Page 186 - 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
 What will prevent the partnership representative from having liability to the partners if they do not like a settlement that a partnership representative enters?
h. Selection, Removal, Replacement.
The Code does not discuss selection, removal or replacement of the partnership representative. Query: What happens if the partnership representative dies? What happens if the partnership representative becomes incompetent? What happens if the partnership representative moves away? What happens if the partnership representative refuses to take instructions from the partnership? What happens if the partnership representative refuses to cooperate with the Internal Revenue Service audit? What happens if the partnership representative refuses to cooperate with the partnership? These presumably are important issues for the partnership. The Code does not say anything about partnership control over the partnership representative.
The Code does not discuss any right of the Internal Revenue Service to remove or to refuse to deal with a partnership representative. The Code does not say anything about the partnership being able to remove or to replace the partnership representative. We might presume that regulations will give the partnership appointment, removal, and replacement rights.
i. Fiduciary Duties of Partnership Representative.
The partnership representative presumably has the normal fiduciary duties of loyalty and care. “Subject to any agreement with the principal, an agent has a duty to the principal to act with the care, competence, and diligence normally exercised by agents in similar circumstances. Special skills or knowledge possessed by an agent are circumstances to be taken into account in determining whether the agent acted with due care and diligence. If an agent claims to possess special skills or knowledge, the agent has a duty to the principal to act with the care, competence, and diligence normally exercised by agents with such skills or knowledge.”94
It is not clear whether the partnership representative is a fiduciary of both the partnership and the partners or merely of the partnership. This duty of care obligates a partnership representative to act solely in the best interests of his principal to the exclusion of all other interests, including the partnership representative’s self-interest. The partnership representative also should have a duty to avoid conflicts of interest that might create divided loyalties. The
94 Restatement (Third) of Agency § 8.08.
© Terence Floyd Cuff and Jerald David August, 2016
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