Page 220 - 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
This issue should be controversial.
Partners also may have liability for the imputed underpayment if the partnership undertakes fraudulent conveyances of partnership assets or other conveyances not lawful under applicable state law. This liability then may be limited to transferred assets.
Regulations also should clarify what happens when Section 6241(7) applies. Query: Do the former partners have transferee liability for the imputed underpayment? Do the former partners include partnership adjustments in their returns? If so, in what returns do they include partnership adjustments?
h. Nondeductible Payments.
Payments by the partnership under the new partnership audit rules are nondeductible. This should include payments of tax, interest, penalties, and other additions to tax. These amounts, nevertheless should adjust capital accounts. Corporate partners apparently are not permitted to deduct their distributive shares of tax interest payments.
i. No Adjustment at Partner Level.
The new audit rules do not permit the Internal Revenue Service to make assessments at the partner level for partnership adjustments except to the extent that the partnership makes the push out election and then to the extent of pushed out items. This may force the Internal Revenue Service to accept the partner’s reporting of partnership items (at least, if consistent with the partnership return) for purposes of a partner adjustment (except to the extent of the pushed out items or election out). Proposed regulations presumably will address this problem. Regulations should consider the various problems with the push out election and tiered partnerships.
j. District Court Challenge and Deposit.
Partnerships challenging an assessment in a district court or the Court of Federal Claims must deposit imputed tax liability for the entire partnership – not just for one partner. 132
pursue state law remedies such as fraudulent conveyance claims. Finally, the partnership division rules of section 708 already provide safeguards to avoid liquidations that are only liquidations in form and not in substance and they could apply equally in the BBA context.210 [Footnote omitted.]
132 The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016):
Judicial review of partnership adjustment 151
© Terence Floyd Cuff and Jerald David August, 2016