Page 95 - 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
“unified administrative and judicial proceeding.”38 The entities subject to the TEFRA audit rules include: (1) any partnership, including a foreign partnership, as defined in Section 761(a) and which is required to file a partnership return under Section 6031; and (2) all other entities which file a partnership tax return and meet the definition of a partnership contained in Section 6231(a)(1)(A). It is important to identify whether the relationship between the parties to an economic undertaking is a “partnership.” If so, the TEFRA audit rules will generally apply.
In a TEFRA partnership unified audit, the Internal Revenue Service will make two sets of determinations. The first involves its view of the correct treatment of each partnership item in contrast with the manner and method by which a particular partnership item is reported by the partnership. The second determination involves identifying and characterizing each partner’s non- partnership items, including “converted items,” in contrast with the manner and method that the items were reported by each partner on his or her individual returns.
The basic characteristics of the TEFRA entity-level audit rules may be summarized as follows:
 Partners are required to report on their tax returns in a manner which is consistent with positions taken and reported on Form K- 1unless the partners provide notice of any inconsistent treatment;39
 Partnership items or issues are addressed at the partnership level in a unified partnership level proceeding for audit, appeal, and administrative purposes, as well as in instituting judicial proceedings;40
38 See H. Rep’t No. 760, 97th Cong., 2d Sess. 600 (1982). See also Transpac Drilling Venture 1983-63, 16 F.3d 383 (Fed. Cir. 1994). Final regulations under TEFRA were issued in 2001. TEFRA also enacted Section 6700 which imposes a penalty on organizers and sellers of abusive tax shelters where certain criteria are met.
39 I.R.C. § 6222(a). The Internal Revenue Service may also impose a negligence penalty on an underpayment attributable to inconsistent reporting. I.R.C. § 6222(d). See also Treas. Reg. § 301.6222(a)-2(b) (application of consistency rule to “indirect” partners).
40 When a notice of deficiency is issued in a regular tax case, the assessment and collection of tax is forestalled or precluded until the taxpayer either decides not to timely file a petition in the Tax Court, or enters into a consent or waiver to accept an assessment, or until 60 days after the determination resulting in a deficiency has occurred. While, in general, the same protections against assessment are afforded under the TEFRA partnership audit rules with respect to the issuance of a FPAA, an important exception allows for the immediate
© Terence Floyd Cuff and Jerald David August, 2016
26