The procedures by which the Internal Revenue Service (IRS) will audit partnership returns have been thoroughly overhauled, and these changes have important substantive consequences to partners. In order for partners to protect their interests, it is critical to understand the new procedures, consider electing out if eligible, and revise governance documents in order to provide processes that would apply in the event of an audit.

In general, the IRS will assess and collect tax at the partnership level effective for tax years beginning after Dec. 31, 2017. The new procedures apply to partnerships and other entities taxed as partnerships, such as multi-member limited liability companies. A few key aspects are discussed below.

  • Partnership Representative Has Sole Authority. The “tax matters partner” has become the partnership representative (PR). The PR may be an individual or an entity, but if it is an entity, a designated individual must be appointed. The PR must be designated annually on the partnership tax return, and the IRS may designate a PR if the IRS determines that a designation of PR is not in effect.

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