Page 125 - The TEFRA Partnership Audit Rules Repeal:
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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
to the Secretary the names and employer identification numbers of W and Z.
d. Possible Expansion of Qualifying Partners.
The General Explanation invites the Internal Revenue Service to identify other types of partners to whom rules similar to the special rules in the case of a partner that is an S corporation can apply. This guidance conceivably might apply to:
i.
Grantor trusts. Nongrantor trusts. Partnerships. REITs.
RICs.
Disregarded entities.
Partners in a partnership or tiers of partnerships may qualify as eligible partners to elect out of the consolidated audit rules.
A partnership does not automatically qualify as a partner under the election out rules. In fact, partnerships on their face are prohibited as partners for the election-out provision. The General Explanation, however, anticipates guidance that may provide rules permitting election out in the case of a partnership (the first partnership) with one or more direct or indirect partners which are themselves partnerships. These rules, if adopted, should help to convert many consolidated audits to individual audits of partners and should contribute to a reduction in the effectiveness of partnership audits.
The sum of all direct and indirect partners (including each partnership and its partners) may not exceed 100 persons with respect to which a Section 6031(b) statement must be furnished, and each partner must be identified.
The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) seems generous in expanding the class of partners who can elect out of the consolidated audit regime. The Internal Revenue Service, of course, could turn out to be less generous in creating exceptions to consolidated audits. An up-REIT partnership, for example, could be difficult – or practically impossible – to audit outside of a consolidated audit. As mentioned below, this notion of expanding the literal language of the statute seems to be at odds with the scope of the deference the courts will give to regulations. Where the
© Terence Floyd Cuff and Jerald David August, 2016
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