Page 92 - 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
such time and in such form and manner as the Secretary of the Treasury may prescribe. A partnership may not elect out of the centralized system under section 6221(b) in combination with this election.
A partnership may choose to make this election, for example, to be eligible before 2018 to pay at the partnership level, to obviate the need to furnish amended Schedules K-1 to correct a partnership-level error, or to obviate the need for partners receiving amended Schedules K-1 to file amended Federal and State income tax returns. A partnership may not elect out of the centralized system under section 6221(b) in combination with this election. As mentioned, this election to “opt-in” to the new rules applies with respect to partnership tax years beginning after November 2, 2015 and ending with respect to partnership tax years commencing in 2017.
4. TEFRA Audit Rules.
The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) provides this summary of the old TEFRA rules:
TEFRA rules
Unified rules
TEFRA established unified rules. These rules require the tax treatment of all “partnership items” to be determined at the partnership, rather than the partner, level. Partnership items are those items that are more appropriately determined at the partnership level than at the partner level, as provided by regulations.174 [174 Sec. 6231(a)(3). Any item that is affected by a partnership item (for example, on the partner’s return) is an “affected item.” Affected items of a partner are subject to determination at the partner level. Sec. 6231(a)(5).] The IRS may challenge the reporting position of a partnership by conducting a single administrative proceeding to resolve issues with respect to all partners.
The rationale stated in 1982 for adding new rules for partnerships was that “[d]etermination of the tax liability of partners resulted in administrative problems under prior law due to the fragmented nature of such determinations.
Prior to enactment of the entity-level audit rules in TEFRA, audits involving partnership items were conducted by the Internal Revenue Service examination division at the partner level, in recognition of the fact that partnerships under Subchapter K were not subject to income tax. Thus, for
© Terence Floyd Cuff and Jerald David August, 2016
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