Page 216 - 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
tax reserve may leave some investors wondering whether there is too much discretion involved in setting up a “tax reserve.” The reserve could be determined by the general partner(s) of the partnership or managers or managing members of the limited liability company.130
g. Partnership Ceases to Exist.
A partnership may cease to exist before a partnership adjustment takes effect. The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) provides that the partnership adjustment is to be taken into account by the former partners of the partnership under regulations. Section 6241(7) provides: “If a partnership ceases to exist before a partnership adjustment under this subchapter takes effect, such adjustment shall be taken into account by the former partners of such partnership under regulations prescribed by the Secretary.” A partnership that has no significant income, revenue, assets, or activities at the time the partnership adjustment takes effect may be treated as having ceased to exist. An important issue for regulations to resolve is what “ceases to exist” means for this purpose. The regulations will have to determine “former partners.” The regulations also will have to determine precisely what happens when the partnership “ceases to exist.” Finally, the regulations should address whether the partnership itself has continuing liability for the imputed underpayment.
The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) provides:
Treatment where partnership ceases to exist
If a partnership ceases to exist before a partnership adjustment under the centralized system is made, the adjustment is taken into account by the former partners of the partnership, under regulations provided by the Secretary. Whether a partnership ceases to exist for this purpose is determined without regard to whether there is a technical termination of the partnership within the meaning of section 708(b)(1)(B). The successor partnership in a technical termination succeeds to the adjustment or imputed underpayment, absent regulations to the contrary. A partnership that terminates within the meaning of section 708(b)(1)(A) is treated as ceasing to exist. In addition, a partnership also may be treated as ceasing to exist in other circumstances or based on
130 Query: Does the tax reserve provide the partnership representative a barometer for settlement with the Internal Revenue Service?
© Terence Floyd Cuff and Jerald David August, 2016
147