Page 90 - 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
adopting an interpretation that is challenged (whether or not it is upheld). Accordingly, we encourage Congress and Treasury to consider a statutory clarification that confirms the Withholding Tax Approach.
If the Withholding Tax Approach is not adopted, then we recommend that the audit adjustments be reflected in the outside bases and capital accounts of the adjustment year partners as an imperfect but “second best” option.
This approach requires an expansive interpretation of the new rules. A withholding regime might require major technical corrections.
The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) explains:
Payment of imputed underpayment by the partnership
Any adjustment to items of income, gain, loss, deduction, or credit of a partnership for a partnership taxable year, and any partner’s distributive share thereof, are determined at the partnership level. In the event of any adjustment by the Secretary in the amount of any item of income, gain, loss, deduction, or credit of a partnership, or any partner’s distributive share, that results in an imputed underpayment, the partnership is required to pay the imputed underpayment in the adjustment year.200 [200 Sec. 6225(a)(1).]
Interest at partnership level
Interest due is determined at the partnership level and accrues at the rate applicable to underpayments.201 [201 Sec. 6621(a)(2)].
Additions to tax in the form of penalties. Rules relating to interest, penalties, and additions to tax are further described below.
3. Effectiveness of New Rules under the Bipartisan Budget Act of 2015.
The new audit regime applies to tax returns filed for partnership taxable years beginning after December 31, 2017. Some tax litigators who are close to retirement are pleased that they will not have to apply the new partnership audit provisions in litigation before they retire. TEFRA and the electing large partnership audit rules are repealed for partnership taxable years for which the new rules are effective.34 The old rules apply to audits for years before the effective date of the new changes. This means that tax litigators will deal with
34 I.R.C. §§ 771-777, 6240-6255.
© Terence Floyd Cuff and Jerald David August, 2016
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