Page 190 - 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
reductions are made to outside and inside basis to reflect the partnership’s payment of the tax. Partners, former partners, and the partnership may have entered into indemnification agreements under the partnership agreement with respect to the risk of tax liability of former or new partners being borne economically by new or former partners, respectively. Because the payment of tax by a partnership under the centralized system is nondeductible, payments under an indemnification or similar agreement with respect to or arising from the tax are nondeductible.
12. Consistency Requirement With Partnership Return.
As under the TEFRA regime, the centralized or consolidated regime also contains a consistency requirement: a partner on its return must treat each item of income, gain, loss, deduction or credit shown by the partnership on its return and as allocated to such partner on Form K-1 consistently.102 Any underpayment attributable to a partner’s failure to conform to the partnership reporting of one or more tax items is treated as a mathematical or clerical error which is immediately assessable against the partner and may not be abated in accordance with Section 6213(b)(2).103 Additions to tax for the assessment resulting from the inconsistency may be imposed, including interest.
A partner also is not permitted to challenge the partnership’s reporting position in a separate audit or action. The individual partner is not permitted to fils a petition for readjustment of partnership items.
a. Notice of Inconsistent Position.
As under existing TEFRA rules, where a partnership has filed a return and issued a K-1 to a partner, the partner on its return may take an inconsistent position with the partnership’s return, or, where the partnership has not filed a return, the mathematical or clerical error rule and nonabatement rule do not apply where the partner files a statement identifying the inconsistent or no stated position.104 Of course, a partner may prove up that its position on its return is in fact consistent with the partnership’s treatment. The partner ultimately will be bound by the results of the consolidated partnership audit. The partner does not have the ability to litigate separately from the partnership under the partnership audit regime.
102 I.R.C. § 6222(a). 103 I.R.C. § 6222(b). 104 I.R.C. § 6222(c).
© Terence Floyd Cuff and Jerald David August, 2016
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