Page 98 - 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 IRS generally is required to give notice of the beginning of partnership-level administrative proceedings and any resulting administrative adjustment to all partners whose names and addresses are furnished to the IRS. For partnerships with more than 100 partners, however, the IRS generally is not required to give notice to any partner whose profits interest is less than one percent.
Partners must report items consistently with the partnership
Partners are required to report partnership items consistently with the partnership’s reporting, unless the partner notifies the IRS of inconsistent treatment. If a partner fails to notify the IRS of inconsistent treatment, the IRS can assess that partner under its math error authority. That is, the IRS may make a computational adjustment and immediately assess any additional tax that results.177 [177 Secs. 6222 and 6230(b).] Additional tax attributable to an adjustment of a partnership item is assessed against each of the taxpayers who were partners in the year in which the understatement of tax liability arose.
Partners’ limited ability to challenge partnership treatment
Partners have rights to participate in administrative proceedings at the partnership level, and can request an administrative adjustment or a refund for the partner’s own separate tax liability. To the extent that a settlement is reached with respect to partnership items, all partners are entitled to consistent treatment.178 [178 Sec. 6224.]
Statute of limitations
Absent an agreement to extend the statute of limitations, the IRS generally cannot adjust a partnership item for a partnership taxable year if more than three years have elapsed since the later of the filing of the partnership return, or the last day for the filing of the partnership return (without extensions). The statute of limitations is extended in specified circumstances such as in the case of a false or fraudulent partnership return, the partnership return contains a substantial omission of income or gross overstatement of basis, or no return is filed.
Plus one-year period
If the administrative adjustment is timely made within the limitations period described above, the tax resulting from that adjustment, as well as the tax attributable to affected items, including related penalties or additions to tax, must be timely assessed. The period
© Terence Floyd Cuff and Jerald David August, 2016
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