Page 77 - 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
will still need to be resolved at the partner level.6 There are tax items realized or incurred by a partnership that clearly will be resolved at the partnership level.
a. State Audit Rules.
Some states automatically adopt changes in the Internal Revenue Code. The changes in the partnership audit rules should be adopted automatically in these states. Other states will need special legislation to adopt the new partnership audit rules. Some states may not adopt the new audit rules at all.
b. Cautionary Statement.
Readers are cautioned that this article is written prior to the publication of proposed or final Treasury Regulations or other authority published by the Internal Revenue Service. The regulations may make significant changes in the rules. Also,, it is possible that Congress will make technical corrections to the partnership audit scheme. Final authority may differ substantially from what the authors are able to predict.
c. TEFRA Rules.
“TEFRA” rules provide unified audit procedures that provide for the Internal Revenue Service to audit the partnership rather than the partners on partnership items. The tax audit determines the treatment of all partnership items at the partnership level. The Internal Revenue Service then can proceed to assess tax deficiencies directly against the partners based on partnership adjustments. These partners are the partners who were partners during the reviewed year under audit, rather than the year in which the adjustment is made. The Internal Revenue Service must collect any deficiencies from the partners, not from the partnership. TEFRA also provides extensive procedures requiring that the tax patters partner pass along notices to the partners.7
6 I.R.C. § 6221(a). See, e.g., Donald B. Susswein, Ryan P. McCormick, “Getting the Partnership Audit Rules Up and Running, Doc 2016-6497, 2016 TNT 81-9 (Apr. 27, 2016) Monte A. Jackal, “Partnership Audit Rules: Taxing at the Partner Level,” Doc. 2016-8694, 2016 TNT 84-12 (May 2, 2016); Donald B. Susswein, “Should the Partnership Audit Rules Be Broader in Scope,” Doc. 2016-9710 (May 16, 2016). Cf. Tax Policy Advisory Committee of the Real Estate Roundtable, “Improving the Partnership Audit Process” (Sept. 2015); Susswein and McCormick, “Fixing the Partnership Audit Process,” 2015 TNT 193-19 (Oct. 5, 2015): Viewpoint; Susswein and McCormick, “Understanding the New Partnership Audit Rules,” 2015 TNT 231-9 (Nov. 30, 2015); 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).
7 On current TEFRA audit rules, see Internal Revenue Manual, chapter 4.35, Section 2 (Partnership and S Corporations); Internal Revenue Service, Partnership – Audit Techniques Guide. See, also, Form 13813, Partnership Procedures Check Sheet; Form 13827, Tax Matters Partner (TMP) Designation Check Sheet; Form 13828, Tax Matters Partner (TMP) Qualification
© Terence Floyd Cuff and Jerald David August, 2016
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