Page 259 - 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
The partnership agreement might provide a special clawback from partners whose interests in the partnership have been diminished from the reviewed year.
The partnership agreement should set up a mechanism for funding the assessment, particularly if the partnership may not have enough free cash to pay the assessment. The funding mechanism might be by way of a mandatory capital call.
There also may be a need to fund the assessment after the partnership has liquidated. The partnership agreement perhaps should contain a provision for funding the assessment after the partnership has liquidated.
The partnership agreement should have a mechanism to ensure funding of audit expenses. The partners may desire to charge audit expenses in a manner that approximates allocations in the reviewed year. Query: Does a former partner pay a share of audit expenses? There may be a need to fund audit expenses after the partnership has ceased to exist.
The partnership agreement perhaps should require former partners to keep the partnership informed of their addresses in order to facilitate notice of pushed out items.
Is Ignorance bliss? Perhaps.
Current draftsmen generally are aware of the new audit regime but not knowledgeable of its rules, details, complexities, uncertainties, etc. It might take a few days to learn all of that. What can be drafted now to get the deal out the door? However, we would not be surprised if many of us see this language – or its equivalent – at least until lawyers become familiar with the rules and the issues and problems, especially when it comes to integrating those issues and problems within the operating agreement.
Tax Audits For Taxable Years Ending After December 31, 2017. The Bi-Partisan Budget Act of 2015 contains, among other provisions, revisions to the federal partnership audit rules. The new federal partnership audit rules will be effective for tax years commencing after December 31, 2017. Before the new federal partnership audit rules become effective, the Managers, in their sole discretion, will amend this Agreement as they view, in their sole discretion, necessary or desirable to address the new federal partnership audit rules. The Managers will select the “partnership representative” (as defined in the new federal partnership audit rules). The Managers will have the right to authorize any elections or consents
© Terence Floyd Cuff and Jerald David August, 2016
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