Page 224 - 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
A special statute rule applies if a partnership return is filed by an entity but it is determined that the entity is not a partnership for the year. The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) explains:
Extension to entities filing partnership return
If a partnership return (Form 1065) is filed by an entity for a taxable year but it is determined that the entity is not a partnership (or that there is no entity) for the year, then, to the extent provided in regulations, the provisions of this subchapter are extended in respect of that year to the entity and its items of income, gain, loss, deduction, and credit, and to persons holding an interest in the entity.
For example, assume two taxpayers purport to create a partnership for taxable year 2018, and a Form 1065 is filed for that year. The partnership is the subject of an audit under the centralized system for 2018, and pursuant to the provisions for judicial review, the partnership is determined by a court not to exist as partnership. Nevertheless, the rules of the centralized system apply to the items of income, gain, loss, deduction and credit, and to the two taxpayers, in respect of 2018. An imputed underpayment may be collected from the purported partnership in the adjustment year [the year in which the audit concludes] pursuant to new section 6225. Alternatively, the
likely to be reviewed as part of that process. Alternatively, the administrative adjustment request may be subject to examination on its own. Interest on an imputed underpayment accrues from March 15, 2019, the unextended due date of the 2018 timely return until payment, whether the examination was prompted by the return or solely by the administrative adjustment request. However, full payment of the reported underpayment reported on the administrative adjustment request, plus interest calculated through the date of the administrative adjustment requests, ends accrual of additional interest with respect to that portion of the underpayment ultimately determined that was reported on the administrative adjustment request. If an increase in the imputed underpayment reported by the partnership results from the relevant examination, the additional tax that should have been reported and paid with the administrative adjustment request submitted during 2020 will incur interest from March 15, 2019, unextended due date of the 2018 return, to the date the amount is paid.
In addition, the issues presented in the administrative adjustment request may be relevant to determining the correct treatment of items reported by the partnership on returns for other periods. For example, the year in which the request is filed may be subject to examination for issues related to the items that were the subject of the administrative adjustment request. In that case, information from taxable year 2018 is relevant, regardless of whether an examination of 2018 is opened. However, no imputed underpayment for 2018 may be determined without initiating an administrative proceeding with respect to that year.
© Terence Floyd Cuff and Jerald David August, 2016
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