Page 120 - 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
Partnerships may decide that the inconvenience of separate partner audits of partnership activities potentially is a sufficient problem that the partnerships will not want elect out of the partnership audit rules. Moreover, there may be a particular aspect of the new rules as applied to a specific partnership, such as the “netting rule” in computing the imputed underpayment, where the partnership may not want to elect-out. Moreover, there could be economic or legal reasons why the partnership may want to stay subject to the partnership level payment rules. In such instances it is always available for the partnership to elect to “push out” the adjustment in accordance with Section 6226(b). The Internal Revenue Service may end up wishing that partnerships will not elect out of the partnership audit rules. Another factor in whether to elect-out of the partnership audit rules for a particular year or “push out” the liability for payment of the imputed underpayment is the “one way upward adjustment” phenomenon. More specifically, it is critical to note that for any adjustment which reallocates the distributive share of one or more items from one partner to another, such as an allocation required under Section 704(c), such adjustment will be taken into account in computing the imputed underpayment by disregarding any corresponding decrease in any item of income or gain, and any corresponding increase in any item of deduction, loss or credit.54
It is difficult to know how much the draftsman of the partnership can say concerning individual partner audits where the election out is made for one or more years that are expanded to also include a general audit of the partnership. The same type of separate regimes for different reviewed year audits may occur as a result of push-out election years which straddle an
whom a return is filed, his mailing address, his taxpayer identifying number (as described in section 6109), or a combination thereof. . . . . (8) Disclosure. The term ‘disclosure’ means the making known to any person in any manner whatever a return or return information. . . . . (c) Disclosure of returns and return information to designee of taxpayer. The Secretary may, subject to such requirements and conditions as he may prescribe by regulations, disclose the return of any taxpayer, or return information with respect to such taxpayer, to such person or persons as the taxpayer may designate in a request for or consent to such disclosure, or to any other person at the taxpayer’s request to the extent necessary to comply with a request for information or assistance made by the taxpayer to such other person. However, return information shall not be disclosed to such person or persons if the Secretary determines that such disclosure would seriously impair Federal tax administration. . . . . (e) Disclosure to persons having material interest. (1) In general. The return of a person shall, upon written request, be open to inspection by or disclosure to— . . . . (C) in the case of the return of a partnership, any person who was a member of such partnership during any part of the period covered by the return; . . . .”).
54 I.R.C. § 6225(b)(2).
© Terence Floyd Cuff and Jerald David August, 2016
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