Page 189 - 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
that a reasonable person in the agent’s position would draw from the circumstances creating the agency.100
Under normal agency law, an agent’s authority may be terminated by “(4) an agreement between the agent and the principal or the occurrence of circumstances on the basis of which the agent should reasonably conclude that the principal no longer would assent to the agent’s taking action on the principal’s behalf, as stated in § 3.09; or (5) a manifestation of revocation by the principal to the agent, or of renunciation by the agent to the principal.”101
11. Payments are Nondeductible.
The partnership may not deduct tax payments for imputed underpayments, including additions to tax, under the centralized audit system. The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) explains:
Payments of imputed underpayments nondeductible
No deduction is allowed under the Federal income tax for any payment required to be made by a partnership under the centralized system of partnership audit, assessment, and collection.
Under the centralized system, the flow through nature of the partnership under subchapter K of the Code is unchanged, but the partnership is treated as a point of collection of underpayments that would otherwise be the responsibility of partners. The return filed by the partnership, though it is an information return, is treated as if it were a tax return where necessary to implement examination, assessment, and collection of the tax due and any penalties, additions to tax, and interest.
A basis adjustment (reduction) to a partner’s basis in its partnership interest is made to reflect the nondeductible payment by the partnership of the tax. Specifically, present-law section 705(a)(2)(B) applies, providing that the adjusted basis of a partner’s interest in a partnership is the basis of the interest determined under applicable rules relating to contributions and transfers, and decreased (but not below zero) by expenditures of the partnership that are not deductible in computing its taxable income and not properly chargeable to capital account. Concomitantly, the partnership’s total adjusted basis in its assets is reduced by the cash payment of the tax. Thus, parallel basis
100 Restatement (Third) of Agency § 2.02. 101 Restatement (Third) of Agency § 3.06.
© Terence Floyd Cuff and Jerald David August, 2016
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