Page 126 - 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
language and intent of the statutory language is clear, a deviation from such clear statement of legislative intent in a regulation issued by the administrative agency will not receive judicial deference.
The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) contains this example:
For example, assume that a partner of a partnership is a disregarded entity such as a State-law limited liability company (“LLC”) with only one member, a domestic corporation. Such guidance may provide that the partnership can make the election if the partnership includes (in the manner prescribed by the Secretary) a disclosure of the name and taxpayer identification number of each of the disregarded entity and the corporation that is its sole member, and each of them is taken into account as if each were a statement recipient in determining whether the 100-or-fewer-statements criterion is met.
Eligibility of the first partnership to make the election requires the first partnership to include (in the manner prescribed by the Secretary) a disclosure of the name and taxpayer identification number of each direct partner of the first partnership and each indirect partner (including each partnership and its partners) in every tier. Eligibility requires that each is taken into account in determining whether the 100-or-fewer-statements criterion is met.
The possibility of tiered partnerships electing out of the new audit regime could lead to substantial increases in the complexity of undertaking partnership audits. The partnership may have numerous foreign partners and multiple jurisdictions involved. The expansion of the election out by regulation is not a good idea, at least for tax administration purposes. Query: What were the authors of the General Explanation thinking about with suggesting going beyond the statute for “electing out”?
With what may end up considered as mere “lagniappe” on the part of the Treasury, perhaps reminiscent of the regulations issued under Section 338(h)(10) allowing S corporation targets to be subject to a Section 338(h)(10) election,61 the GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1- 16, March 2016) explains that guidance 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.
61 To the extent that the rules are consistent with prompt and efficient collection of tax attributable to the income of partnerships and partners.
© Terence Floyd Cuff and Jerald David August, 2016
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