Page 86 - 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
longer relevant. The imposition of any penalty, additional to tax or additional amount that relates to an adjustment of any item of income, gain, loss, deduction or credit of a partnership is made at the partnership level. Resulting changes in any partner’s distributive share of partnership level items are also to be determined at the partnership level. These rules are contained in subchapter C of chapter 63 of the Code.
Precisely what items will be determined at the partnership level should be an important subject of future regulations. Section 6221(a) does not adopt the more general approach of TEFRA and its concept of “affected item” that could result in partner level adjustments. The scope of adjustments determined at the partnership level under the new audit regime may be extremely limited. Whether the scope of the new audit rules will be more comprehensive and more parallel to the concept of affected item must wait for definitive regulations.
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) recommends an expansive interpretation of the scope of the new rules:
Looking at the text of the BBA [Bipartisan Budget Act of 2015] and comparing it to the existing “partnership item” regulations, it is possible to interpret the scope of the BBA audit regime as very limited. We do not believe that such a reading was intended. We believe that the lawmakers were likely reacting to the controversies over the term “partnership item” and “affected item” and believed that eliminating those concepts and using the broad wording in section 6221 would reduce the challenges, not reduce IRS’s jurisdiction. We believe that in order for the BBA regime to achieve its goals, the IRS needs to be able to adjust in a BBA audit all the items that are more properly audited and determined at the partnership level than the partner level, and that this likely includes all the items defined as “partnership items” in the existing regulations
corporation ending with or within the partnership taxable year for which the application of this subsection is elected, and
(ii) the statements such S corporation is required to so furnish shall be treated as statements furnished by the partnership for purposes of
paragraph (1)(B).
(B) FOREIGN PARTNERS. – For purposes of paragraph (1)(D)(ii), the Secretary may provide for alternative identification of any foreign partners.
(C) OTHER PARTNERS. – The Secretary may by regulation or other guidance prescribe rules similar to the rules of subparagraph (A) with respect to
any partners not described in such subparagraph or paragraph (1)(C).
© Terence Floyd Cuff and Jerald David August, 2016
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