Page 94 - 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
Moreover, where audits were concurrently conducted in different jurisdictions or IRS districts, there was always the chance that the audit results, settlements, and litigation outcomes would not be consistent. The potential for inconsistent outcomes increased substantially where the tax shelter promotion involved many individual investors, or was warehoused in large investment partnerships, making the audit under pre-TEFRA rules a challenging, uphill climb for the government. In fact, since many partners challenged the proposed assessments that were timely issued, tax shelter scheme deficiency litigation clogged the dockets of the Tax Court and posed numerous burdens and challenges for the Internal Revenue Service and its lawyers. The IRS Chief Counsel’s Office would invariably attempt to pick a “lead” case, e.g., the earliest filed case, and require other investors filing a petition with the Tax Court to agree to be bound by its outcome.
The GENERAL EXPLANATION OF TAX LEGISLATION ENACTED IN 2015 (JCS-1-16, March 2016) continues:
Large partnerships with partners in many audit jurisdictions resulted in the statute of limitations expiring with respect to some partners while other partners are required to pay additional taxes. Where there are tiered partnerships, identifying the taxpayer is difficult.” 175 [175 See Joint Committee on Taxation, General Explanation of the Revenue Provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (JCS-38-82), December 31, 1982, p. 268. Additional reasons for the 1982 change mentioned include the problems of duplication of administrative and judicial effort, inconsistent results, difficulty of reaching settlement, and inadequacy of prior-law filing and recordkeeping requirements for foreign partnerships with U.S. partners.]
The tax administration audit, litigation and collection problems faced by the Internal Revenue Service in conducting individual audits of partners became excessively burdensome as partnership syndications have developed and grown in recent years.
The TEFRA partnership audit rules were therefore designed to alleviate the costs associated with multiple audits involving a single partnership or tiered partnerships and to achieve uniformity of outcome for partnership level items through a single unified procedure. Contained in Sections 6221 through 6234, the unified audit rules provided a separate framework for conducting the audit, administrative appeal, and tax litigation of a TEFRA partnership, including claims for refund and refund suits. This set of rules was branded a
© Terence Floyd Cuff and Jerald David August, 2016
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