The partnership representative may need to coordinate a call for capital contributions from the partners to fund the audit. The partnership may have dissolved at the time of the audit. The partners may be in litigation with one another. Partners may have conflicts. The partners may have contradictory interests in the audit. The partners may be in litigation with partnership management. Partnership management may have abandoned the partnership and gone on to new opportunities.
The partnership audit rules do not require that the partnership representative be a partner.92 Substantial presence in the United States is the
92 I.R.C. § 6223 states:
SEC. 6223. PARTNERS BOUND BY ACTIONS OF PARTNERSHIP.
(a) DESIGNATION OF PARTNERSHIP REPRESENTATIVE. – Each
partnership shall designate (in the manner prescribed by the Secretary) a partner (or other person) with a substantial presence in the United States as the partnership representative who shall have the sole authority to act on behalf of the partnership under this subchapter. In any case in which such a designation is not in effect, the Secretary may select any person as the partnership representative.
(b) BINDING EFFECT. – A partnership and all partners of such partnership shall be bound –
© Terence Floyd Cuff and Jerald David August, 2016
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