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his article reviews and analyzes replaced the unified audit rules as IRS sent the LLC a notice of proposed
Trecent law changes as well well as the electing large partnership adjustment proposing to disallow a
regime of TEFRA. In 2018, Congress charitable deduction for a conserva-
as rulings and decisions involving
enacted the Tax Technical Corrections tion easement.
partnerships. The discussion covers
Act (TTCA),3 which made a number The LLC disagreed with the disal-
developments in the determination of technical corrections to the rules lowance and asked for a review from the
of partners and partnerships, gain on under the centralized partnership audit IRS’s Independent Office of Appeals be-
disposal of partnership interests, part- regime. The amendments under the fore the IRS issued its Final Partnership
nership audits, and basis adjustments. TTCA are effective as if included in Administrative Adjustment (FPAA).
Section 1101 of the BBA and, there- The LLC attached a signed Form 872-P
During the period of this update fore, are subject to the effective dates in and asked the IRS to execute the form
(Nov. 1, 2021, through Oct. 31, 2022), Section 1101(g) of the BBA. and extend the statutory period so that
the IRS issued guidance for taxpayers the LLC could obtain a review by the
regarding changes made to Subchapter Court decisions under TEFRA Independent Office of Appeals before
K over the past few years. Also, the Ser- Even with the adoption of the BBA issuance of the FPAA. The IRS refused
vice issued guidance related to foreign audit rules, cases are still being liti- to extend the statutory period and did
partners. In addition, the courts and the gated involving TEFRA issues. Most not allow an Independent Office of Ap-
IRS issued various rulings that addressed of these TEFRA cases involve either peals review before it filed the FPAA.
partnership operations and allocations. of two issues: the statute of limitation The LLC sued the IRS, seeking relief to
or whether income or a deduction is stop the IRS’s process.
Audit issues a partnership item. During the up- Before the suit was heard, the IRS
In 1982, the Tax Equity and Fiscal date period, several cases dealt with a issued the FPAA. The LLC amended
Responsibility Act (TEFRA)1 en- statute-of-limitation issue, two dealt its complaint, seeking to have everything
acted “unified audit rules” to simplify with a partnership item issue, and one undone so it could go back and have the
IRS audits of large partnerships by dealt with penalties assessed during the review. The court dismissed the case,
determining partnership tax items TEFRA audit. holding that it did not have subject mat-
at the partnership level. Any adjust- ter jurisdiction because the FPAA had
ments would then flow through to the Statute-of-limitation issues already been issued. The court explained
partners, against whom the IRS would During the audit of Rocky Branch that it could not order the IRS to re-
assess deficiencies. Two issues that arose Timberlands LLC’s4 partnership return scind an FPAA because it would violate
frequently under TEFRA concerned for 2017, the IRS determined that it the Anti-Injunction Act. It is interesting
partnership-level items of income and would need an extension of time to to note that if the LLC had agreed to
the statute of limitation for the partners complete the audit beyond the three- the original request for an extension, it
and the partnership. year statute of limitation. As such, would have been able to have the case
In an effort to streamline the audit the IRS asked the LLC to extend the reviewed by the Independent Office
process for large partnerships, Congress statutory period for an additional 15 of Appeals.
enacted Section 1101 of the Bipartisan months and sent the LLC a Form Another case, Baxter, dealt with
Budget Act of 2015 (BBA),2 which 872-P, Consent to Extend the Time to an American Agri-Corp (AMCOR)
amended in its entirety Sec. 6221 et Assess Tax Attributable to Items of a partnership structure consisting of three
seq. The revised sections instituted new Partnership, to consent to the extension. partnerships that the IRS determined
procedures for auditing partnerships, The LLC signed the consent but did was an impermissible tax shelter.5 The
affecting issues including determining not return it to the IRS. Later, the LLC IRS issued FPAAs for all three partner-
and assessing deficiencies, who pays told the IRS that it had decided not to ships to the tax matters partner. The IRS
the assessed deficiency, and how much extend the statutory period. Before the had determined that the partnerships
tax must be paid. The BBA procedures original statute of limitation lapsed, the engaged in a series of sham transactions

1. Tax Equity and Fiscal Responsibility Act of 1982, P.L. 97-248. 5. Baxter, No. H-09-1271 (S.D. Tex. 3/17/21), rev’d, No. 21-20258 (5th Cir.
2. Bipartisan Budget Act of 2015, P.L. 114-74. 8/31/22). AMCOR offered loss-generating structures for investors that the
3. Tax Technical Corrections Act, Title II, Division U, of the Consolidated Ap- IRS began investigating in the 1980s, giving rise to extensive litigation. See,
propriations Act of 2018, P.L. 115-141. e.g., Keener, 76 Fed. Cl. 455 (2007), and Foster, No. A-06-CA-818-SS
4. Rocky Branch Timberlands, LLC, No. 1:21-cv-2605-MLB (N.D. Ga. (W.D. Tex. 6/19/18), aff’d, 801 Fed. Appx. 210 (5th Cir. 2020).
6/21/22).

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