Page 21 - Partnership Audit Rules - Drafting Partnership Agreements: The New Partnership Representative And The Outgoing Tax Matters Partner

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limited liability company, in which case the partnership or operating agreement should set forth the con- ditions and limitations that the part- nership wants the partnership repre- sentative to be subject to. Such conditions also can be set out in the written services agreement.
Non-partner representative. Where the partnership representative is not a partner, the partnership rep- resentative and the partnership should enter into a written services agreement that sets forth the term, compensation, bonus, duties, rights, etc. of the partnership representative entity or individual.
Notification of Partners Provi- sions. The partnership agreement should contain direct and unequivo- cal instructions placed on the part- nership representative to provide each partner with every communica- tion issued by the IRS with respect to any partnership return, filing, au- dit, appeal, litigation, appeal from litigation, brief filed, notices of dis- covery, etc.57 Presumably, there will be draftpersons who will differ on the amount of detail that should be set out in a notification provi- sion. In partnerships that are com- prised of non-related parties, erring on the side of greater disclosure may prove to be quite prudent. Even in family partnerships, younger generational members may want to be kept informed about tax matters that could easily affect their tax re- turns for reviewed years, as well as for adjustment years. Of course, no- tification would extend to decisions related to whether the partnership will make a push-out election with respect to one or more multiple im- puted underpayments.
57 As to notices, under the BBA the partner- ship representative and the partnership are entitled to receive notice of any administra- tive proceeding initiated at the partnership level with respect to an adjustment of any
202D*points, Next 240D, Vjust JCE1:1
Restrictions on Partnership Repre- sentative’s Powers. The partnership agreement may place restrictions on the powers of partnership represen- tative, at least from a contractual (and accountability) standpoint, in- cluding:
1.Engagement of attorneys and accountants without the prior ap- proval of the management of the partnership or the vote of the part- nership based on ownership percent- ages or the majority of partners.
2.Engagement of experts or other personnel without prior approval as set forth in the partnership agree- ment.
3.The partnership representative must provide the partnership and all partners with copies of all notices from the IRS within a specified number of days of receipt.
4.The partnership representative must receive the prior approval of the partnership management or a majority in interest of the partner- ship prior to filing all protests, court filings, settlements, etc., and other written communications with the IRS.
5.The partnership representative must receive prior approval before proposing or otherwise entering into any and all material agreements with the IRS or the United States (including waivers of statutes of limitation and settlement agree- ments).
6.The partnership representative is required to inform the partnership management in advance of all meet- ings with the IRS.
7.Partnership management must approve all material items or trans- actions involving a partnership audit and potential settlement and partner- ship management must be present
item of income, gain, loss, deduction, or credit of a partnership for a partnership tax year, or any partner’ s distributive share thereof; notice of any proposed partnership adjustment resulting from the proceeding; and
and give prior notice of meetings with counsel and accountants repre- senting the partnership and/or the partnership representative.
8.The partnership representative must consult regularly with the part- nership management concerning its audit and litigation strategy.
9.The partnership representative must regularly update the partner- ship on the progress of an audit and any court proceeding.
10.The partnership representative must submit periodic written reports with partnership management con- cerning the status of a partnership audit.
11.The partnership representative must obtain prior approval by the partnership management or possibly the vote of a majority in interest of the partners of any agreement with the IRS to extend statutes of limita- tion.
12.The partnership representative must obtain approval by the partner- ship management of any settlement with the IRS.
13.The partnership representative must receive prior approval from the partnership management in ad- vance of incurring any expense in excess of a specific dollar amount in connection with an audit, appeal, and litigation through all appeals.
14.The partnership representative must state that he does not have a conflict of interest that would vio- late his fiduciary duties as the part- nership representative.58
15.The partnership representative should be subject to a definitive confidentiality requirement.
16.The partnership representative may be required to use best efforts or, alternatively, something less than
notice of any final partnership adjustment re-
sulting from the proceeding.
58 The partnership representative’ s fiduciary
duty is discussed below.
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