Page 88 - 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
The adjustment year means (1) in the case of an adjustment pursuant to the decision of a court (under the centralized system’s judicial review provisions), the partnership taxable year in which the decision becomes final; (2) in the case of an administrative adjustment request, the partnership taxable year in which the administrative adjustment request is made; or (3) in any other case, the partnership taxable year in which the notice of final partnership adjustment is mailed.[citation omitted] For example, in the case of adjustments with respect to partnership taxable year 2018 resulting in an imputed underpayment assessed in 2020 that the partnership then litigates in Tax Court, the decision of which is not appealed and becomes final in 2021, the adjustment year is 2021.
c. Payment of Imputed Underpayment by the Partnership.
The basic rule of the new partnership audit rules is that partnerships are audited at the partnership level, tax is assessed (and collected) against the partnership, and the imputed underpayment is paid by the partnership. Interest also is determined at the partnership level at the underpayment rate. The partnership level obligation to pay the imputed underpayment is determined in the year of adjustment as of the time the audit and any resulting litigation with respect to the amount of the imputed underpayment and any additions to tax in the forms of penalties and interest) becomes final. The imputed underpayment assessed against the partnership may only vaguely approximate – or may be radically different from – what the liability would be under the TEFRA audit regime. The new partnership audit rules may result in a substantially increased or a substantially diminished tax liability. Partnerships may be able to manipulate the rules by choosing election out of payment at the partnership level by electing out of the new audit regime or electing push out of adjustments to the partners, depending on which results in the lowest tax liability. The wisdom on collecting tax at the partnership level may be debated for many years.
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) believes that the collection regime at the partnership level should be interpreted to create a withholding tax regime. They write:
We believe that section 6225 can be implemented in a way that achieves these goals by treating section 6225 as a withholding tax mechanism, similar to the regime that currently exists under section
© Terence Floyd Cuff and Jerald David August, 2016
19