Page 193 - 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
were partners in the reviewed year rather than the adjustment year [the year in which the audit concludes].
Those partners will include these adjustments in their years in which they receive the reports of the adjustments in computing their tax liabilities for the year in which they receive these reports. Thus, the reviewed year partners will be taxable currently on reviewed year adjustments rather than in the reviewed year. This regime has the advantage of associating the adjustment with the reviewed year partners.
Also, the General Explanation of Tax Legislation Enacted in 2015 (JCS-1- 16, March 2016) advises: “Regardless of whether a partnership adjustment passes through to the partners, an adjustment must be offset if it requires another adjustment in a year that is after the adjusted year and before the year the adjustment that was made takes effect.”
The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) notes that “ A partnership may make this election only if it meets requirements set forth in Treasury regulations designed to ensure payment (for example, in the case of a foreign partnership).”
The authors anticipate that pushing out adjustments will prove popular. The partnership can elect to avoid tax at the partnership level and to cause all of the adjustments to push out to the reviewed year partners [partners in the year under audit] in the reviewed year. The adjustments then will be taxable to those reviewed year partners.
The partnership committing to push out adjustments should avoid the need for the partnership to reserve on its financials for uncertain tax positions. Pushing out adjustments also will avoid the adjustment year partners being taxable on the adjustments, which many will take as inequitable.
(1) PENALTIES. – Notwithstanding subsections (a) and (b), any penalties, additions to tax, or additional amount shall be determined as provided under section 6221 and the partners of the partnership for the reviewed year [the year under audit] shall be liable for any such penalty, addition to tax, or additional amount.
(2) INTEREST. – In the case of an imputed underpayment with respect to which the application of this section is elected, interest shall be determined –
(A) at the partner level,
(B) from the due date of the return for the taxable year to
which the increase is attributable (determined by taking into account any increases attributable to a change in tax attributes for a taxable year under subsection (b)(2)), and (C) at the underpayment rate under section 6621(a)(2), determined by substituting ‘5 percentage points’ for ‘3 percentage points’ in
subparagraph (B) thereof.
© Terence Floyd Cuff and Jerald David August, 2016
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