Partnership LLCs Required to Adopt New Tax Audit Agreement

[Matthew McNeil]

I came upon this recently and wanted to share it because I'm not seeing it in other posts.  

The Bipartisan Budget Act of 2015 effective January 1, 2018 requires all LLC partnerships to adopt a Tax Audit Agreement.

Bullet points;

The BBA and the IRS regulations promulgated thereunder apply to all LLCs and partnerships taxed as partnerships beginning January 1, 2018. This article explains why all LLCs taxed as a partnership must adopt an agreement in their LLC Operating Agreements that contains appropriate BBA language.

The Act creates a new default audit regime that applies to all partnerships unless a partnership is eligible to elect out of the regime and makes the election. Under the new default audit regime, the IRS generally will conduct audits and make any resulting adjustments at the partnership level, and if the IRS finds a deficiency, it will impose tax on the partnership itself (rather than on the partners) at the highest individual or corporate tax rate in effect for the year under examination.

The Act replaces the “tax matters partner” with a partnership representative, who need not be a partner but must have a substantial presence in the United States, to assume sole authority to act for the partnership in an audit.

Partnerships composed of 100 or fewer partners and whose partners do not include any partnerships or trusts may elect out of the new regime. The partnership must timely make the election annually on its partnership return, and must notify all partners of the election. The rules require the partnership to report to the IRS the name and taxpayer identification number of each partner, including each shareholder of any S corporation that is a partner.

Sources; 

http://www.keytlaw.com/oa/partnership-tax-audit-ag...

https://www.lexology.com/library/detail.aspx?g=e6c...

https://mcdonaldhopkins.com/Insights/Blog/Tax-and-...