Page 81 - 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
limitation in Section 163(d). The rationale for including “affected items” under the TEFRA rules is for statute of limitation purposes, such as in computing a partner’s adjusted gross income based on adjustments to gross income reflected in a settlement agreement. This effectively permits the statute of limitations of the partner’s return to remain open until the time that the TERFRA unified audit proceeding is finalized.16 However, the consequence attributable to one or more “affected items” is not part of a TEFRA proceeding.17
A nonpartnership item is an item that is not a partnership item or is treated as other than a partnership item.18 Nonpartnership items are resolved outside of the partnership audit.
The Internal Revenue Service recently convinced Congress that the Internal Revenue Service was at a severe disadvantage in auditing large partnerships even under the TEFRA regime. The new audit scheme is based on that premise. The new scheme also is intended to be a substantial source of increased revenues.
d. Will New Partnership Audit Rules Increase Revenues?
Many advisors have questioned how the new audit rules will bring a dramatic increase of revenues, since the new audit rules more reform method of collection than partnership audit techniques. The Internal Revenue Service notoriously audits a very small proportion of large partnerships (about 0.8% annually). The Internal Revenue Service presumably will have to increase its audit activity for partnerships if the new audit rules are to realize their promised potential of dramatically raising revenues.19 The new rules “streamline” the unified partnership audit rules by replacing the TEFRA provisions with “consolidated” audit, assessment and collection rules, including rules for administrative and judicial review.
16 I.R.C. §6229(a) that the general statute of limitations for TEFRA entity-level audits with respect to any partnership item (or affected item) is three years after the later of the date on which the partnership return for such year was filed, or the last day for filing such return for such year (determined without regard to extensions).
17 Roberts v. Commissioner, 94 T.C. 853 (1990).
18 I.R.C. § 6231(a)(4).
19 Government Accounting Office, “Large Partnerships: With Growing Number of
Partnerships, IRS Needs to Improve Audit Efficiency,” GAO-14-732 (9/18/2014). The Government Accounting Office found that in the 2012 fiscal year, the Internal Revenue Service audited just 4% of large partnerships while it audited 27.1% of similarly sized corporations (non-S corporations).
© Terence Floyd Cuff and Jerald David August, 2016
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