Page 187 - 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
partnership representative should not profit from his position beyond his normal compensation. An agent, as a fiduciary, is obligated to act using reasonable care and diligence. This requires the partnership representative to act competently. The partnership representative should have adequate training and expertise to exercise his duties. The partnership representative presumably has a duty of confidentiality, to preserve the confidences of the partnership.95 The partnership representative also likely should have a duty of good conduct, to act reasonably, and to refrain from conduct that is likely to damage the partnership’s enterprise.96
“An agent has a duty to comply with all lawful instructions received from the principal and persons designated by the principal concerning the agent’s actions on behalf of the principal.”97 It is not clear whether this limitation will apply to the partnership representative.
Furthermore, “An agent has a duty to use reasonable effort to provide the principal with facts that the agent knows, has reason to know, or should know when (1) subject to any manifestation by the principal, the agent knows or has reason to know that the principal would wish to have the facts or the facts are material to the agent’s duties to the principal; and (2) the facts can be provided to the principal without violating a superior duty owed by the agent to another person.”98 This requirement may extend to the partnership representative.
The partnership representative is the sole person who can act on behalf of partnership in audit. Of course, the partnership also can employ attorneys and accountants.
The partnership agreement reasonable should consider, detail, and perhaps modify the fiduciary duties of the partnership representative.
Many of the actions of the partnership representative could be questioned by the partners or the partnership as breaches of fiduciary duties. It may be advisable for the partnership agreement to modify fiduciary duties. The partnership agreement appropriately could contain waivers of liability of the partnership representative and indemnifications of the partnership representative.
95 Restatement (Third) of Agency § 8.05(2). 96 Restatement (Third) of Agency § 8.10.
97 Restatement (Third) of Agency § 8.09(1). 98 Restatement (Third) of Agency § 8.11.
© Terence Floyd Cuff and Jerald David August, 2016
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