Page 75 - 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
into law, the Protecting Americans From Tax Hikes (PATH) Act of 2015. This act sets forth certain corrections to the new audit rules.2
The new consolidated audit regime dramatically revises partnership tax audit rules. Existing TEFRA entity-level audit rules apply until partnership taxable years beginning after December 31, 2017.3 After that, partnership audit rules are dramatically revised.
The New York State Bar Association, Tax Section, Report No. 1347, “Report on the Partnership Audit Rules of the Bipartisan Budget Act of 2015” (May 25, 2016) advises: “We believe that the BBA [Bipartisan Budget Act of 2015] is an important procedural reform, intended to increase the effectiveness, efficiency and fairness of partnership audits and of the resulting collections. Consistent with the reasons for its enactment and goals, the new BBA regime should not materially affect the substantive tax liabilities resulting from items derived through partnerships.” The new audit rules have the
2 In a set of proposals made by the Obama Administration in 2014, the proposal to reform the partnership audit rules was included. See Treasury, “General Explanations of the Administration’s Fiscal Year 2015 Revenue Proposals” (Mar. 2014), at 218 (“The proposal would mandate the streamlined ELP audit and adjustment procedures, but not the simplified reporting, for any partnership that has 1,000 or more partners at any time during the taxable year, a ‘Required Large Partnership.’”). At the same time, House Ways and Means Chair, David Camp, issued a draft of a new partnership audit regime modeled on the along the lines of the electing large partnership rules. See Staff, Joint Committee on Taxation, “Technical Explanation of the Tax Reform Act of 2014, a Discussion Draft of the Chairman of the House Committee on Ways and Means to Reform the Internal Revenue Code: Title III – Business Tax Reform,” JCX-14-14 (Feb. 26, 2014), at 255. The General Explanation explained:
The proposal repeals the substantive tax provisions and voluntary centralized audit procedures for electing large partnerships, as well as the audit procedures for TEFRA partnerships. In place of the repealed audit procedure, a single system of centralized audit, adjustment and collection of tax is mandated for all partnerships, except those eligible partnerships that have filed a valid election for a taxable year. . . . Under the proposed system, the audit and adjustments of all items are determined at the partnership level. These items include income, deductions, credits, and any partner’s distributive share, as well as the taxes, interest or penalties attributable to such items. Unlike present law, distinctions among partnership items, non-partnership items and affected items are no longer made. An underpayment of tax determined as a result of an examination of a taxable year is imputed to the year during which the adjustment is finally determined . . . and assessed against and collected from the partnership with respect to that year rather than the reviewed year.
Last year, Ways and Means Committee member James B. Renacci (R-Ohio) introduced
the Partnership Audit Simplification Act of 2015 modeled on the Camp proposal from a year earlier. Partnership Audit Simplification Act of 2015, H.R. 2821, 114th Cong., § 2(c).
3 Bipartisan Budget Act of 2015 § 1101(g)(4) generally provides that a partnership may elect (in the time and manner prescribed by the Treasury or its delegate) for parts of the new rules to apply to partnership taxable years beginning after November 2, 2015 and before January 1, 2018.
© Terence Floyd Cuff and Jerald David August, 2016
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