Page 83 - 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
many small partnerships that were unable to elect out of TEFRA audit rules. This may lead to more audits being made at the individual partner level than under TEFRA. The result of the new audit rules conceivably might be a revenue loss rather than a revenue gain, as many of those partnerships that are permitted to elect out may do so.
Whether partnership audits will increase under the new rules is a matter of speculation. The Internal Revenue Service suffers from declining funding, declining manpower, loss of many experienced personnel (particularly at senior levels), and substantially increased workload as its audit mission is increased by foreign tax and bank account compliance issues and tax issues under the Affordable Care Act. To date, the Internal Revenue Service has not announced large increases in partnership audit staffing to handle a large influx of partnership audits. The Internal Revenue Service generally has been suffering from personnel cuts rather than expansion of Internal Revenue Service audit personnel. Technical staff in the pass-through area at the national office of the Internal Revenue Service have been reduced severely. The Internal Revenue Service has not announced substantially increased training in the partnership area. The training budget has been seriously reduced. Few Internal Revenue Service agents are properly trained in substantive partnership taxation to conduct complex partnership audits. The Internal Revenue Service currently is suffering from badly depleted training resources. The Internal Revenue Service appears to be particularly deficient in its training in important areas such as Section 704(b) and (c) and Section 706. Some advisors are concerned about the level of Internal Revenue Service training of its audit staff and district counsel in the substantive rules of partnership taxation. Some advisors question the level of computer software support to Internal Revenue Service agents in dealing with such problems as complex Section 704(c) and complex Section 751(b) calculations. For example, the Internal Revenue Service may not have proper software resources properly to manage complex tiered Section 704(c) allocations for securities funds.
Little in the new partnership audit rules will increase the ability of the Internal Revenue Service to audit partnerships. The new partnership audit rules may make many partnership audits considerably more difficult. Many partnerships may elect out of the consolidated audit rules. The new audit rules ironically may put the Internal Revenue Service at a greater disadvantage in
identified trusts as partners). Alternatively, a partnership may elect to “opt-in” or otherwise structure its ownership to meet the definition of a partnership subject to TEFRA under I.R.C. § 6231(a).
© Terence Floyd Cuff and Jerald David August, 2016
14