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The new partnership audit regime: where do we go from here?
Taxand USA discusses the effects of the re-released proposed regulations issued by the IRS.
The IRS recently re-released proposed regulations (REG-136118-15) implementing the centralised partnership audit regime enacted by the Bipartisan Budget Act of 2015, P.L. 114-74. These proposed regulations were initially released in January 2017, but were halted by the Trump Administration’s regulatory freeze. While the regulations appear at first glance to provide meaningful relief to taxpayers, a more careful analysis reveals many remaining pitfalls. The reissued regulations contain minor changes, as compared to the originally proposed regulations.
However, major questions still remain regarding how the proposed regulations will relate to tiered partnerships, partnership M&A and partnerships in the private equity setting. The Treasury sought commentary on the proposed regulations through 14 August and the public hearing is scheduled for 18 September. Given that the new audit regime goes into effect for partnership tax years beginning after 31 December 2017, this is a tight timeline for partnerships and their tax advisors to fully digest regulations that impose significant changes on the partnership audit regime.
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The IRC statute under Section 6221 through 6223 and related re-released proposed regulations, as written, provide for a substantial change to the partnership audit regime with many key questions left unanswered and a long list of items for partnerships and their advisors to consider. The IRS public hearing is scheduled for 18 September, and the new audit regime goes into effect for partnership tax years beginning after 31 December 2017. Given the complexity of the changes, there is not a one-size-fits-all recommendation on updating partnership agreements, and many nuances will need to be considered in short order.