Page 84 - 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 partnership audits. Nevertheless the perceived primary benefit of the enactment of the new rules is to make it easier for the Internal Revenue Service to collect deficiencies from partnership adjustments by facilitating assessment and collection at the partnership level. It is not yet clear how many partnerships will elect to push out partnership level adjustments to the partners with respect to one or more reviewed year audits with the concomitant obligation to pay the taxes and additions to tax due. 24
Whether the Internal Revenue Service will be any more effective auditing partnerships under the new rules is a matter of speculation.
Whether partnership audit revenues will increase is also a matter of speculation although the Joint Committee on Taxation’s scoring of the new legislation resulted in labeling the provisions as a revenue raiser. It is unclear or uncertain whether this scoring will prove to be correct since the ability to audit many partnerships with 100 or less K-1s will be done on a partner-by- partner basis.
e. Need to Take New Rules into Account in Drafting Partnership Agreements.
While the new partnership audit rules do not apply until after 2017, draftsmen of partnership agreements should take the new audit rules into account in drafting current partnership and LLC agreements.25
2. Basics Under New Regime.
a. Adjustments under the New Regime.
Under the new partnership audit regime, any adjustment (subject to
election out
    
rules) to items of – income,
gain,
loss,
deduction, or credit
24 I.R.C. § 6226(b). 25 See n. 2, supra.
© Terence Floyd Cuff and Jerald David August, 2016
15